Strategic Realty Trust, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2015

OR

For the transition period from              to             

Commission file number 000-54376

STRATEGIC REALTY 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  x    No  ¨

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 November 6, 2015, there were 11,165,527 shares of the Registrant’s common stock issued and outstanding.

STRATEGIC REALTY TRUST, INC.

INDEX

PART I

FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015, have been prepared by Strategic Realty 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 as of and for the year ended December 31, 2014, as filed with the SEC on March 27, 2015 (the “2014 Annual Report on Form 10-K”). The financial statements herein should also be read in conjunction with the Notes to Condensed Consolidated 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 nine months ended September 30, 2015 are not necessarily indicative of the operating results expected for the full year. The information furnished in the Company’s accompanying unaudited condensed consolidated balance sheets and unaudited condensed consolidated 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. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.                

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

1. ORGANIZATION AND BUSINESS

Strategic Realty Trust, Inc. (the “Company”) was formed on September 18, 2008, as a Maryland corporation. Beginning with the taxable year ended December 31, 2009, the Company elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) . 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 $1,000,000,000 in shares of its common stock to the public in its primary offering at $10.00 per share and $100,000,000 in 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 its securities. The Company sold 10,688,940 shares of common stock in its primary offering for gross offering proceeds of $104,700,000, 391,182 shares of common stock under its DRIP for gross offering proceeds of $3,600,000, and granted 50,000 shares of restricted stock. Cumulatively through September 30, 2015, the Company had redeemed 238,324 shares sold in the Offering for $2,200,000.

Substantially all of the Company’s business is conducted through Strategic Realty Operating Partnership, L.P., a Delaware limited partnership (the “OP”). During the Offering, 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. The Company is the sole general partner of the OP. As of September 30, 2015 and December 31, 2014, the Company owned 96.2% of the limited partnership interest in the OP.

The Company is externally managed and advised by SRT Advisor, LLC, a Delaware limited liability company (the “Advisor”) pursuant to an advisory agreement with the Advisor (the “Advisory Agreement”).The 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 commercial properties.

The Company’s principal demand for funds has been for the acquisition of real estate assets, the payment of operating expenses, the payment of interest on outstanding indebtedness, the payment of distributions to stockholders and investments in unconsolidated joint ventures. Substantially all of the proceeds of the Offering have been used to fund investments in real properties and other real estate-related assets, for payment of operating expenses, for payment of interest, for payment of various fees and expenses, such as acquisition fees and management fees, and for payment of distributions to stockholders.

The Company has invested, directly and through joint ventures, in a portfolio of income-producing retail properties located throughout the United States with a focus on grocery anchored multi-tenant retail centers, including neighborhood, community and lifestyle shopping centers, multi-tenant shopping centers and free standing single-tenant retail properties. As of September 30, 2015, the Company’s portfolio was comprised of 12 properties, including four properties held for sale, with approximately 1,060,000 rentable square feet of retail space located in 9 states. As of September 30, 2015, the rentable space at the Company’s retail properties was 90% leased.

On March 11, 2015, the Company invested in a joint venture with Grocery Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree Real Estate Opportunities Fund VI, L.P. (“Oaktree”), and GLB SGO, LLC, a wholly-owned subsidiary of Glenborough Property Partners, LLC (“GPP”). On September 30, 2015, the Company invested in a joint venture with MN Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree, and GLB SGO MN, LLC, a wholly-owned subsidiary of GPP. GPP is an affiliate of the Advisor and the Company’s property manager.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements 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 Regulation S-X.

The unaudited condensed consolidated financial statements include the accounts of the Company, the OP, and their direct and indirect 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 and/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 September 30, 2015, the Company held ownership interests in two unconsolidated joint ventures (see Note 4. “Investment in Unconsolidated Joint Ventures” for additional information).

Non-Controlling Interests

The Company’s non-controlling interests are comprised primarily of the Common Units in the OP and, until its redemption on March 12, 2015, the membership interest in SRT Secured Holdings, LLC (“Secured Holdings”), one of the Company’s subsidiaries. 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 stockholders’ equity. Net income (loss) attributable to non-controlling interests is presented as a reduction from net income (loss) in calculating net income (loss) attributable to common stockholders on the condensed consolidated 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 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. All non-controlling interests at September 30, 2015 qualified as permanent equity.

Use of Estimates

The preparation of the Company’s condensed consolidated 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 condensed consolidated 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 condensed consolidated financial statements, and actual results could differ from the estimates or assumptions used by management. Additionally, other companies may utilize different estimates that may impact the comparability of the Company’s condensed consolidated 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 represent 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, net, on the condensed consolidated balance sheets, was $575,000 (not including receivables on properties held for sale) and $1,681,000 at September 30, 2015 and December 31, 2014, 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, insurance and CAM 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, Property, Plant, and Equipment (“ASC 360”). Gains 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.

Valuation of Accounts Receivables

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 nationally 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. Generally, the Company does not obtain security deposits 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 September 30, 2015, in other than the Company’s properties classified as held for sale, Schnuck Markets, Inc. was the Company’s largest tenant (by square feet) and accounted for approximately 70,000 square feet, or approximately 11% of the Company’s gross leasable area, and approximately $176,000, or 2%, of the Company’s annual minimum rent. Tenants that accounted for over 5% of the Company’s annual minimum rent were Randall’s Food & Drugs LP, Ralph’s Grocery and Gold’s Gym. There were no outstanding receivables for each of the tenants above as of September 30, 2015. Outstanding receivables for each of the tenants above as of December 31, 2014 were as follows:

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 when the acquired property meets the definition of a business. Assets acquired and liabilities assumed in a business combination are generally measured at their acquisition-date fair values, including tenant improvements and identifiable intangible assets or liabilities. Tenant improvements recognized 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-rate 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. 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 results of operations. 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 estimated fair value at time of acquisition with subsequent additions 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 pre-development and certain direct and indirect costs of development.

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 tenant’s remaining lease term which the Company has determined approximates the useful life of the improvement.

Expenditures for ordinary maintenance and repairs are expensed to operations as 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 (excluding interest) 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, property sale capitalization rates, and expected holding period of the property.

For the three and nine months ended September 30, 2014, the Company recorded impairment losses of $2,500,000 and $1,400,000 on its investments in Constitution Trail and Topaz Marketplace, respectively. The Company subsequently sold Constitution Trail on March 11, 2015. For information regarding the sale of Constitution Trail, refer to Note 3. “Real Estate Investments.” The Company did not record any impairment losses for the three and nine months ended September 30, 2015.

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. For property sales prior to May 1, 2014, 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 eliminated from ongoing operations as a result of the disposal transaction and (ii) the entity does not have any significant continuing involvement in the operations of the component after the disposal transaction. For property sales on or after May 1, 2014, a disposal of a component of an entity is required to be reported as discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. See Note 3. “Real Estate Investments” for a discussion of property sales and discontinued operations.

Fair Value Measurements

Under GAAP, the Company is required to measure or disclose 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) a present value technique that considers the future cash flows based on contractual obligations discounted by 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 (the “IRS”) 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 condensed consolidated 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) attributable 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 non-vested 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) attributable to common stockholders in the Company’s computation of EPS.

Reclassification

Assets sold or held for sale and related liabilities have been reclassified on the condensed consolidated balance sheets. For operating properties sold prior to May 1, 2014, the related operating results have been reclassified from continuing to discontinued operations on the condensed consolidated statements of operations. For operating properties sold on or after May 1, 2014, the related operating results remain in continuing operations on the condensed consolidated statements of operations unless the sold properties represent a strategic shift that have had (or will have) a major effect on the Company’s operations and financial results.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU No. 2014-09”). ASU No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which effectively defers the adoption of ASU 2014-09 to fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2016. Companies may apply either a full retrospective or a modified retrospective approach to adopt this guidance. The Company is currently evaluating the transition methods and the impact of the guidance on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (“ASU No. 2014-15”). ASU No. 2014-15 provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance requires that management evaluate for each annual and interim reporting period whether conditions exist that give rise to substantial doubt about the entity’s ability to continue as a going concern within one year from the financial statement issuance date, and if so, provide related disclosures. Disclosures are only required if conditions give rise to substantial doubt, whether or not the substantial doubt is alleviated by management’s plans. No disclosures are required specific to going concern uncertainties if an assessment of the conditions does not give rise to substantial doubt. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. The guidance is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively, with early adoption permitted for financial statements that have not been previously issued. The adoption of ASU No. 2015-03 would change the presentation of debt issuance costs as the Company presents debt issuance costs as deferred financing costs, net on the accompanying consolidated balance sheets. ASU 2015-03 does not address how debt issuance costs related to line-of-credit arrangements should be presented on the balance sheet or amortized. Given this absence of authoritative guidance within ASU 2015-03, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which clarifies that the SEC Staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, (Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Further, the acquirer is required to record, in the financial statements for the same period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Entities must also present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by the line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance should be applied prospectively and early adoption is permitted. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

3. REAL ESTATE INVESTMENTS

The Company did not have any property acquisitions for the three and nine months ended September 30, 2015 and 2014.

Sale of Properties

On March 11, 2015, the Company sold the following three properties for the aggregate gross sales price of $53.6 million:

The sale of the three properties did not represent a strategic shift that will have a major effect on the Company’s operations and financial results and, as a result, was not included in discontinued operations for the three and nine months ended September 30, 2015. The Company’s consolidated statements of operations include net operating income of $7,000 and net operating loss of $471,000 for the three months ended September 30, 2015 and 2014, respectively, net operating loss of $298,000 and $1,400,000 for the nine months ended September 30, 2015 and 2014, relating to the results of operations for the three sold properties.

The sale was completed in connection with the formation of the SGO Joint Venture, as defined and further described in Note 4. “Investment in Unconsolidated Joint Ventures.” The three properties were sold to the SGO Joint Venture, and the closing of the sale was conditioned on the Company receiving a 19% membership interest in the Joint Venture. In exchange for this 19% membership interest, the Company contributed $4.5 million to the SGO Joint Venture, which amount was credited against the Company’s proceeds from the sale of the three properties to the SGO Joint Venture. Of the net sales proceeds from the sale of the three properties, $36.4 million was used by the Company to retire the debt associated with the sold properties.

Discontinued Operations

The Company reports operating properties sold in periods prior to May 1, 2014, as discontinued operations. The results of discontinued operations are included as a separate component on the condensed consolidated statements of operations under the caption “Discontinued operations”.

On January 8, 2014, the Company completed the sale of Visalia Marketplace in Visalia, California for a gross sales price of $21.1 million. The Company originally acquired Visalia Marketplace in June 2012 for $19 million. In accordance with the terms of the loan documents with KeyBank, at the time of the sale, 80% of the net proceeds from the sale were released from escrow to pay down and reduce the prior line of credit balance with KeyBank. The results of operations related to Visalia Marketplace were classified as discontinued operations for the three and nine months ended September 30, 2014.

The Company did not have any discontinued operations for the three and nine months ended September 30, 2015. The components of income and expense relating to discontinued operations for the three and nine months ended September 30, 2014 are shown below.

Assets Held for Sale and Liabilities Related to Assets Held for Sale

At September 30, 2015, four retail properties were classified as assets held for sale in the condensed consolidated balance sheet. These properties are Bloomingdale Hills in Riverside, Florida, Moreno Marketplace in Moreno Valley, California, Northgate Plaza in Tucson, Arizona, and Summit Point in Fayetteville, Georgia. Since the sales of these properties do not represent a strategic shift that will have a major effect on the Company’s operations and financial results, their results of operations were not reported as discontinued operations on the Company’s financial statements. The Company intends to use part of the net proceeds from the sales to retire the outstanding debt associated with these properties. The Company anticipates that the sale of Bloomingdale Hills will occur within one year from September 30, 2015. See Note 14. “Subsequent Events” for the sale of Moreno Marketplace, Northgate Plaza and Summit Point in October 2015. The Company’s consolidated statements of operations include net operating income of $385,000 and net operating loss of $135,000 for the three months ended September 30, 2015 and 2014, respectively, and net operating income of $397,000 and net operating loss of $270,000 for the nine months ended September 30, 2015 and 2014, respectively.

On November 21, 2014, the Company entered into a sales contract with a buyer to purchase an undeveloped parcel at Osceola Village in Kissimmee, Florida. The gross sales price was $875,000. On March 11, 2015, the entire Osceola Village property was sold to the SGO Joint Venture. The land value associated with the parcel was classified as held for sale at December 31, 2014.

The major classes of assets and liabilities related to assets held for sale included in the condensed consolidated balance sheets at September 30, 2015 and December 31, 2014 were as follows:

Amounts above were presented at their carrying value which the Company believed to be lower than their estimated fair value less costs to sell.

4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

SGO MN Joint Venture

On September 30, 2015, the Company, through wholly-owned subsidiaries, entered into the Limited Liability Company Agreement of SGO MN Retail Acquisitions Venture, LLC (the “SGO MN Joint Venture Agreement”) to form a joint venture with MN Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree, and GLB SGO MN, LLC, a wholly-owned subsidiary of GPP.

The SGO MN Joint Venture Agreement provides for the ownership and operation of SGO MN Retail Acquisition Venture, LLC (the “SGO MN Joint Venture”), in which the Company owns a 10% interest, GPP owns a 10% interest, and Oaktree owns an 80% interest. In exchange for the 10% ownership, the Company contributed cash in the amount of $3,075,000 to the SGO MN Joint Venture. On September 30, 2015, the SGO MN Joint Venture acquired 14 retail properties located in Minnesota, North Dakota and Nebraska, with 2 additional acquisitions scheduled to occur on or before December 31, 2015.

SGO Joint Venture

On March 11, 2015, the Company, through a wholly-owned subsidiary, entered into the Limited Liability Company Agreement of SGO Retail Acquisitions Venture, LLC (the “SGO Joint Venture Agreement”) to form a joint venture with Grocery Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree and GLB SGO, LLC, a wholly-owned subsidiary of GPP.

The SGO Joint Venture Agreement provides for the ownership and operation of SGO Retail Acquisitions Venture, LLC (the “SGO Joint Venture”), in which the Company owns a 19% interest, GPP owns a 1% interest, and Oaktree owns an 80% interest. In exchange for ownership in the SGO Joint Venture, the Company contributed $4.5 million to the SGO Joint Venture, which amount was credited against the proceeds received from its sale of the Initial Properties (as defined below) to the SGO Joint Venture, GPP contributed $0.2 million in cash to the SGO Joint Venture, and Oaktree contributed $19.1 million in cash to the SGO Joint Venture. The Company advanced $7.0 million to Oaktree to finance a portion of Oaktree’s capital contribution to the SGO Joint Venture in exchange for a recourse demand note from Oaktree at a rate of 7% interest. As of September 30, 2015, $2,500,000 of the note remains outstanding. The Company has the right to call back the advanced funds upon 12 days written notice.

Sale of Initial Properties to the SGO Joint Venture

On March 11, 2015, as part of the formation of the SGO Joint Venture, the Company, through TNP SRT Osceola Village, LLC, its indirect wholly-owned subsidiary, SRT Constitution Trail, LLC, a wholly-owned subsidiary of Secured Holdings, and TNP SRT Aurora Commons, LLC, a wholly-owned subsidiary of Secured Holdings, entered into a Purchase and Sale Agreement effective March 11, 2015 to sell the multitenant retail property located in Kissimmee, Florida commonly known as the Osceola Village (“Osceola Village”), the retail shopping center development located in Normal, Illinois commonly known as Constitution Trail (“Constitution Trail”), and the multitenant retail center and office property located in Aurora, Ohio commonly known as the Aurora Commons (“Aurora Commons” and together with Osceola Village and Constitution Trail, the “Initial Properties”) to the SGO Joint Venture. At the time of the sale Secured Holdings was jointly owned by the OP and SRT Secured Holdings Manager, LLC (“SRT Manager”), an affiliate of Glenborough. Secured Holdings distributed the proceeds of the sale of the Initial Properties to its members. As a result, on March 12, 2015, Secured Holdings paid SRT Manager approximately $2.1 million in full redemption of its 8.33% membership interest in Secured Holdings.

The closing of the sale was conditioned on the SGO Joint Venture issuing the Company a 19% membership interest and GPP a 1% membership interest in the SGO Joint Venture. The cash sale price for the Initial Properties was $22.0 million for Osceola Village, $23.1 million for Constitution Trail, and $8.5 million for Aurora Commons. Gross proceeds from the sale totaled $53.6 million of which $36.4 million was used to retire the notes payable balances associated with the Initial Properties, and $4.5 million was credited against the Company’s proceeds from the sale of the Initial Properties to the SGO Joint Venture and served as the Company’s capital contribution to the SGO Joint Venture.  As discussed above, another $7.0 million was loaned to Oaktree on a short-term demand note basis to enhance the Company’s short-term returns related to the proceeds of the SGO Joint Venture. As of September 30, 2015, $2.5 million of the principal amount of the note remains outstanding, and $265,000 in related interest has been accrued. The note receivable asset and the remaining net proceeds, after the payment of closing costs and expenses, of $3.8 million are available to the Company as working capital and/or the possible acquisition of additional real estate assets.   

Due to the related party membership interests in the SGO Joint Venture, the sale of the Initial Properties is considered a partial sale in accordance with ASC Subtopic 360-20, Property, Plant, and Equipment – Real Estate Sales. The related party interests consist of the Company’s 19% and GPP’s 1% membership interests in the SGO Joint Venture. As a result, the Company deferred $1.2 million, representing 20%, of the total realized gain from the sale of the Initial Properties to the SGO Joint Venture.

Accounting for Investment in Unconsolidated Joint Ventures

The Company evaluated its investments in the SGO MN Joint Venture and the SGO Joint Venture and deemed that requirements for consolidation were not met. As such, the Company accounts for its investments in the joint ventures under the equity method of accounting. Under the equity method of accounting, the Company records its initial investment in a joint venture at cost and subsequently adjusts cost for the Company’s share of the joint venture’s income or loss and cash contributions and distributions each period.

The following table summarizes the Company’s investment in unconsolidated joint ventures as of September 30, 2015 and December 31, 2014:

5. 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 September 30, 2015, the leases at the Company’s properties included in investments in real estate have remaining terms (excluding options to extend) of up to 21 years with a weighted-average remaining term (excluding options to extend) of five 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 $183,000 (not including security deposits on properties held for sale) as of September 30, 2015 and $437,000 as of December 31, 2014.

As of September 30, 2015, the future minimum rental income from the Company’s tenants under non-cancelable operating leases, excluding properties held for sale, was as follows:

6. ACQUIRED LEASE INTANGIBLES AND BELOW-MARKET LEASE LIABILITIES

As of September 30, 2015 and December 31, 2014, the Company’s acquired lease intangibles and below-market lease liabilities were as follows:

Increases (decreases) in net income (loss) as a result of amortization of the Company’s lease intangibles and below-market lease liabilities for the three and nine months ended September 30, 2015 and 2014, were as follows:

7. NOTES PAYABLE

As of September 30, 2015 and December 31, 2014, the Company’s notes payable, excluding long-term debt associated with assets which are classified as held for sale, consisted of the following:

Amortization of deferred financing costs was $128,000 and $177,000 during the three months ended September 30, 2015 and 2014, respectively.

Amortization of deferred financing costs was $415,000 and $584,000 during the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015 and December 31, 2014, interest expense payable was $418,000 and $1,080,000, respectively.

The following is a schedule of future principal payments for all of the Company’s notes payable outstanding as of September 30, 2015:

KeyBank Amended and Restated Credit Facility Agreement

The Company used a portion of the net sale proceeds from the sale of Constitution Trail and Aurora Commons on March 11, 2015 (see Note 4. “Investment in Unconsolidated Joint Ventures”) to pay off the entire $19 million outstanding balance under the Amended and Restated Revolving Credit Agreement (the “Amended and Restated Credit Facility”) with KeyBank. The Company will maintain the Amended and Restated Credit Facility for future cash needs.

The Company entered into the Amended and Restated Credit Facility with KeyBank on August 4, 2014 to amend and restate the 2010 Credit Facility (defined below) in its entirety and to establish a revolving credit facility with an initial maximum aggregate commitment of $30 million (as adjusted, the “Facility Amount”). Subject to certain terms and conditions contained in the loan documents, the Company may request that the Facility Amount be increased to a maximum of $60 million. The Amended and Restated Credit Facility was initially secured by the San Jacinto Esplanade, Aurora Commons and Constitution Trail properties.

The Amended and Restated Credit Facility matures on August 4, 2017. The Company has the right to prepay the Amended and Restated Credit Facility in whole at any time or in part from time to time, subject to the payment of certain expenses, costs or liabilities potentially incurred by the lenders as a result of the prepayment and subject to certain other conditions contained in the loan documents.

Each loan made pursuant to the Amended and Restated Credit Facility will be either a LIBOR rate loan or a base rate loan, at the election of the Company, plus an applicable margin, as defined. Monthly payments are interest only with the entire principal balance and all outstanding interest due at maturity. The Company will pay KeyBank an unused commitment fee, quarterly in arrears, which will accrue at 0.30% per annum if the usage under the Amended and Restated Credit Facility is less than or equal to 50% of the Facility Amount, and 0.20% per annum if the usage under the Amended and Restated Credit Facility is greater than 50% of the Facility Amount.

The Company has provided a guaranty of all of its obligations under the Amended and Restated Credit Facility and all other loan documents in connection with the Amended and Restated Credit Facility. The Company also paid Glenborough a financing coordination fee of $300,000 in connection with the Amended and Restated Credit Facility.

On August 4, 2014, as required by the Amended and Restated Credit Facility, the OP contributed 100% of its sole membership interest in SRT Constitution Trail, LLC, which owned the Constitution Trail property, to Secured Holdings (the “Constitution Transaction”) for additional membership interests in Secured Holdings. At the time, Secured Holdings was jointly owned by the OP and SRT Manager. Prior to the Constitution Transaction, the OP owned 88% of the membership interests in Secured Holdings and SRT Manager owned 12% of the membership interests in Secured Holdings. Following the Constitution Transaction, the OP owned 91.67% of the membership interests in Secured Holdings, and SRT Manager owned 8.33% of the membership interests in Secured Holdings which was derived based on the fair value of the properties as of the date of the contribution. Subsequently, Secured Holdings paid SRT Manager approximately $2.1 million in full redemption of SRT Manager’s 8.33% membership interest in Secured Holdings.

In connection with the Constitution Transaction, the entire outstanding notes payable balance secured by the Constitution Trail property was paid in full, and the associated $295,000 remaining in unamortized deferred financing costs was written off. The outstanding principal balance of the Amended and Restated Credit Facility was $20.8 million, as of August 4, 2014.

The original line of credit was entered into on December 17, 2010, between the Company, through its subsidiary, Secured Holdings, and KeyBank (and certain other lenders) to establish a secured revolving credit facility with an initial maximum aggregate commitment of $35 million (the “2010 Credit Facility”). On August 4, 2014, the 2010 Credit Facility was replaced by the Amended and Restated Credit Facility, and there were no remaining unamortized deferred financing costs associated with the 2010 Credit Facility at that time.

8. FAIR VALUE DISCLOSURES

The Company believes the total carrying values reflected on its condensed consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, restricted cash, 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 related to continuing operations as of September 30, 2015 and December 31, 2014:

9. 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 December 31, 2013, Sharon D. Thompson, the spouse of Anthony W. Thompson, the Company’s former co-chief executive officer and former president, independently owned 111,111 shares of the Company’s common stock for which she paid an aggregate purchase price of $1 million and TNP LLC, which is controlled by Mr. Thompson, owned 22,222 shares of the Company’s common stock. On January 24, 2014, GPP purchased both the 22,222 and 111,111 shares of the Company from TNP LLC and Sharon D. Thompson, respectively, for $8.00 per share. The share purchase transaction was part of a larger settlement of issues relating to the 2013 annual meeting proxy contest, and was not considered an arm’s length transaction. Therefore, the share purchase price may not reflect a market price or value for such securities. 

On February 7, 2013, the Company terminated the Offering and ceased offering its securities. The Company sold 10,688,940 shares of common stock in its primary offering for gross offering proceeds of $104,700,000, 391,182 shares of common stock under its DRIP for gross offering proceeds of $3,600,000, and granted 50,000 shares of restricted stock. As of September 30, 2015, the Company had redeemed 238,324 shares sold in the Offering for $2,200,000.

Common Units

The Company’s prior advisor, TNP Strategic Retail Advisor, LLC, invested $1,000 in the OP in exchange for Common Units of the OP which were sold to GPP on January 24, 2014. 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 $2.6 million, 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 $1.4 million, or $9.50 per Common Unit.

The holders of common units, other than the Company and the holder of the special units, generally have the right to cause the OP to redeem all or a portion of their common units for, at the Company’s sole discretion, shares of the Company’s common stock, cash or a combination of both. If the Company elects to redeem common units for shares of common stock, the Company will generally deliver one share of common stock for each common unit redeemed. Holders of common units, other than the Company and the holders of the special units, may exercise their redemption rights at any time after one year following the date of issuance of their common units; provided, however, that a holder of common units may not deliver more than two redemption notices in a single calendar year and may not exercise a redemption right for less than 1,000 common units, unless such holder holds less than 1,000 common units, in which case, it must exercise its redemption right for all of its common units.

Member Interests

On July 9, 2013, SRT Manager made a cash investment of approximately $1.9 million in Secured Holdings pursuant to a Membership Interest Purchase Agreement by and among the Company, SRT Manager, Secured Holdings, and the OP, which resulted in SRT Manager owning a 12% membership interest in Secured Holdings and the OP owning the remaining 88% membership interest in Secured Holdings. The Company’s independent directors negotiated and 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. Following the Constitution Transaction on August 4, 2014 (see Note 7. “Notes Payable”), the OP owned a 91.67% membership interest in Secured Holdings and SRT Manager owned a 8.33% membership interest in Secured Holdings. In connection with the sale of Secured Holding’s two properties to the SGO Joint Venture (see Note 4. “Investment in Unconsolidated Joint Ventures”), Secured Holdings paid SRT Manager approximately $2.1 million in full redemption of the then current value of its remaining 8.33% membership interest in Secured Holdings.

Preferred Stock

The Charter authorizes the Company to issue 50,000,000 shares of $0.01 par value preferred stock. As of September 30, 2015 and December 31, 2014, no shares of preferred stock were issued and outstanding.

Share Redemption Program

On April 1, 2015, the board of directors of the Company approved the reinstatement of the share redemption program (which had been suspended since January 15, 2013) and adopted an Amended and Restated Share Redemption Program (the “Amended and Restated SRP”). Under the Amended and Restated SRP, only shares submitted for repurchase in connection with the death or “qualifying disability” (as defined in the Amended and Restated SRP) of a stockholder are eligible for repurchase by the Company. The number of shares to be redeemed is limited to the lesser of (i) a total of $2,000,000 for redemptions sought upon a stockholder’s death and a total of $1,000,000 for redemptions sought upon a stockholder’s qualifying disability, and (ii) 5% of the weighted average of the number of shares of the Company’s common stock outstanding during the prior calendar year. Share repurchases pursuant to the share redemption program are made at the sole discretion of the Company. 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 subject to the notice requirements in the Amended and Restated SRP.

The redemption price for shares that are redeemed is 100% of the Company’s most recent estimated net asset value per share as of the applicable redemption date. A redemption request must be made within one year after the stockholder’s death or disability, unless such death or disability occurred between January 15, 2013 and April 1, 2015, when the share redemption program was suspended. Any stockholder whose death or disability occurred during this time period must submit their redemption request within one year after the adoption of the Amended and Restated SRP.

The Amended and Restated SRP provides that any request to redeem less than $5,000 worth of shares will be treated as a request to redeem all of the stockholder’s shares. If the Company cannot honor all redemption requests received in a given quarter, all requests, including death and disability redemptions, will be honored on a pro rata basis. If the Company does not completely satisfy a redemption request in one quarter, it will treat the unsatisfied portion as a request for redemption in the next quarter when funds are available for redemption, unless the request is withdrawn. The Company may increase or decrease the amount of funding available for redemptions under the Amended and Restated SRP on ten business days’ notice to stockholders. Shares submitted for redemption during any quarter will be redeemed by the Company on the penultimate business day of such quarter. The record date for quarterly distributions has historically been and is expected to continue to be the last business day of each quarter; therefore, shares that are redeemed during any quarter are expected to be redeemed prior to the record date and thus would not be eligible to receive the distribution declared for such quarter.

The other material terms of the Amended and Restated SRP are consistent with the terms of the share redemption program that was in effect immediately prior to January 15, 2013.

During the three and nine months ended September 30, 2015, the Company redeemed 77,916 shares of common stock for $554,000 under the Amended and Restated SRP. The Company did not redeem any shares during the three and nine months ended September 30, 2014.

Quarterly 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.

Under the terms of the Amended and Restated Credit Facility, the Company may pay distributions to its investors so long as the total amount paid does not exceed 100% of the cumulative Adjusted Funds from Operations provided, however, that the Company is not restricted from making any distributions necessary in order to maintain its status as a REIT.  The Company’s board of directors evaluates the Company’s ability to make quarterly distributions based on the Company’s operational cash needs.

The following tables set forth the quarterly distributions declared to the Company’s common stockholders and Common Unit holders for the nine months ended September 30, 2015, and the year ended December 31, 2014, respectively:

Special Distribution

In June 2011, the Company acquired a debt obligation (the “Distressed Debt”) for $18 million under its prior advisor, TNP Strategic Retail Advisor, LLC. In October 2011, the Company received the underlying collateral (the “Collateral”) with respect to the Distressed Debt in full settlement of its debt claim (the “Settlement”). At the time of the Settlement, the Company received an independent valuation of the Collateral’s fair market value (“FMV”) of $27.6 million. The Settlement resulted in taxable income to the Company in an amount equal to the FMV of the Collateral less its adjusted basis for tax purposes in the Distressed Debt. Such income was not properly reported on the Company’s 2011 federal income tax return, and the Company did not make a sufficient distribution of taxable income for purposes of the real estate investment trust qualification rules (the “2011 Underreporting”). The Company was able to rectify the 2011 Underreporting and avoid failing to qualify as a REIT by making a special distribution in 2015 to its stockholders as described below. The special distribution was then included in the Company’s deduction for dividends paid for 2011.

On August 7, 2015, the board of directors of the Company authorized a special distribution (the “Special Distribution”) of $2,248,000 on its common stock to holders of record as of the close of business on August 10, 2015 (the “Record Date”). Subject to the limitations described below, the Special Distribution was payable in cash, common shares or a combination of cash and common shares to, and at the election of, the stockholders of record as of the Record Date. The Company paid the Special Distribution on November 4, 2015 (the “Payment Date.”)

As of the Record Date, the Company had approximately 10,891,798 million common shares outstanding. Based on such amount, the Special Distribution was valued at approximately $0.20 per common share. Stockholders had the right to elect to be paid their pro rata portion of the Special Distribution all in cash, all in common shares (a “Share Election”) or a combination of cash and common shares; provided, however, that the total amount of cash payable to all stockholders in the Special Distribution was limited to no more than $449,600, with the balance of the Special Distribution, or $1,798,400, payable in the form of common shares. Stockholders who failed to properly and timely complete an election form were deemed to have made a Share Election and received their pro rata portion of the Special Distribution entirely in common shares.

The Company paid the Special Distribution on November 4, 2015 (the “Payment Date.”) The total amount of cash paid to stockholders was $449,600 and the balance of $1,798,400 was paid in the form of 273,729 common shares issued pursuant to the Special Distribution. The issuance of the common shares will impact weighted average shares outstanding from the date of issuance and, thus, will impact the earnings per share calculation prospectively from the Payment Date.

10. EARNINGS PER SHARE

The following table sets forth the computation of the Company’s basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2015 and 2014:

11. 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 (should the Company ever have 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”), on November 12, 2009 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 $2 million in gross offering proceeds in the Offering. Each new independent director that subsequently joined the board of directors received the initial restricted stock grant on the date he or she joined the board of directors. In addition, until February 2013, each director was granted an additional 2,500 shares of restricted stock upon his or her re-election to the board of directors. 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 death or disability, or upon the occurrence of a change in control of the Company.

For the three and nine months ended September 30, 2014, the Company recognized compensation expense of $4,000 and $18,000, 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. Shares of restricted common stock have full voting rights and rights to dividends.

As of December 31, 2014, all of the compensation expense related to non-vested shares of restricted common stock has been recognized. There were no restricted stock grants issued during the three and nine months ended September 30, 2015.

12. RELATED PARTY TRANSACTIONS

The Advisor manages the Company’s business as the Company’s external advisor pursuant to the Advisory Agreement which was renewed for an additional twelve months, beginning on August 10, 2015. Pursuant to the Advisory Agreement, the Company pays the 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. In addition to the Advisory Agreement, the Company is party to certain property management agreements with Glenborough for the day-to-day management, operation and maintenance of certain properties. The fees related to the Advisory Agreement and property management agreements are discussed in detail below.

On July 9, 2013, SRT Manager, an affiliate of the Advisor, acquired an initial 12% membership interest in Secured Holdings, the Company’s wholly-owned subsidiary. Following the Constitution Transaction on August 4, 2014 (see Note 7. “Notes Payable”), SRT Manager’s membership interests in Secured Holdings decreased to 8.33%, and following the sale of Secured Holding’s two properties to the SGO Joint Venture (see Note 4. “Investment in Unconsolidated Joint Ventures”), Secured Holdings paid SRT Manager approximately $2.1 million in full redemption of the then-current value of its remaining 8.33% membership interest in Secured Holdings.

On January 24, 2014, GPP purchased 22,222 and 111,111 shares of the Company from TNP LLC and Sharon D. Thompson, respectively, for $8.00 per share. The share purchase transaction was part of a larger settlement of issues relating to the 2013 annual meeting proxy contest, and was not considered an arm’s length transaction. Therefore, the share purchase price may not reflect a market price or value for such securities (see Note 9. “Equity”).

On March 11, 2015, the Company sold Osceola Village, Constitution Trail, and Aurora Commons for the aggregate gross sales price of $53.6 million. The sale of the three properties was completed in connection with the formation of the SGO Joint Venture as described in Note 4. “Investment in Unconsolidated Joint Ventures.”

Summary of Related Party Fees

Summarized below are the fees paid to the Advisor and other related party costs incurred by the Company for the three and nine months ended September 30, 2015 and 2014, respectively, and payable as of September 30, 2015 and December 31, 2014:

Asset Management Fee

Under the Advisory Agreement, the Advisor is entitled to receive an asset management fee equal to a monthly fee of one-twelfth (1/12th) of 0.6% of the higher of (1) aggregate cost on a GAAP basis (before non-cash reserves and depreciation) of all investments the Company owns, including any debt attributable to such investments; or (2) the fair market value of investments (before non-cash reserves and deprecation) if the Company’s board of directors has authorized the estimate of a fair market value of the Company’s investments; provided, however, that the asset management fee will not be less than $250,000 in the aggregate during any one calendar year.

Reimbursement of Operating Expenses

The Company reimburses the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company’s total operating expenses (including the asset management fee described below) at the end of the four preceding fiscal quarters exceeded 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”). The Advisor is required to reimburse the Company quarterly for any amounts by which total operating expenses exceed the 2%/25% Guideline in the previous expense year that the independent directors do not approve. The Company will not reimburse the Advisor for any of its personnel costs or other overhead costs except for customary reimbursements for personnel costs under property management agreements entered into between the OP and the Advisor or its affiliates. Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of the 2%/25% Guideline if a majority of the independent directors determine that such excess expenses are justified based on unusual and non-recurring factors.

For the three and nine months ended September 30, 2015 and 2014, the Company’s total operating expenses (as defined in the Charter) did not exceed the 2%/25% Guideline.

Property Management Fee

Under the property management agreements between the Company and Glenborough, Glenborough is entitled to receive property management fees calculated at a maximum of up to 4% of the properties’ gross revenue. The property management agreements with Glenborough have been renewed for an additional twelve months, beginning on August 10, 2015.

Acquisition and Origination Fee

Under the Advisory Agreement, the Advisor is entitled to receive acquisition fees and origination fees. The acquisition fees are equal to 1% of the costs of investments acquired, including acquisition expenses and any debt attributable to such investments.

Origination fees are equal to 1% of the amount funded by the Company to acquire or originate real estate-related loans, including any acquisition expenses related to such investment and any debt used to fund the acquisition or origination of the real estate-related loans.

Disposition Fee

Under the Advisory Agreement, if the Advisor or its affiliates provide a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of a real property, the Advisor or its affiliates may be paid disposition fees up to 50% of a customary and competitive real estate commission, but not to exceed 3% of the contract sales price of each property sold.

Guaranty Fees

In connection with certain acquisition financings, the Company’s former chairman and former 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. In March 2015, the Company retired the outstanding notes payable related to Osceola Village resulting in the expiration of the remaining guaranty agreement

Leasing Commission Fee

Under the property management agreements, Glenborough is entitled to receive a separate fee for the leases of new tenants, and for expansions, extensions and renewals of existing tenants in an amount not to exceed the fee customarily charged by similarly situated parties rendering similar services in the same geographic area for similar properties.

Legal Leasing Fee

Under the property management agreements, Glenborough is entitled to receive a market-based legal leasing fee for the negotiation and production of new leases, renewals, and amendments.

Construction Management Fee

In connection with the construction or repair in or about a property, the property manager is responsible for coordinating and facilitating the planning and the performance of all construction and is entitled to receive a fee equal to 5% of the hard costs for the project in question.

Financing Coordination Fee

Under the Advisory Agreement, the Advisor is entitled to receive a financing coordination fee equal to 1% of the amount made available and/or outstanding under any (1) financing obtained or assumed, directly or indirectly, by the Company or the OP and used to acquire or originate investments; or (2) the refinancing of any financing obtained or assumed, directly or indirectly, by the Company or the OP.

Related-Party Fees Paid by the Unconsolidated Joint Ventures

The unconsolidated joint ventures are party to certain agreements with Glenborough for services related to the investment of funds and management of the joint ventures’ investments, as well as the day-to-day management, operation and maintenance of the properties owned by the joint ventures. The joint ventures pay fees to Glenborough for these services. The SGO Joint Venture recognized related-party fees of approximately $101,000 and $213,000 for the three and nine months ended September 30, 2015, respectively. The SGO MN Joint Venture began operations on September 30, 2015 and therefore incurred insignificant related-party fees for the three months ended September 30, 2015. These related-party fees consist of property management, asset management, leasing commission, legal leasing, and construction management fees.

13. COMMITMENTS AND CONTINGENCIES

Special Distribution

The Company recorded $2,248,000 for the Special Distribution which was paid on November 4, 2015. The Special Distribution will be included in the Company’s deduction for dividends paid in 2011. The Company is also required to pay a penalty to the IRS in connection with the 2011 Underreporting. As of September 30, 2015, $447,000 has been accrued for such penalty. For detailed information regarding the Special Distribution, see “Special Distribution” under Note 9. “Equity.”

The Special Distribution should generally be treated as taxable income to the Company’s stockholders for U.S. federal income tax purposes in the year paid, and taxable stockholders receiving the Special Distribution will be required to include the full amount of the Special Distribution received as ordinary income to the extent of the Company’s current and accumulated earnings and profits for federal income tax purposes, as measured at that point in 2011. As a result, stockholders may be required to pay income taxes with respect to such dividend in excess of the cash component of the Special Distribution.

Economic Dependency

As disclosed in Note 1. “Organization and Business”, the Company is managed by an external advisor. The Company is dependent on the 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 and its affiliates are 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

As of September 30, 2015, the Company continued to be a party to, or have a financial interest in, the securities litigation previously disclosed in Part I, Item 3 of our 2014 Annual Report on Form 10-K. As set forth under “Legal Proceedings” in Note 14. “Subsequent Events,” on October 15, 2015, the United States District Court for the Northern District of California granted final approval to a settlement of the class action and the action was dismissed with prejudice.

14. SUBSEQUENT EVENTS

Third Quarter Distribution

On October 30, 2015, the Company paid a third quarter distribution in the amount of $0.06 per share to stockholders of record as of September 30, 2015, totaling $680,000.

Special Distribution

On November 4, 2015, the Company paid a Special Distribution of $2,248,000 to stockholders of record as of August 10, 2015. See Note 9. “Equity” for details regarding the Special Distribution. The total amount of cash paid to stockholders pursuant to the Special Distribution was $449,600 and the balance of $1,798,400 was paid in the form of 273,729 common shares issued pursuant to the Special Distribution. The issuance of the common shares will impact weighted average shares outstanding from the date of issuance and, thus, will impact the earnings per share calculation prospectively from November 4, 2015.

Legal Proceedings

On October 15, 2015, the United States District Court for the Northern District of California granted final approval to a settlement of the class action previously disclosed in Part I, Item 3 of our 2014 Annual Report on Form 10-K. As a result, the action was dismissed with prejudice.

Sale of Held for Sale Properties

On October 29, 2015, pursuant to a Purchase and Sale Agreement with third-party buyers, the Company consummated the disposition of Northgate Plaza for a sales price of approximately $12.8 million in cash.

On October 29, 2015, pursuant to a Purchase and Sale Agreement with a third-party buyer, the Company consummated the disposition of Moreno Marketplace for a sales price of approximately $19.4 million in cash.

On October 30, 2015, pursuant to a Purchase and Sale Agreement with a third-party buyer, the Company consummated the disposition of Summit Point for a sales price of approximately $19.6 million in cash.

Borrowing under the Amended and Restated Credit Facility with KeyBank

On October 29, 2015, the Company drew $4.0 million under the Amended and Restated Credit Facility with KeyBank and used the loan proceeds, along with the proceeds from the sale of Moreno Marketplace and Northgate Plaza, to pay off a portion of the outstanding secured term loans. On November 2, 2015, the Company paid off the entire $4.0 million draw on the Amended and Restated Credit Facility.

Payment of Secured Loans, Mortgage Loans and Unsecured Term Loans

On October 1, 2015, the Company paid off the entire outstanding balance of $1.2 million on its unsecured loan.

On October 29, 2015, the Company used $12.1 million in net proceeds from the sale of Northgate Plaza, $18.6 million in net proceeds from the sale of Moreno Marketplace, and $4.0 million in loan proceeds under the Amended and Restated Credit Facility with KeyBank, to pay off $31.7 million in outstanding secured term loans, including $0.2 million in interest and $2.2 million in yield maintenance costs.

On October 30, 2015, the Company used part of the $19.6 million in net proceeds from the sale of Summit Point to pay off the $11.9 million mortgage loan. The remainder of the net proceeds has been added to cash reserves.

Share Redemption

On November 10, 2015, the Company repurchased 87,599 shares of its common stock under the Amended and Restated Share Redemption Program for $575,500, at an average price of $6.57 per share.

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 unaudited condensed consolidated 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 Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission, or SEC, on March 27, 2015, which we refer to herein as our “2014 Annual Report on Form 10-K.” As used herein, the terms “we,” “our,” “us,” and “Company” refer to Strategic Realty Trust, Inc., formerly TNP Strategic Retail Trust, Inc., and, as required by context, Strategic Realty Operating Partnership, L.P., formerly TNP Strategic Retail Operating Partnership, L.P., a Delaware limited partnership, which we refer to as our “operating partnership” or “OP”, and to their respective 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 within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 2014 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 2014 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

Strategic Realty Trust, Inc. is a Maryland corporation formed on September 18, 2008, to invest in directly or indirectly, and manage a portfolio of income-producing retail properties, located in the 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 operating partnership, of which we are the sole general partner. We also own a majority of the outstanding limited partner interests in the operating partnership.

On November 4, 2008, we filed a registration statement on Form S-11 with the SEC for our initial public offering of up to $1,000,000,000 in shares of our common stock 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 (the “DRIP”). 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 the DRIP.

From the commencement of our initial public offering through the termination of our initial public offering on February 7, 2013, we have sold 10,688,940 shares of common stock in our primary offering for gross offering proceeds of $104,700,000, 391,182 shares of common stock under our DRIP for gross offering proceeds of $3,600,000, and granted 50,000 shares of restricted stock. Cumulatively through September 30, 2015, we have redeemed 238,324 shares sold in the Offering for $2,200,000.

Our Advisor manages our business as our external advisor pursuant to an advisory agreement (the “Advisory Agreement”) originally executed on August 10, 2013. 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 commercial properties. Glenborough and its predecessor entities have over three decades of experience in the commercial real estate industry.

Properties

Our 12 retail properties, including four properties classified as held for sale, which we refer to as “our portfolio” comprised of single- and multi-tenant, commercial retail space. As of September 30, 2015, our portfolio had a weighted-average remaining lease term of approximately six years. As of December 31, 2014, our portfolio had $122,148,000 of indebtedness, and was 88% leased, with a weighted-average remaining lease term of approximately seven years.

Results of Operations

Comparison of the three months ended September 30, 2015, versus the three months ended September 30, 2014

The following table provides summary information about our results of operations for the three months ended September 30, 2015 and 2014:

Our results of operations for the three months ended September 30, 2015, are not necessarily indicative of those expected in future periods.

Revenue

The decrease in revenue was primarily due to the sale of Aurora Commons, Constitution Trail, and Osceola Village in March 2015, and the sale of San Jacinto Esplanade in November 2014. The sale of the three properties in March 2015 was completed in connection with the formation of the SGO Joint Venture as defined and described in Note 4. “Investment in Unconsolidated Joint Ventures” to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.

Operating and maintenance expenses

The decrease in operating and maintenance expenses was primarily attributed to the sale of Aurora Commons, Constitution Trail, and Osceola Village in March 2015, and the sale of San Jacinto Esplanade in November 2014.

General and administrative expenses

The decrease in general and administrative expenses was primarily due to higher legal costs incurred in the third quarter of 2014 related to our securities litigation as disclosed in Part I, Item 3 of our 2014 Annual Report on From 10-K and updated in Part II. Item 1 “Legal Proceedings” in this Quarterly Report on Form 10-Q, partly offset by the 2015 write-off of the remaining unamortized premium of the insurance policy which covered the payout prescribed by the settlement of the securities litigation. Additionally, asset management fees have decreased in 2015 due to properties sold.

Depreciation and amortization expenses

The decrease in depreciation and amortization expenses was attributed to the sale of Aurora Commons, Constitution Trail, and Osceola Village in March 2015, the sale of San Jacinto Esplanade in November 2014, the cessation of depreciation and amortization of the properties held for sale, and a reduction in the amortization of lease intangibles resulting from maturing leases.

Transaction expense

Transaction expense represents $79,000 in acquisition fees and $55,000 in financing fees incurred for our 10% investment in the SGO MN Joint Venture on September 30, 2015, as described in Note 4. “Investment in Unconsolidated Joint Ventures” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Interest expense

The decrease in interest expense was primarily due to the reduction in interest rate resulting from the August 2014 refinancing of the KeyBank line of credit and pay down of debt resulting from the sales of Aurora Commons, Constitution Trail, and Osceola Village in March 2015, and the sale of San Jacinto Esplanade in November 2014.

Other expense, net

The decrease in other income (expense), net was due to expenses incurred during the three months ended September 30, 2014 that did not recur in 2015. During the three months ended September 30, 2014, we recognized impairment losses on our investments in Constitution Trail and Topaz Marketplace of $2,500,000 and $1,400,000, respectively, in addition to a $295,000 loss from the extinguishment of the Constitution Trail debt, and a $405,000 accrual of an estimated interest penalty payable to the IRS related to the deficiency dividend in 2011. Other expense, net, during the three months ended September 30, 2015 included $296,000 representing our share in the losses of unconsolidated joint ventures, a $42,000 additional accrual of an estimated interest penalty payable to the IRS related to the deficiency dividend in 2011, and an $18,000 adjustment to the gain on the March 2015 disposal of real estate.

Discontinued operations

Prior to the adoption of Accounting Standards Update No. 2014-08 on April 30, 2014, we recorded the property disposals as discontinued operations on the consolidated statements of operations. As a result, the operating results of San Jacinto Esplanade, which was placed on the market for sale in the third quarter of 2014 and does not represent a strategic shift in our investment objective, continue to be included in continuing operations on the consolidated statements of operations. The loss from discontinued operations of $95,000 during the three months ended September 30, 2014 was due to residual adjustments to receivables on properties that were previously sold and recorded as discontinued operations. There was no income or loss from discontinued operations for the three months ended September 30, 2015.

Comparison of the nine months ended September 30, 2015 versus the nine months ended September 30, 2014

The following table provides summary information about our results of operations for the nine months ended September 30, 2015 and 2014: