Strategic Realty Trust, Inc. - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-54376

_________________________________

STRATEGIC REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

_________________________________



Maryland	90-0413866
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

66 Bovet Road, Suite 100 San Mateo, California, 94402	(650) 343-9300
(Address of Principal Executive Offices; Zip Code)	(Registrant’s Telephone Number, Including Area Code)

_________________________________

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ý No ¨

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	ý

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of May 1, 2017, there were 10,906,370 shares of the registrant’s common stock issued and outstanding.

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



		Page

PART I — FINANCIAL INFORMATION		3

Item 1.	Unaudited Condensed Consolidated Financial Statements	4

	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	4

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016	5

	Condensed Consolidated Statement of Equity for the three months ended March 31, 2017	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	38

Item 6.	Exhibits	39

Signatures		40

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PART I

FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2017, 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, 2016, as filed with the SEC on March 24, 2017 (the “2016 Annual Report on Form 10-K”). The condensed consolidated 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 months ended March 31, 2017, 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, in management’s opinion, are necessary for a fair presentation of the aforementioned financial statements. Such adjustments are of a normal recurring nature.

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ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENDSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)

(unaudited)



	March 31,			December 31,
	2017			2016
ASSETS
Investments in real estate
Land	$	22,365		$	15,510
Building and improvements	57,395			47,810
Tenant improvements	2,926			2,307
	82,686			65,627
Accumulated depreciation	(8,770		)	(8,163		)
Investments in real estate, net	73,916			57,464
Properties under development and development costs
Land	25,851			25,851
Buildings	597			601
Development costs	5,645			4,377
Properties under development and development costs	32,093			30,829
Cash and cash equivalents	3,030			3,130
Restricted cash	3,867			4,728
Prepaid expenses and other assets, net	283			1,070
Tenant receivables, net of $72 and $38 bad debt reserve	912			1,269
Investments in unconsolidated joint ventures	2,795			4,761
Lease intangibles, net	4,616			3,825
Assets held for sale	11,697			24,157
Deferred financing costs, net	1,486			264
TOTAL ASSETS ⁽¹⁾	$	134,695		$	131,497
LIABILITIES AND EQUITY
LIABILITIES
Notes payable, net	$	61,734		$	54,304
Accounts payable and accrued expenses	1,888			2,955
Amounts due to affiliates	114			111
Other liabilities	585			461
Liabilities related to assets held for sale	14,116			22,182
Below-market lease liabilities, net	3,061			3,049
Deferred gain on sale of properties to unconsolidated joint venture	668			1,202
TOTAL LIABILITIES ⁽¹⁾	82,166			84,264
Commitments and contingencies (Note 13)
EQUITY
Stockholders’ equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized, none issued and outstanding	—			—
Common stock, $0.01 par value; 400,000,000 shares authorized; 10,906,370 and 10,938,245 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	111			111
Additional paid-in capital	95,829			96,032
Accumulated deficit	(45,382		)	(50,676		)
Total stockholders’ equity	50,558			45,467
Non-controlling interests	1,971			1,766
TOTAL EQUITY	52,529			47,233
TOTAL LIABILITIES AND EQUITY	$	134,695		$	131,497

(1)

As of March 31, 2017 and December 31, 2016, includes approximately $34.4 million and $32.8 million, respectively, of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and approximately $19.6 million and $19.9 million, respectively, of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. Refer to Note 5. “Variable Interest Entities”.

See accompanying notes to condensed consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares and per share amounts)

(unaudited)



	Three Months Ended March 31,
	2017			2016
Revenue:
Rental and reimbursements	$	2,640		$	2,708

Expense:
Operating and maintenance	946			945
General and administrative	495			482
Depreciation and amortization	962			870
Transaction expense	82			4
Interest expense	575			600
	3,060			2,901
Operating loss	(420		)	(193		)

Other income (loss):
Equity in income of unconsolidated joint ventures	32			26
Net gain on disposal of real estate	6,586			8
Income (loss) before income taxes	6,198			(159		)
Income taxes	(19		)	94
Net income (loss)	6,179			(65		)
Net income (loss) attributable to non-controlling interests	230			(2		)
Net income (loss) attributable to common stockholders	$	5,949		$	(63	)

Earnings (loss) per common share - basic and diluted	$	0.54		$	(0.01	)

Weighted average shares outstanding used to calculate earnings (loss) per common share - basic and diluted	10,937,451			11,037,189

See accompanying notes to condensed consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in thousands, except shares)

(unaudited)



	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity			Non-controlling Interests			Total Equity
BALANCE — December 31, 2016	10,938,245		$	111	$	96,032		$	(50,676	)	$	45,467		$	1,766		$	47,233
Redemption of common shares	(31,875	)	—		(203		)	—			(203		)	—			(203		)
Quarterly distributions	—		—		—			(655		)	(655		)	(25		)	(680		)
Net income	—		—		—			5,949			5,949			230			6,179
BALANCE — March 31, 2017	10,906,370		$	111	$	95,829		$	(45,382	)	$	50,558		$	1,971		$	52,529

See accompanying notes to condensed consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	6,179		$	(65	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net gain on disposal of real estate	(6,586		)	(8		)
Equity in income of unconsolidated joint ventures	(32		)	(26		)
Straight-line rent	(22		)	(26		)
Amortization of deferred costs	114			120
Depreciation and amortization	962			870
Amortization of above and below-market leases	(63		)	(47		)
Bad debt expense	33			3
Changes in operating assets and liabilities:
Prepaid expenses and other assets	787			189
Tenant receivables	339			476
Accounts payable and accrued expenses	(692		)	(257		)
Amounts due to affiliates	3			135
Other liabilities	124			(116		)
Net change in restricted cash for operational expenditures	850			166
Net cash provided by operating activities	1,996			1,414

Cash flows from investing activities:
Net proceeds from the sale of real estate	18,543			9
Acquisition of real estate	(17,783		)	—
Investment in properties under development and development costs	(1,437		)	(26,949		)
Improvements, capital expenditures, and leasing costs	(383		)	(42		)
Distributions from unconsolidated joint ventures	1,998			283
Net change in restricted cash from investments in consolidated variable interest entities	(291		)	(3,458		)
Net change in restricted cash for capital expenditures	302			(40		)
Net cash provided by (used in) investing activities	949			(30,197		)

Cash flows from financing activities:
Redemption of common shares	(203		)	(202		)
Quarterly distributions	(681		)	(688		)
Proceeds from notes payable	27,400			25,200
Repayment of notes payable	(28,050		)	(194		)
Payment of loan fees from investments in consolidated variable interest entities	(197		)	(712		)
Payment of loan fees and financing costs	(1,314		)	—
Net cash provided by (used in) financing activities	(3,045		)	23,404

Net decrease in cash and cash equivalents	(100		)	(5,379		)
Cash and cash equivalents – beginning of period	3,130			8,793
Cash and cash equivalents – end of period	$	3,030		$	3,414

Supplemental disclosure of non-cash investing and financing activities and other cash flow information:
Distributions declared but not paid	$	680		$	—
Change in accrued liabilities capitalized to investment in development	(377		)	331
Change to accrued mortgage note payable interest capitalized to investment in development	3			—
Amortization of deferred loan fees capitalized to investment in development	201			85
Cash paid for interest, net of amounts capitalized	442			490

See accompanying notes to condensed consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND BUSINESS

Strategic Realty Trust, Inc. (the “Company”) was formed on September 18, 2008, as a Maryland corporation. Effective August 22, 2013, the Company changed its name from TNP Strategic Retail Trust, Inc. to Strategic Realty Trust, Inc. The Company believes it qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and has elected REIT status beginning with the taxable year ended December 31, 2009, the year in which the Company began material operations.

Since the Company’s inception, its business has been managed by an external advisor. The Company has no direct employees and all management and administrative personnel responsible for conducting the Company’s business are employed by its advisor. Currently, 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”) initially executed on August 10, 2013, and subsequently renewed in August 2014, August 2015 and August 2016. The current term of the Advisory Agreement terminates on August 10, 2017. 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.

Substantially all of the Company’s business is conducted through Strategic Realty Operating Partnership, L.P. (the “OP”). During the Company’s initial public offering (“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 both March 31, 2017 and December 31, 2016, the Company owned 96.3% of the limited partnership interests in the OP.

The Company’s principal demand for funds has been for the acquisition of real estate assets, the payment of operating expenses, interest on outstanding indebtedness, the payment of distributions to stockholders, and investments in unconsolidated joint ventures as well as development of properties. Substantially all of the proceeds of the completed Offering have been used to fund investments in real properties and other real estate-related assets, for payment of operating expenses, for payment of interest, for payment of various fees and expenses, such as acquisition fees and management fees, and for payment of distributions to stockholders. The Company’s available capital resources, cash and cash equivalents on hand and sources of liquidity are currently limited. The Company expects its future cash needs will be funded using cash from operations, future asset sales, debt financing and the proceeds to the Company from any sale of equity that it may conduct in the future.

The Company invests in and manages a portfolio of income-producing retail properties, located in the United States, real estate-owning entities and real estate-related assets, including the investment in or origination of mortgage, mezzanine, bridge and other loans related to commercial real estate. The Company has invested directly, and indirectly 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. During the first quarter of 2016, the Company invested, through joint ventures, in two significant retail projects under development.

As of March 31, 2017, in addition to the development projects, the Company’s portfolio of properties was comprised of 13 properties, including one property held for sale, with approximately 601,000 rentable square feet of retail space located in five states. As of March 31, 2017, the rentable space at the Company’s retail properties was 89% leased.

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”) as contained within the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (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, their direct and indirect owned subsidiaries, and the accounts of joint ventures that are determined to be variable interest entities for which the Company is the primary beneficiary. 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 condensed consolidated financial position, results of operations and cash flows have been included.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company evaluates the need to consolidate joint ventures and variable interest entities based on standards set forth in ASC Topic 810, Consolidation (“ASC 810”). In determining whether the Company has a controlling interest in a joint venture or a variable interest entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members, as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. As of March 31, 2017 and December 31, 2016, the Company held ownership interests in two unconsolidated joint ventures. Refer to Note 4, “Investments in Unconsolidated Joint Ventures” for additional information. As of March 31, 2017 and December 31, 2016, the Company held variable interests in two variable interest entities and consolidated those entities. Refer to Note 5, “Variable Interest Entities” for additional information.

Investments in Real Estate

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) that clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions.

The Company elected to early adopt ASU 2017-01 for the reporting period beginning January 1, 2017. As a result of adopting ASU 2017-01, the Company’s acquisitions of properties beginning January 1, 2017, were evaluated under the new guidance. The acquisitions occurring during 2017 were determined to be asset acquisitions, as they did not meet the revised definition of a business.

Evaluation of business combination or asset acquisition:

The Company evaluates each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

• The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e. revenue generated before and after the transaction).

An acquired process is considered substantive if:

• The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process;

• The process cannot be replaced without significant cost, effort, or delay; or

• The process is considered unique or scarce.

Generally, the Company expects that acquisitions of real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets), or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

In asset acquisitions, the purchase consideration, including acquisition costs, is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. As a result, asset acquisitions do not result in the recognition of goodwill or a bargain purchase gain.

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



	Years
Buildings and improvements	5 - 30 years
Tenant improvements	1 - 36 years

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

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

assets are capitalized. Acquisition costs related to asset acquisitions are capitalized in the condensed consolidated balance sheets.

For acquisitions of real estate prior to the adoption of ASU 2017-01, which were generally accounted for as business combinations, the Company recognized the assets acquired (including the intangible value of acquired above- or below-market leases, acquired in-place leases and other intangible assets or liabilities) at fair value as of the acquisition date. Acquisition costs related to the business combinations were expensed as incurred.

Reclassifications

Certain prior period amounts have been reclassified to conform with current period’s presentation. The reclassifications had no effect on the Company’s consolidated financial condition, results of operations, or cash flows.

Recent Accounting Pronouncements

The FASB issued the following ASUs which could have potential impact to the Company’s condensed consolidated financial statements:

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends (Topic 230), Statement of Cash Flows (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2016-18 will require adoption using a retrospective transition method. The adoption will not have a material effect on the Company’s condensed consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810), Interests Held through related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 changes how a reporting entity that is a single decision maker of a variable interest entity should treat indirect interest in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted, including adoption in an interim period. ASU 2016-17 will require adoption using the retrospective transition method beginning with the fiscal year in which the amendments in ASU No. 2015-02 were initially applied. The Company adopted ASU 2016-17 beginning January 1, 2017. The adoption of ASU 2016-17 had no impact on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2016-15 will require adoption on a retrospective basis. The Company is currently evaluating the impact the application of ASU 2016-15 will have on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 requires a financial asset, measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with adoption permitted for fiscal years beginning after December 15, 2018. Adjustments resulting from adopting ASU 2016-13 shall be applied through a cumulative-effect adjustment to retained earnings. The Company is currently evaluating the impact of the guidance on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires entities to recognize lease assets and lease liabilities on the condensed consolidated balance sheet and disclosing key information about leasing arrangements. The guidance retains a distinction between finance leases and operating leases. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. The amendments in this guidance are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Company is currently evaluating the impact of the guidance on its condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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. In 2016, the FASB issued ASU No. 2016-08, ASU No. 2016-09 and ASU No. 2016-12, which provide interpretive clarifications on the new guidance in Topic 606. As the Company’s revenues are primarily generated through leasing arrangements, which are scoped out of this standard, the Company does not expect the adoption of ASU 2014-09 to have a significant impact on its financial statements.

3. REAL ESTATE INVESTMENTS

Acquisition of Properties

On January 4, 2017, the Company purchased certain property located in the Hayes Valley neighborhood at 388 Fulton Street in San Francisco, California (“388 Fulton”). The seller was not affiliated with the Company or the Advisor. 388 Fulton is comprised of two leased commercial condominiums with an aggregate of 3,110 square feet of retail space. The aggregate purchase price of 388 Fulton was approximately $4.2 million, subject to customary closing costs and proration adjustments. The Company drew down $4.0 million on its credit facility with KeyBank to fund this acquisition.

On January 11, 2017, the Company purchased certain property located in the Silver Lake neighborhood of Los Angeles, California (“Silver Lake”). The seller was not affiliated with the Company or the Advisor. Silver Lake is comprised of two boutique retail buildings totaling approximately 10,497 square feet of retail space. The aggregate purchase price of Silver Lake was approximately $13.3 million subject to customary closing costs and proration adjustments. The Company drew down $11.0 million on its credit facility with KeyBank to fund this acquisition.

The Company evaluated the above transactions under the new framework pursuant to ASU 2017-01, which the Company early-adopted effective January 1, 2017. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Refer to Note 2. “Summary of Significant Accounting Policies” for further details. Accordingly, the Company accounted for the purchases of Silver Lake and 388 Fulton as asset acquisitions and allocated the total cash consideration to the individual assets and liabilities acquired on a relative fair value basis.

For the three months ended March 31, 2017, the Company incurred $0.3 million of acquisition-related costs. These costs were capitalized and allocated to land and buildings acquired on a relative fair value basis.

2017 Sale of Properties

On January 6, 2017, the Company consummated the disposition of Pinehurst Square East, located in Bismarck, North Dakota, for a sales price of approximately $19.2 million in cash. The Company used the net proceeds from the sale of Pinehurst Square East to repay $18.4 million of the outstanding balance on its credit facility with KeyBank. The sale of the property did not represent a strategic shift that will have a major effect on the Company’s operations and financial results and its results of operations were not reported as discontinued operations on the Company’s condensed consolidated financial statements. The disposition of Pinehurst Square East resulted in a gain of $6.1 million, which was included on the Company’s condensed consolidated statement of operations. The Company’s condensed consolidated statements of operations include net operating income of approximately $8 thousand and $0.2 million for the three months ended March 31, 2017 and 2016, respectively, related to Pinehurst Square East.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Pro Forma Financial Information

The pro forma financial information below is based upon the Company’s historical condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016, adjusted to give effect to the above sale transaction as if it had been completed at the beginning of 2017 and 2016, respectively. The pro forma financial information is presented for information purposes only, and may not be indicative of what actual results of operations would have been had the transaction occurred at the beginning of 2017 and 2016, respectively, nor does it purport to represent results of operations for future periods (amounts in thousands):



	(Pro Forma)
	Three Months Ended March 31,
	2017		2016
Rental and reimbursement revenues	$	2,591	$	2,216
Net income	6,170		5,750
Net income attributable to common stockholders	5,940		5,533

Net income attributable to common shares - basic and diluted	$	0.54	$	0.50

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

At March 31, 2017, Woodland West Marketplace, located in Arlington, Texas, was classified as held for sale in the condensed consolidated balance sheet. Since the sale of this property does not represent a strategic shift that will have a major effect on the Company’s operations and financial results, the results of operations of this property were not reported as discontinued operations on the Company’s financial statements. On April 17, 2017, the Company consummated the disposition of Woodland West Marketplace for a sales price of approximately $14.6 million and used the net proceeds from the sale to repay a portion of the outstanding balance on its credit facility with KeyBank. The Company’s condensed consolidated statements of operations include net operating income of approximately $0.1 million for the three months ended March 31, 2017, and operating loss of $32 thousand for the three months ended March 31, 2016, respectively, related to the assets held for sale.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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



	March 31,			December 31,
	2017			2016
ASSETS
Investments in real estate
Land	$	2,449		$	5,718
Building and improvements	10,132			20,261
Tenant improvements	668			1,283
	13,249			27,262
Accumulated depreciation	(2,274		)	(4,257		)
Investments in real estate, net	10,975			23,005
Tenant receivables, net	89			135
Lease intangibles, net	633			1,017
Assets held for sale	$	11,697		$	24,157
LIABILITIES
Notes payable	$	13,731		$	21,783
Below-market lease intangibles, net	385			399
Liabilities related to assets held for sale	$	14,116		$	22,182

Amounts above are being presented at their carrying value, which the Company believes to be lower than their estimated fair value less costs to sell.

4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

The following table summarizes the Company’s investments in unconsolidated joint ventures as of March 31, 2017, and December 31, 2016 (amounts in thousands):



		Ownership Interest				Investment
Joint Venture	Date of Investment	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
SGO Retail Acquisitions Venture, LLC	3/11/2015	19	%	19	%	$	1,081	$	3,052
SGO MN Retail Acquisitions Venture, LLC	9/30/2015	10	%	10	%	1,714		1,709
Total						$	2,795	$	4,761

The Company’s off-balance sheet arrangements consist primarily of investments in the joint ventures as set forth in the table above. The joint ventures typically fund their cash needs through secured debt financings obtained by and in the name of the joint venture entity. The joint ventures’ debts are secured by a first mortgage, are without recourse to the joint venture members, and do not represent a liability of the members other than carve-out guarantees for certain matters such as environmental conditions, misuse of funds and material misrepresentations. As of March 31, 2017 and December 31, 2016, the Company has provided carve-out guarantees in connection with the two aforementioned unconsolidated joint ventures; in connection with those carve-out guarantees, the Company has certain rights of recovery from the joint venture members.

5. VARIABLE INTEREST ENTITIES

The Company has variable interests in, and is the primary beneficiary of, variable interest entities (“VIEs”) through its investments in (i) the Gelson’s Joint Venture and (ii) the 3032 Wilshire Joint Venture (both as defined below). The Company has consolidated the accounts of these variable interest entities.

Gelson’s Joint Venture

On January 7, 2016, the Company, through wholly-owned subsidiaries, entered into the Limited Liability Company Agreement of Sunset & Gardner Investors, LLC (the “Gelson’s Joint Venture Agreement”) to form a joint venture (the” Gelson’s Joint Venture”) with Sunset & Gardner LA, LLC (“S&G LA” and, together with the Company, the “Gelson’s Members”), a subsidiary of Cadence Capital Investments, LLC (“Cadence”).

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(unaudited)

The Gelson’s Joint Venture Agreement provides for the ownership and operation of certain real property by the Gelson’s Joint Venture, in which the Company owns a 100% capital interest and a 50% profits interest. In exchange for ownership in the Gelson’s Joint Venture, the Company contributed cash in an amount up to $7.0 million in initial capital contributions and has agreed to contribute $0.7 million in subsequent capital contributions to the Gelson’s Joint Venture. In May 2016, the Company made an additional capital contribution of $0.2 million to the Gelson’s Joint Venture. In January 2017, the Company made another capital contribution of $0.8 million to the Gelson’s Joint Venture. S&G LA contributed its rights to acquire the real property, its interest under a 20 year lease with Gelson’s Markets (the “Gelson’s Lease”) and agreed to provide certain management and development services.

On January 28, 2016, the Gelson’s Joint Venture used the capital contributions of the Company, together with the proceeds of a loan from Buchanan Mortgage Holdings, LLC in the amount of $10.7 million, to purchase property located at the corner of Sunset Boulevard and Gardner in Hollywood, California for a build-to-suit grocery store for Gelson’s Markets (the “Gelson’s Property”) from a third party seller, for a total purchase price of approximately $13.0 million. The Gelson’s Joint Venture intends to proceed with obtaining all required governmental approvals and entitlements to replace the existing improvements on the property with a build-to-suit grocery store for Gelson’s Markets with an expected size of approximately 38,000 square feet. Gelson’s Markets was founded in 1951 and is recognized as one of the nation’s premier supermarket chains. Gelson’s Markets currently has 24 locations throughout Southern California.

Pursuant to the Gelson’s Joint Venture Agreement, S&G LA manages and conducts the day-to-day operations and affairs of the Gelson’s Joint Venture, subject to certain major decisions set forth in the Gelson’s Joint Venture Agreement that require the consent of all the Gelson’s Members. Income, losses and distributions are generally allocated based on the Gelson’s Members’ respective capital and profits interests. Additionally, in certain circumstances described in the Gelson’s Joint Venture Agreement, the Company may be required to make additional capital contributions to the Joint Venture, in proportion to the Gelson’s Members’ respective ownership interests. Until the Company has received back its capital contribution and specified preferred returns, all distributions go to the Company; thereafter, the Gelson’s Joint Venture will distribute the profits 50% to the Company and 50% to S&G LA.

3032 Wilshire Joint Venture

On December 21, 2015, the Company, through wholly-owned subsidiaries, entered into the Limited Liability Company Agreement of 3032 Wilshire Investors, LLC (the “Wilshire Joint Venture Agreement”) to form a joint venture (the “Wilshire Joint Venture”) with 3032 Wilshire SM, LLC, a subsidiary of Cadence (together with the Company, the “Wilshire Members”).

On December 14, 2015 and January 5, 2016, the Company paid deposits in the amounts of $0.5 million and $0.1 million, respectively, toward the acquisition of certain property located at 3032 Wilshire Boulevard and 1210 Berkeley Street in Santa Monica, California (the “Wilshire Property”). The Wilshire Joint Venture is in the process of redeveloping and repositioning, and intends to re-lease the Wilshire Property. On March 7, 2016, the Company contributed $5.7 million to the Wilshire Joint Venture. In May 2016, the Company made an additional capital contribution of $0.3 million to the Wilshire Joint Venture. In January 2017 and February 2017, the Company made two additional contributions of $0.3 million and $0.6 million, respectively, to the Wilshire Joint Venture. The Wilshire Joint Venture Agreement provides for the ownership and operation of certain real property by the Wilshire Joint Venture, in which the Company owns a 100% capital interest and a 50% profits interest.

On March 8, 2016, the Wilshire Joint Venture used the deposits and capital contribution of the Company, together with the proceeds of a loan from Buchanan Mortgage Holdings, LLC in the amount of $8.5 million, to acquire the Wilshire Property from a third-party seller, for a total purchase price of $13.5 million. The Wilshire Joint Venture is repositioning, and intends to re-lease the existing improvements on the property.

Pursuant to the Wilshire Joint Venture Agreement, 3032 Wilshire SM manages and conducts the day-to-day operations and affairs of the Wilshire Joint Venture, subject to certain major decisions set forth in the Wilshire Joint Venture Agreement that require the consent of all the Wilshire Members. Income, losses and distributions are generally allocated based on the Wilshire Members’ respective capital and profits interests. Additionally, in certain circumstances described in the Wilshire Joint Venture Agreement, the Company may be required to make additional capital contributions to the Wilshire Joint Venture, in proportion to the Wilshire Members’ respective ownership interests. Until the Company has received back its capital contribution and specified preferred returns, all distributions go to the Company; thereafter, the Wilshire Joint Venture will distribute the profits 50% to the Company and 50% to 3032 Wilshire SM.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following reflects the assets and liabilities of the Gelson’s Joint Venture and the Wilshire Joint Venture, which were consolidated by the Company, as of March 31, 2017 and December 31, 2016 (amounts in thousands):



	March 31, 2017		December 31, 2016
ASSETS
Properties under development and development costs:
Land	$	25,851	$	25,851
Buildings	597		601
Development costs	5,645		4,377
Properties under development and development costs	32,093		30,829
Restricted cash	1,956		1,666
Cash and cash equivalents	317		334
Prepaid expenses and other assets, net	19		14
Tenant receivables, net	—		1
TOTAL ASSETS ⁽¹⁾	$	34,385	$	32,844

LIABILITIES
Notes payable, net ⁽²⁾	$	19,106	$	19,103
Accounts payable and accrued expenses	432		806
Amounts due to affiliates	9		9
Other liabilities	27		27
TOTAL LIABILITIES	$	19,574	$	19,945


(1)	The assets of the Gelson’s Joint Venture and Wilshire Joint Venture can be used only to settle obligations of the respective consolidated joint ventures.


(2)	As of both March 31, 2017 and December 31, 2016, includes reclassification of approximately $0.1 million, respectively, of deferred financing costs, net, as a contra-liability. The creditors of the consolidated joint ventures do not have recourse to the general credit of the Company. The notes payable of the consolidated joint ventures are not guaranteed by the Company.

6. 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 March 31, 2017, the leases at the Company’s properties have remaining terms (excluding options to extend) of up to 19 years with a weighted-average remaining term (excluding options to extend) of approximately 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 approximately $0.3 million as of March 31, 2017 and $0.2 million as of December 31, 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of March 31, 2017, the future minimum rental income from the Company’s properties under non-cancelable operating leases, was as follows (amounts in thousands):



Remainder of 2017	$	4,575
2018	5,669
2019	5,384
2020	4,944
2021	4,184
Thereafter	14,310
Total	$	39,066

7. LEASE INTANGIBLES AND BELOW-MARKET LEASE LIABILITIES, NET

As of March 31, 2017 and December 31, 2016, the Company’s acquired lease intangibles and below-market lease liabilities were as follows (amounts in thousands):



	Lease Intangibles						Below-Market Lease Liabilities
	March 31, 2017			December 31, 2016			March 31, 2017			December 31, 2016
Cost	$	8,154		$	7,000		$	(3,953	)	$	(3,904	)
Accumulated amortization	(3,538		)	(3,175		)	892			855
Total	$	4,616		$	3,825		$	(3,061	)	$	(3,049	)

The Company’s amortization of lease intangibles and below-market lease liabilities for the three months ended March 31, 2017 and 2016, were as follows (amounts in thousands):



	Lease Intangibles						Below-Market Lease Liabilities
	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2017		2016
Amortization	$	(371	)	$	(251	)	$	79	$	72

8. NOTES PAYABLE, NET

As of March 31, 2017 and December 31, 2016, the Company’s notes payable, net, excluding credit facility balances with KeyBank which have been classified as held for sale, consisted of the following (amounts in thousands):



	Principal Balance						Interest Rates At
	March 31, 2017			December 31, 2016			March 31, 2017
KeyBank credit facility ⁽¹⁾	$	18,668		$	11,150		1.92	%
Secured term loans	24,163			24,277			5.10	%
Mortgage loans secured by properties under development ⁽²⁾	19,200			19,200			9.5% - 10.0%
Deferred financing costs, net ⁽³⁾	(297		)	(323		)	n/a
	$	61,734		$	54,304

(1)

The KeyBank credit facility is a revolving credit facility with an initial maximum aggregate commitment of $30.0 million (the “Facility Amount”). Effective February 15, 2017, the KeyBank credit facility was refinanced to increase the maximum aggregate commitment under the credit facility from $30.0 million to $60.0 million. The credit facility matures on February 15, 2020. Each loan made pursuant to the Key Bank 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 KeyBank 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 is providing a guaranty of all of its obligations under the KeyBank credit facility and all other loan documents. As of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

March 31, 2017, the KeyBank credit facility was secured by Topaz Marketplace, 8 Octavia Street, 400 Grove Street, the Fulton Shops, 450 Hayes, 388 Fulton, Silver Lake and Woodland West Marketplace. For information regarding recent draws under the Key Bank Credit Facility, see “– Recent Financing Transactions KeyBank Credit Facility” below.


(2)	Comprised of $10.7 million and $8.5 million associated with the Company’s investment in the Gelson’s Joint Venture and the Wilshire Joint Venture, respectively.


(3)	Reclassification of deferred financing costs, net of accumulated amortization, as a contra-liability.

During the three months ended March 31, 2017 and 2016, the Company incurred and expensed approximately $0.6 million and $0.6 million, respectively, of interest costs, which included the amortization of deferred financing costs of approximately $0.1 million for each period. Also during the three months ended March 31, 2017 and 2016, the Company incurred and capitalized approximately $0.9 million and $0.3 million, respectively, of interest expense related to the variable interest entities, which included the amortization of deferred financing costs of approximately $0.2 million and $86 thousand, respectively.

As of both March 31, 2017 and December 31, 2016, interest expense payable was approximately $0.4 million, including an amount related to the variable interest entities of approximately $0.2 million as of March 31, 2017 and December 31, 2016.

The following is a schedule of future principal payments for all of the Company’s notes payable outstanding as of March 31, 2017 (amounts in thousands):



Remainder of 2017	$	19,535
2018	473
2019	23,355
2020	18,668
Total ⁽¹⁾	$	62,031


(1)	Total future principal payments reflect actual amounts due to creditors, and excludes reclassification of $0.3 million deferred financing costs, net.

Recent Financing Transactions

KeyBank Credit Facility

During the three months ended March 31, 2017 and 2016, the following transactions occurred under the KeyBank credit facility:


•	On January 4, 2017, the Company drew $4.0 million and used the proceeds to acquire 388 Fulton.


•	On January 6, 2017, the Company consummated the disposition of Pinehurst Square East, located in Bismarck, North Dakota, for a sales price of approximately $19.2 million in cash, $18.4 million of which was used to pay down the KeyBank credit facility.


•	On January 11, 2017, the Company drew $11.0 million and used the proceeds to acquire Silver Lake.


•	On January 27, 2017, the Company drew $1.0 million and used the proceeds for working capital.


•	On February 28, 2017, the Company drew $9.8 million and used the proceeds to pay off the mortgage loan related to Woodland West Marketplace.


•	On February 28, 2017, the Company drew $0.6 million and used the proceeds to pay certain costs for the refinancing of the KeyBank credit facility.


•	On March 29, 2017, the Company drew $1.0 million and used the proceeds for working capital.


•	On March 7, 2016, the Company drew $6.0 million and used the proceeds to invest in the Wilshire Joint Venture.

Mortgage Loans Secured by Properties Under Development

In connection with the Company’s investment in the Wilshire Joint Venture and the acquisition of the Wilshire Property, the Company has consolidated borrowings of $8.5 million (the “Wilshire Loan”) from Buchanan Mortgage Holdings, LLC (as the lender) and 3032 Wilshire Investors, LLC (as the borrower). The Wilshire Loan bears interest at a rate of 10.0% per annum, payable monthly, commencing on April 1, 2016. The loan was scheduled to mature on March 7, 2017, with an option for two additional six-month periods, subject to certain conditions as stated in the loan agreement. All conditions to extensions were

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(unaudited)

met, and on March 7, 2017, the Company exercised the option to extend the loan for six months. The new maturity date is September 7, 2017. The loan is secured by, among other things, a lien on the Wilshire development project and other collateral as defined in the loan agreement.

In connection with the Company’s investment in the Gelson’s Joint Venture and the acquisition of the Gelson’s Property, the Company has consolidated borrowings of $10.7 million (the “Gelson’s Loan”) from Buchanan Mortgage Holdings, LLC (as the lender) and Sunset and Gardner Investors, LLC (as the borrower). The Gelson’s Loan bears interest at a rate of 9.5% per annum, payable monthly, commencing on April 1, 2016. The loan was scheduled to mature on January 27, 2017, with an option to extend for an additional six-month period, subject to certain conditions as stated in the loan agreement. Those conditions were not met, but the Company negotiated a six month extension of the term on January 27, 2017. The new maturity date is July 27, 2017. The loan is secured by, among other things, a lien on the Gelson’s development project and other joint venture collateral as defined in the loan agreement.

9. FAIR VALUE DISCLOSURES

Certain financial assets and liabilities are measured at fair value on a recurring basis. The Company determines fair value using the following hierarchy:


•	Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;


•	Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and


•	Level 3: prices or valuation techniques where little or no market data is available for inputs that are significant to the fair value measurement.

The Company believes the total carrying values reflected on its condensed consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, and amounts due to affiliates reasonably approximate their fair values due to their short-term nature.

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

The following table provides the carrying values and fair values of the Company’s notes payable as of March 31, 2017 and December 31, 2016 (amounts in thousands):



	Carrying Value ⁽¹⁾				Fair Value ^{(1) (2)}
	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Notes payable, net	$	61,734	$	54,304	$	61,906	$	54,781


(1)	The carrying value of the Company’s notes payable represents the outstanding principal as of March 31, 2017, and December 31, 2016. The carrying values and fair values of the notes payable include the reclassification of deferred financing costs, net, of approximately $0.3 million as a contra-liability, as of both March 31, 2017 and December 31, 2016.


(2)	The estimated fair value of the notes payable is based upon the indicative market prices of the Company’s notes payable based on prevailing market interest rates.

As part of the Company’s ongoing evaluation of the Company’s real estate portfolio, the Company estimates the fair value of its investments in real estate by obtaining outside independent appraisals on all of the properties. The appraised values are compared with the carrying values of its real estate portfolio to determine if there are indications of impairment.

For both the three months ended March 31, 2017 and 2016, the Company did not record any impairment losses.

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(unaudited)

10. EQUITY

Share Redemption Program

On April 1, 2015, the Company’s board of directors 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 “SRP”). The SRP was subsequently amended on August 7, 2015 and August 10, 2016.

On October 5, 2016, the board of directors approved, pursuant to Section 3(a) of SRP, an additional $0.5 million of funds available for the redemption of shares in connection with the death of a stockholder.

The following table summarizes share redemption activity during the three months ended March 31, 2017 and 2016 (amounts in thousands, except shares):



	Three Months Ended March 31,
	2017		2016
Shares of common stock redeemed	31,875		30,721
Purchase price	$	203	$	202

Cumulatively, through March 31, 2017, the Company has redeemed 507,069 shares sold in the Offering and/or its dividend reinvestment plan for $3.9 million.

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 Key Bank 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 plus up to an additional $2.0 million of the Company’s net proceeds from property dispositions, as defined in the amended KeyBank credit facility; 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 three months ended March 31, 2017 and the year ended December 31, 2016 (amounts in thousands, except per share amounts):



	Distribution Record Date	Distribution Payable Date	Distribution Per Share of Common Stock / Common Unit		Total Common Stockholders Distribution		Total Common Unit Holders Distribution		Total Distribution
First Quarter 2017	3/31/2017	4/28/2017	$	0.06	$	655	$	25	$	680



	Distribution Record Date	Distribution Payable Date	Distribution Per Share of Common Stock / Common Unit		Total Common Stockholders Distribution		Total Common Unit Holders Distribution		Total Distribution
First Quarter 2016	3/31/2016	4/29/2016	$	0.06	$	660	$	26	$	686
Second Quarter 2016	7/7/2016	7/29/2016	0.06		661		25		686
Third Quarter 2016	9/30/2016	10/31/2016	0.06		659		25		684
Fourth Quarter 2016	12/30/2016	1/31/2017	0.06		656		25		681
Total					$	2,636	$	101	$	2,737

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. EARNINGS PER SHARE

Earnings per share (“EPS”) is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed after adjusting the basic EPS computation for the effect of potentially dilutive securities outstanding during the period. The effect of non-vested shares, if dilutive, is computed using the treasury stock method. The Company applies the two-class method for determining EPS as its outstanding shares of non-vested restricted stock are considered participating securities as dividend payments are not forfeited even if the underlying award does not vest. There was no unvested stock as of March 31, 2017. The Company’s excess of distributions over earnings related to participating securities are shown as a reduction in income (loss) attributable to common stockholders in the Company’s computation of EPS.

The following table sets forth the computation of the Company’s basic and diluted earnings (loss) per share for the three months ended March 31, 2017 and 2016 (amounts in thousands, except shares and per share amounts):



	Three Months Ended March 31,
	2017		2016
Numerator - basic and diluted
Net income (loss)	$	6,179	$	(65	)
Net income (loss) attributable to non-controlling interests	230		(2		)
Net income (loss) attributable to common shares	$	5,949	$	(63	)
Denominator - basic and diluted
Basic weighted average common shares	10,937,451		11,037,189
Common Units ⁽¹⁾	—		—
Diluted weighted average common shares	10,937,451		11,037,189
Earnings (loss) per common share - basic and diluted
Net earnings (loss) attributable to common shares	$	0.54	$	(0.01	)


(1)	The effect of 422,308 convertible Common Units pursuant to the redemption rights outlined in the Company’s registration statement on Form S-11 have not been included as they would not be dilutive.

12. RELATED PARTY TRANSACTIONS

On August 7, 2013, the Company entered into the Advisory Agreement with the Advisor. On August 10, 2016, the Advisory Agreement with the Advisor was renewed for an additional twelve months, beginning on August 10, 2016. The Advisor manages the Company’s business as the Company’s external advisor pursuant to the Advisory Agreement. Pursuant to the Advisory Agreement, the Company will pay 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.

On March 11, 2015, the Company, through a wholly-owned subsidiary, entered into the Limited Liability Company Agreement of SGO Retail Acquisitions Venture, LLC to form the SGO 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 to form the SGO MN Joint Venture. For additional information regarding the SGO Joint Venture and the SGO MN Joint Venture, refer to Note 4. “Investments in Unconsolidated Joint Ventures.”

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(unaudited)

Summary of Related Party Fees

Summarized separately below are the Advisor related party costs incurred and payable by the Company for the periods presented (amounts in thousands):



	Incurred				Payable as of
	Three Months Ended March 31,				March 31,		December 31,
Expensed	2017		2016		2017		2016
Acquisition fees	$	—	$	2	$	—	$	80
Asset management fees	230		217		79		—
Reimbursement of operating expenses	42		50		4		—
Property management fees	113		124		31		2
Disposition fees	244		—		—		29
Total	$	629	$	393	$	114	$	111

Capitalized
Acquisition fees	$	194	$	273	$	—	$	—
Leasing fees	57		10		—		—
Legal leasing fees	27		12		—		—
Construction management fees	—		1		—		—
Financing coordination fees	707		—		—		—
Total	$	985	$	296	$	—	$	—

Acquisition Fees

Under the Advisory Agreement, the Advisor is entitled to receive an acquisition fee equal to 1% of (1) the cost of each investment acquired directly by the Company or (2) the Company’s allocable cost of an investment acquired pursuant to a joint venture, in each case including purchase price, acquisition expenses and any debt attributable to such investments. An acquisition fee is capitalized by the Company when the related transaction does not qualify as a business combination; otherwise an acquisition fee is expensed.

Origination Fees

Under the Advisory Agreement, the Advisor is entitled to receive an origination fee 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. The Company will not pay an origination fee to the Advisor with respect to any transaction pursuant to which it is required to pay the Advisor an acquisition fee.

Financing Coordination Fees

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.

Asset Management Fees

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 the Company’s investments (before non-cash reserves and depreciation) if the 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.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 Company’s Articles of Amendment and Restatement (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 months ended March 31, 2017 and 2016, the Company’s total operating expenses (as defined in the Charter) did not exceed the 2%/25% Guideline.

Property Management Fees

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 are subject to review and renewal on August 9, 2017.

Disposition Fees

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.

Leasing Fees

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 Fees

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 Fees

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.

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. For the three months ended March 31, 2017 and 2016, the SGO Joint Venture recognized related party fees and reimbursements of $0.1 million and $0.2 million, respectively. For both the three months ended March 31, 2017 and 2016, the SGO MN Joint Venture recognized related party fees and reimbursements of $0.2 million. The related-party amounts consist of property management, asset management, leasing commission, legal leasing, construction management fees and salary reimbursements.

13. COMMITMENTS AND CONTINGENCIES

Economic Dependency

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,

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

management of the daily operations of the Company’s real estate and real estate-related investment portfolio, and other general and administrative responsibilities. In the event that the Advisor is unable to provide such services to the Company, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its condensed consolidated 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.

14. SUBSEQUENT EVENTS

Distributions

On April 28, 2017, the Company paid a first quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of March 31, 2017, totaling approximately $0.7 million.

On May 10, 2017, the Company’s board of directors approved a second quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of June 30, 2017. The Company expects to pay this distribution by the end of July 2017.

Sale of Held for Sale Properties

On April 17, 2017, the Company consummated the disposition of Woodland West Marketplace at a sales price of approximately $14.6 million. The Company used the net proceeds from the sale of Woodland West Marketplace to repay a portion of the outstanding balance on the KeyBank Credit Facility.

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 and 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, 2016, as filed with the Securities and Exchange Commission, or SEC, on March 24, 2017, which we refer to herein as our “2016 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.

Special Note Regarding 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, 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:

•

Our executive officers and certain other key real estate professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor. As a result, they face conflicts of interest, including conflicts created by our advisor’s compensation arrangements with us and conflicts in allocating time among us and other programs and business activities.


•	We are uncertain of our sources for funding our future capital needs. If we cannot obtain debt or equity financing on acceptable terms, our ability to continue to acquire real properties or other real estate-related assets, fund or expand our operations and pay distributions to our stockholders will be adversely affected.

•

We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet our financial obligations, including debt service and our ability to pay distributions to our stockholders.

•

Our current and future investments in real estate and other real estate-related investments may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from our properties could decrease. Such events would make it more difficult for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders.


•	Certain of our debt obligations have variable interest rates with interest and related payments that vary with the movement of LIBOR or other indices. Increases in these indices could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

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All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our 2016 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 2016 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 Form 10-Q will be achieved.

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Overview

We are a Maryland corporation that was formed on September 18, 2008, to invest in and manage a portfolio of income-producing retail properties, located in the United States, real estate-owning entities and real estate-related assets, including the investment in or origination of mortgage, mezzanine, bridge and other loans related to commercial real estate. During the first quarter of 2016, we also invested, through joint ventures, in two significant retail projects under development. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes, commencing with the taxable year ended December 31, 2009, and we intend to operate in such a manner. 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.

Since our inception, our business has been managed by an external advisor. We do not have direct employees and all management and administrative personnel responsible for conducting our business are employed by our advisor. Currently we are 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”) initially executed on August 10, 2013, and subsequently renewed in August 2014, August 2015 and August 2016. The current term of the Advisory Agreement terminates on August 10, 2017. 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.

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ITEM 2. PROPERTIES

Property Portfolio

As of March 31, 2017, our property portfolio included 13 retail properties, including one property classified as held for sale, which we refer to as “our properties” or “our portfolio,” comprising an aggregate of approximately 601,000 square feet of single- and multi-tenant, commercial retail space located in five states. We purchased our properties for an aggregate purchase price of approximately $108.7 million. As of March 31, 2017 and December 31, 2016, there was approximately $24.2 million and approximately $33.8 million of indebtedness on our properties, respectively. As of March 31, 2017 and December 31, 2016, approximately 89% and 91% of our portfolio was leased (based on rentable square footage), respectively, with weighted-average remaining lease term of approximately five years.



(dollars in thousands)		Rentable Square Feet ⁽¹⁾	Percent Leased ⁽²⁾		Effective Rent ⁽³⁾ (Sq. Foot)		Anchor Tenant	Date Acquired	Original Purchase Price ⁽⁴⁾		Debt ⁽⁵⁾
Property Name	Location	Rentable Square Feet ⁽¹⁾	Percent Leased ⁽²⁾		Effective Rent ⁽³⁾ (Sq. Foot)		Anchor Tenant	Date Acquired	Original Purchase Price ⁽⁴⁾		Debt ⁽⁵⁾
Cochran Bypass	Chester, SC	45,817	100	%	$	5.11	Bi-Lo Store	7/14/2011	$	2,585	$	1,479
Topaz Marketplace	Hesperia, CA	50,699	77	%	22.14		n/a	9/23/2011	13,500		—
Morningside Marketplace	Fontana, CA	76,923	96	%	16.25		Ralph's	1/9/2012	18,050		8,441
Ensenada Square	Arlington, TX	62,628	100	%	7.62		Kroger	2/27/2012	5,025		2,927
Shops at Turkey Creek	Knoxville, TN	16,324	100	%	27.33		n/a	3/12/2012	4,300		2,649
Florissant Marketplace	Florissant, MO	146,257	98	%	9.87		Schnuck's	5/16/2012	15,250		8,666
400 Grove Street	San Francisco, CA	2,000	100	%	60.00		n/a	6/14/2016	2,890		—
8 Octavia Street	San Francisco, CA	3,640	100	%	34.92		n/a	6/14/2016	2,740		—
Fulton Shops	San Francisco, CA	3,758	100	%	55.07		n/a	7/27/2016	4,595		—
450 Hayes	San Francisco, CA	3,724	100	%	89.82		n/a	12/22/2016	8,020		—
388 Fulton	San Fancisco, CA	3,110	100	%	63.05		n/a	1/4/2017	4,500		—
Silver Lake	Los Angeles, CA	10,497	100	%	62.96		n/a	1/11/2017	13,300		—
		425,377							94,755		24,162

Property Held for Sale
Woodland West Marketplace	Arlington, TX	175,258	73	%	9.40		Randall's	2/3/2012	13,950		—
		175,258							13,950		—
		600,635							$	108,705	$	24,162


(1)	Square feet includes improvements made on ground leases at the property.


(2)	Percentage is based on leased rentable square feet of each property as of March 31, 2017.


(3)	Effective rent per square foot is calculated by dividing the annualized March 2017 contractual base rent by the total square feet occupied at the property. The contractual base rent does not include other items such as tenant concessions (e.g., free rent), percentage rent, and expense recoveries.


(4)	The purchase price for Shops at Turkey Creek includes the issuance of common units in our operating partnership to the sellers.

(5)

Debt represents the outstanding balance as of March 31, 2017, and excludes reclassification of approximately $0.2 million deferred financing costs, net, as a contra-liability. For more information on our financing, refer to Note 8. “Notes Payable, Net” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. As of March 31, 2017, the KeyBank credit facility principal balance of $32.4 million was secured by Topaz Marketplace, 8 Octavia Street, 400 Grove Street, the Fulton Shops, 450 Hayes, 388 Fulton, Silver Lake and Woodland West Marketplace. For information regarding recent draws under the Key Bank credit facility, see “– Recent Financing Transactions - KeyBank Credit Facility.”

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Properties Under Development

As of March 31, 2017, we had two properties under development. The properties are identified in the following table (dollar amounts in thousands):



Properties Under Development	Location	Estimated Completion Date	Estimated Expected Square Feet	Debt ⁽¹⁾
Wilshire Property	Santa Monica, CA	November, 2017	12,500	$	8,500
Gelson’s Property	Hollywood, CA	March, 2018	37,000	10,700
Total			49,500	$	19,200


(1)	Debt excludes reclassification of approximately $0.1 million deferred financing costs, net, as a contra-liability.

Portfolio Investments

As of March 31, 2017, our portfolio included:


•	Investments in two consolidated joint ventures, which own property under development in Los Angeles, California that are expected to comprise 49,500 square feet upon completion.


•	Investments in two unconsolidated joint ventures, which own, in aggregate, 9 retail centers, including one center classified as held for sale, comprising an aggregate of approximately 619,000 square feet and located in four states.


•	Thirteen retail properties, including one property classified as held for sale, comprising an aggregate of approximately 601,000 square feet of single- and multi-tenant, commercial retail space located in five states.

Results of Operations

Comparison of the three months ended March 31, 2017, versus the three months ended March 31, 2016.

The following table provides summary information about our results of operations for the three months ended March 31, 2017 and 2016 (amounts in thousands):



	Three Months Ended March 31,
	2017			2016			$ Change			% Change
Rental revenue and reimbursements	$	2,640		$	2,708		$	(68	)	(2.5	)%
Operating and maintenance expenses	946			945			1			0.1	%
General and administrative expenses	495			482			13			2.7	%
Depreciation and amortization expenses	962			870			92			10.6	%
Transaction expense	82			4			78			1,950.0	%
Interest expense	575			600			(25		)	(4.2	)%
Operating loss	(420		)	(193		)	(227		)	117.6	%
Other income, net	6,618			34			6,584			19,364.7	%
Income taxes	(19		)	94			(113		)	(120.2	)%
Net income (loss)	$	6,179		$	(65	)	$	6,244		(9,606.2	)%

Our results of operations for the three months ended March 31, 2017, are not necessarily indicative of those expected in future periods.

Revenue

The decrease in revenue during the three months ended March 31, 2017, compared to the same period in 2016, was primarily due to the sale of Bloomingdale Hills in April 2016 and Pinehurst Square East in January of 2017, partially offset by revenue from the acquisitions of 8 Octavia, 400 Grove, Fulton Shops, 450 Hayes in 2016, and 388 Fulton and Silver Lake during the first quarter of 2017.

Operating and maintenance expenses

Operating and maintenance expenses remained relatively flat during the three months ended March 31, 2017, when compared to the same period in 2016.

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General and administrative expenses

The slight increase in general and administrative expenses during the three months ended March 31, 2017, compared to the same period in 2016 was primarily due to increased asset management fees as a result of property acquisitions in 2016 and the first quarter of 2017, partially offset by dispositions of Bloomingdale Hills in April 2016 and Pinehurst Square East in January 2017.

Depreciation and amortization expenses

The increase in depreciation and amortization expenses during the three months ended March 31, 2017, compared to the same period in 2016 was due to acquisitions of new properties during 2016 and the first quarter of 2017, partially offset by the sale of Pinehurst Square East in January of 2017, and the classification of Woodland West Marketplace as held for sale during the first quarter of 2017.

Transaction expense

The increase in transaction fees during the three months ended March 31, 2017 as compared to the same period in 2016 was primarily due to the expensing of third-party consulting fees related to the exploration of a potential equity transaction, as well as the acquisition fees we incurred as a result of our purchase of 450 Hayes.

Interest expense

The decrease in interest expense during the three months ended March 31, 2017, compared to the same period in 2016 was primarily due to the loan pay-off using proceeds from the sale of Bloomingdale Hills in April 2016.

Other income, net

Other income, net increased during the three months ended March 31, 2017, compared to the same period in 2016 primarily due to the gain of approximately $6.1 million from the sale of Pinehurst Square East in January 2017, as well as the recognition of deferred gain resulting from the first quarter of 2017 sale by the SGO Joint Venture of Aurora Commons.

Income taxes

We have elected to treat one of our subsidiaries as a taxable REIT subsidiary (“TRS”). In general, a TRS may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Internal Revenue Code. A TRS is subject to federal and state income taxes. For the three months ended March 31, 2016, income taxes primarily included the reversal of an over accrual of estimated alternative minimum state/federal taxes, which was accrued and included in expenses as of December 31, 2015. The over accrual was determined to be immaterial and was the result of finalizing, in 2016, the calculation of taxes owed for 2015.

Liquidity and Capital Resources

Since our inception, our principal demand for funds has been for the acquisition of real estate, the payment of operating expenses and interest on our outstanding indebtedness, the payment of distributions to our stockholders and investments in unconsolidated joint ventures and development properties. On February 7, 2013, we ceased offering shares of our common stock in our primary offering and under our distribution reinvestment plan. As a result of the termination of our initial public offering, offering proceeds from the sale of our securities are not currently available to fund our cash needs. We have used and expect to continue to use debt financing, net sales proceeds and cash flow from operations to fund our cash needs.

As of March 31, 2017, our cash and cash equivalents were approximately $3.0 million and our restricted cash (funds held by the lenders for property taxes, insurance, tenant improvements, leasing commissions, capital expenditures, rollover reserves and other financing needs) was approximately $3.9 million. For properties with lender reserves, we may draw upon such reserves to fund the specific needs for which the funds were established.

Our aggregate borrowings, secured and unsecured, are reviewed by our board of directors at least quarterly. Under our Articles of Amendment and Restatement, as amended, which we refer to as our “charter,” we are prohibited from borrowing in excess of 300% of the value of our net assets. Net assets for purposes of this calculation is defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75% of the aggregate cost of our assets before non-cash reserves and depreciation. However, we may temporarily borrow in excess of these amounts if such excess is approved by a majority of the independent directors and disclosed to stockholders in our next quarterly report, along with an explanation for such excess. As of March 31, 2017 and December 31, 2016, our borrowings were approximately 108.8% and 105.2%, respectively, of the carrying value of our net assets.

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The following table summarizes, for the periods indicated, selected items in our condensed consolidated statements of cash flows (amounts in thousands):



	Three Months Ended March 31,
	2017			2016			$ Change
Net cash provided by (used in):
Operating activities	$	1,996		$	1,414		$	582
Investing activities	949			(30,197		)	31,146
Financing activities	(3,045		)	23,404			(26,449		)
Net decrease in cash and cash equivalents	$	(100	)	$	(5,379	)

Cash Flows from Operating Activities

The increase in cash flows from operating activities was primarily due to a release of restricted cash outstanding at December 31, 2016.

Cash Flows from Investing Activities

The change in cash flows from investing activities was primarily due to the net proceeds from the disposition of Pinehurst Square East of approximately $18.5 million, partially offset by our aggregate $17.8 million acquisition of 388 Fulton and Silver Lake in January 2017. Cash flows from investing activities during the three months ended March 31, 2016 consisted of our aggregate $26.9 million investments in the Wilshire and Gelson's Joint Ventures.

Cash Flows from Financing Activities

The change in cash flows from financing activities during the three months ended March 31, 2017, was primarily due to an increase in pay down of debt of approximately $27.9 million in connection with the pay down of a portion of the KeyBank credit facility as a result of the disposition of Pinehurst Square East and the pay down of the debt related to Woodland West Marketplace.

Short-term Liquidity and Capital Resources

Our principal short-term demand for funds is for the payment of operating expenses, the payment of principal and interest on our outstanding indebtedness and distributions. To date, our cash needs for operations have been covered from cash provided by property operations, the sales of properties and the sale of shares of our common stock. Due to the termination of our initial public offering on February 7, 2013, we may fund our short-term operating cash needs from operations, from the sales of properties and from debt.

Long-term Liquidity and Capital Resources

On a long-term basis, our principal demand for funds will be for real estate and real estate-related investments and the payment of acquisition-related expenses, operating expenses, distributions to stockholders, future redemptions of shares and interest and principal payments on current and future indebtedness. Generally, we intend to meet cash needs for items other than acquisitions and acquisition-related expenses from our cash flow from operations, debt and sales of properties. Until the termination of our initial public offering on February 7, 2013, our cash needs for acquisitions were satisfied from the net proceeds of the public offering and from debt financings. On a long-term basis, we expect that substantially all cash generated from operations will be used to pay distributions to our stockholders after satisfying our operating expenses including interest and principal payments. We may consider future public offerings or private placements of equity. Refer to Note 8. “Notes Payable, Net” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on the maturity dates and terms of our outstanding indebtedness.

Recent Financing Transactions

KeyBank Credit Facility

During the three months ended March 31, 2017 and 2016, the following transactions occurred under our KeyBank credit facility:


•	On January 4, 2017, we drew $4.0 million and used the proceeds to acquire 388 Fulton.

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•	On January 6, 2017, we consummated the disposition of Pinehurst Square East, located in Bismarck, North Dakota, for a sales price of approximately $19.2 million in cash, $18.4 million of which was used to pay down the KeyBank credit facility.


•	On January 11, 2017, we drew $11.0 million and used the proceeds to acquire Silver Lake.


•	On January 27, 2017, we drew $1.0 million and used the proceeds for working capital.


•	On February 28, 2017, we drew $9.8 million and used the proceeds to pay off the mortgage loan related to Woodland West Marketplace.


•	On February 28, 2017, we drew $0.6 million and used the proceeds to pay certain costs for the refinancing of the KeyBank credit facility.


•	On March 29, 2017, we drew $1.0 million and used the proceeds for working capital.


•	On March 7, 2016, we drew $6.0 million and used the proceeds to invest in the Wilshire Joint Venture.

Mortgage Loans Secured by Properties Under Development

In connection with our investment in the Wilshire Joint Venture and the acquisition of the Wilshire Property, we have consolidated borrowings of $8.5 million (the “Wilshire Loan”) from Buchanan Mortgage Holdings, LLC (as the lender) and 3032 Wilshire Investors, LLC (as the borrower). The Wilshire Loan bears interest at a rate of 10.0% per annum, payable monthly, commencing on April 1, 2016. The loan was scheduled to mature on March 7, 2017, with an option for two additional six-month periods, subject to certain conditions as stated in the loan agreement. All conditions to extensions were met, and on March 7, 2017, we exercised the option to extend the loan for six months. The new maturity date is September 7, 2017. The loan is secured by, among other things, a lien on the Wilshire development project and other collateral as defined in the loan agreement.

In connection with our investment in the Gelson’s Joint Venture and the acquisition of the Gelson’s Property, we have consolidated borrowings of $10.7 million (the “Gelson’s Loan”) from Buchanan Mortgage Holdings, LLC (as the lender) and Sunset and Gardner Investors, LLC (as the borrower). The Gelson’s Loan bears interest at a rate of 9.5% per annum, payable monthly, commencing on April 1, 2016. The loan was scheduled to mature on January 27, 2017, with an option to extend for an additional six-month period, subject to certain conditions as stated in the loan agreement. Those conditions were not met, but we negotiated a six month extension of the term on January 27, 2017. The new maturity date is July 27, 2017. The loan is secured by, among other things, a lien on the Gelson’s development project and other joint venture collateral as defined in the loan agreement.

Interim Financial Information

The financial information as of and for the period ended March 31, 2017, included in this Quarterly Report on Form 10-Q is unaudited, but includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of our financial position and operating results for the three months ended March 31, 2017. These interim unaudited condensed consolidated financial statements do not include all disclosures required by GAAP for complete consolidated financial statements. Interim results of operations are not necessarily indicative of the results to be expected for the full year; and such results may be less favorable. Our accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our 2016 Annual Report on Form 10-K.

Guidelines on Total Operating Expenses

We reimburse our Advisor for some expenses paid or incurred by our Advisor in connection with the services provided to us, except that we will not reimburse our Advisor for any amount by which our total operating expenses at the end of the four preceding fiscal quarters exceed the greater of (1) 2% of our average invested assets, as defined in our charter; and (2) 25% of our net income, as defined in our charter, or the “2%/25% Guidelines” unless a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the three months ended March 31, 2017 and 2016, our total operating expenses did not exceed the 2%/25% Guidelines.

Inflation

The majority of our leases at our properties contain inflation protection provisions applicable to reimbursement billings for common area maintenance charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. We expect to include similar provisions in our future tenant leases designed to protect us from the impact of inflation. Due to the generally long-term nature of these

leases, annual rent increases, as well as rents received from acquired leases, may not be sufficient to cover inflation and rent may be below market rates.

REIT Compliance

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

Quarterly Distributions

As set forth above, in order to qualify as a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, to our stockholders.

Under the terms of the Key Bank credit facility, we may pay distributions to our stockholders so long as the total amount paid does not exceed certain thresholds specified in the Key Bank credit facility; provided, however, that we are not restricted from making any distributions necessary in order to maintain our status as a REIT. Our board of directors will continue to evaluate the amount of future quarterly distributions based on our operational cash needs.

Some or all of our distributions have been paid, and in the future may continue to be paid, from sources other than cash flows from operations.

The following tables set forth the quarterly distributions declared to our common stockholders and common unit holders for the three months ended March 31, 2017 and the year ended December 31, 2016 (amounts in thousands, except per share amounts):



	Distribution Record Date	Distribution Payable Date	Distribution Per Share of Common Stock / Common Unit		Total Common Stockholders Distribution		Total Common Unit Holders Distribution		Total Distribution
First Quarter 2017	3/31/2017	4/28/2017	$	0.06	$	655	$	25	$	680



	Distribution Record Date	Distribution Payable Date	Distribution Per Share of Common Stock / Common Unit		Total Common Stockholders Distribution		Total Common Unit Holders Distribution		Total Distribution
First Quarter 2016	3/31/2016	4/29/2016	$	0.06	$	660	$	26	$	686
Second Quarter 2016	7/7/2016	7/29/2016	0.06		661		25		686
Third Quarter 2016	9/30/2016	10/31/2016	0.06		659		25		684
Fourth Quarter 2016	12/30/2016	1/31/2017	0.06		656		25		681
Total					$	2,636	$	101	$	2,737

Funds From Operations

Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of a real estate company’s operating performance. The National Association of Real Estate Investment Trusts, or “NAREIT”, an industry trade group, has promulgated this supplemental performance measure and defines FFO as net income, computed in accordance with GAAP, plus real estate related depreciation and amortization and excluding extraordinary items and gains and losses on the sale of real estate, and after adjustments for unconsolidated joint ventures (adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.) It is important to note that not only is FFO not equivalent to our net income or loss as determined under GAAP, it also does not represent cash flows from operating activities in accordance with GAAP. FFO should not be considered an alternative to net income as an indication of our performance, nor is FFO necessarily indicative of cash flow as a measure of liquidity or our ability to fund cash needs, including the payment of distributions.

We consider FFO to be a meaningful, additional measure of operating performance and one that is an appropriate supplemental disclosure for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

Our calculation of FFO attributable to common shares and Common Units and the reconciliation of net income (loss) to FFO is as follows (amounts in thousands, except shares and per share amounts):



	Three Months Ended March 31,
FFO	2017			2016
Net income (loss) ⁽¹⁾	$	6,179		$	(65	)
Adjustments:
Gain on disposal of assets	(6,586		)	(9		)
Adjustment to reflect FFO of unconsolidated joint ventures	80			204
Depreciation of real estate	607			644
Amortization of in-place leases and other intangibles	355			226
FFO attributable to common shares and Common Units	$	635		$	1,000

FFO per share and Common Unit	$	0.06		$	0.09

Weighted average common shares and units outstanding	11,359,759			11,469,085


(1)	Our common units have the right to convert a unit into common stock for a one-to-one conversion. Therefore, we are including the related non-controlling interest income/loss attributable to common units in the computation of FFO and including the common units together with weighted average shares outstanding for the computation of FFO per share and common unit.

Related Party Transactions and Agreements

We are currently party to the Advisory Agreement, pursuant to which the Advisor manages our business in exchange for specified fees paid for services related to the investment of funds in real estate and real estate-related investments, management of our investments and for other services. Refer to Note 12. “Related Party Transactions” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of the Advisory Agreement and other related party transactions, agreements and fees.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist primarily of our investments in joint ventures and are described in Note 4. “Investments in Unconsolidated Joint Ventures” in the notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Our joint ventures typically fund their cash needs through secured debt financings obtained by and in the name of the joint venture entity. The joint ventures’ debts are secured by a first mortgage, are without recourse to the joint venture partners, and do not represent a liability of the partners other than carve-out guarantees for certain matters such as environmental conditions, misuse of funds and material misrepresentations. As of March 31, 2017, we have provided carve-out guarantees in connection with our two unconsolidated joint ventures; in connection with those carve-out guarantees we have certain rights of recovery from our joint venture partners.

Critical Accounting Policies

Our condensed consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our 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 our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. Other than the critical accounting policy discussed below, a discussion of additional accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our 2016 Annual Report on Form 10-K.

Investments in Real Estate

In January 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) that clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions.

We elected to early adopt ASU 2017-01 for the reporting period beginning January 1, 2017. As a result of adopting ASU 2017-01, our acquisitions of properties beginning January 1, 2017 were evaluated under the new guidance. The acquisitions occurring during 2017 were determined to be asset acquisitions, as they did not meet the definition of a business.

Evaluation of business combination or asset acquisition:

We evaluate each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

An acquired process is considered substantive if:

• The process cannot be replaced without significant cost, effort, or delay; or

• The process is considered unique or scarce.

Generally, we expect that acquisitions of real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets), or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

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



	Years
Buildings and improvements	5 - 30 years
Tenant improvements	1 - 36 years

Tenant improvement costs recorded as capital assets are depreciated over the tenant’s remaining lease term, which we 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. Acquisition costs related to asset acquisitions are capitalized in the condensed consolidated balance sheets.

For acquisitions of real estate prior to the adoption of ASU 2017-01, which were generally accounted for as business combinations, we recognized the assets acquired (including the intangible value of acquired above- or below-market leases, acquired in-place leases and other intangible assets or liabilities) at fair value as of the acquisition date. Acquisition costs related to the business combinations were expensed as incurred.

Subsequent Events

Distributions

On April 28, 2017, we paid a first quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of March 31, 2017, totaling approximately $0.7 million.

On May 10, 2017, our board of directors approved a second quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of June 30, 2017. We expect to pay this distribution by the end of July 2017.

Sale of Held for Sale Properties

On April 17, 2017, we consummated the disposition of Woodland West Marketplace at a sales price of approximately $14.6 million. We used the net proceeds from the sale of Woodland West Marketplace to repay a portion of the outstanding balance on the KeyBank Credit Facility.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted as permitted under rules applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Omitted as permitted under rules applicable to smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this Quarterly Report on Form 10-Q, we did not issue any equity securities that were not registered under the Securities Act of 1933, as amended.

Share Redemption Program

On April 1, 2015, our board of directors 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 “SRP”). Under the SRP, only shares submitted for repurchase in connection with the death or “qualifying disability” (as defined in the SRP) of a stockholder are eligible for repurchase by us. The number of shares to be redeemed is limited to the lesser of (i) a total of $2.0 million for redemptions sought upon a stockholder’s death and a total of $1.0 million for redemptions sought upon a stockholder’s qualifying disability, and (ii) 5% of the number of shares of our common stock outstanding during the prior calendar year. Share repurchases pursuant to the SRP are made at our sole discretion. We reserve 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 SRP.

The redemption price for shares that are redeemed is 100% of our 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. Redemption requests due to the death or disability of a Company stockholder that occurred during such time period, were required to be submitted on or before April 1, 2016.

The SRP provides that any request to redeem less than $5 thousand worth of shares will be treated as a request to redeem all of the stockholder’s shares. If we 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 we do not completely satisfy a redemption request in one quarter, we 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. We may increase or decrease the amount of funding available for redemptions under the SRP on ten business days’ notice to stockholders. Shares submitted for redemption during any quarter will be redeemed 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 SRP are consistent with the terms of the share redemption program that was in effect immediately prior to January 15, 2013.

On October 5, 2016, our board of directors approved, pursuant to Section 3(a) of SRP, an additional $0.5 million of funds available for the redemption of shares in connection with the death of a stockholder.

Table of Contents

During the three months ended March 31, 2017, we redeemed shares as follows:



Period	Total Number of Shares Redeemed ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Approximate Dollar Value of Shares That May Yet be Redeemed Under the Program ⁽²⁾
January 2017	—	$	—	—	$	915,158
February 2017	—	—		—	915,158
March 2017	31,875	6.36		31,875	712,431
Total	31,875			31,875


(1)	All of our purchases of equity securities during the three months ended March 31, 2017, were made pursuant to the SRP.


(2)	We currently limit the dollar value and number of shares that may yet be repurchased under the SRP as described above.

Cumulatively, through March 31, 2017, the Company has redeemed 507,069 shares for $3.9 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

As of the three months ended March 31, 2017, all items required to be disclosed under Form 8-K were reported under Form 8-K.

ITEM 6. EXHIBITS

The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included herewith, or incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 11, 2017.



	Strategic Realty Trust, Inc.

	By:	/s/ Andrew Batinovich
		Andrew Batinovich
		Chief Executive Officer, Corporate Secretary and Director (Principal Executive Officer)

	By:	/s/ Terri Garnick
		Terri Garnick
		Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended March 31, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).



			Incorporated by Reference
Exhibit No.	Description	Filed Herewith	Form/File No.	Filing Date

3.1.1	Articles of Amendment and Restatement of TNP Strategic Retail Trust, Inc.		S-11/ No. 333-154975	7/10/2009

3.1.2	Articles of Amendment, dated August 22, 2013		8-K	8/26/2013

3.1.3	Articles Supplementary, dated November 1, 2013		8-K	11/4/2013

3.1.4	Articles Supplementary, dated January 22, 2014		8-K	1/28/2014

3.2	Third Amended and Restated Bylaws of Strategic Realty Trust, Inc.		8-K	1/28/2014

10.1	The Purchase and Sale Agreement by and between Sunset Triangle Investors, LLC and Strategic Realty Operating Partnership, LP, dated November 21, 2016.	X

10.2	The Purchase and Sale Agreement by and between TNP SRT Woodland West Holdings LLC and ORDA CORP., a Texas corporation, dated January 31, 2017.	X

10.3	Second Amended and Restated Revolving Credit Agreement among Strategic Realty Operating Partnership, L.P., SRT Secured Holdings, LLC, KeyBank National Association, as administrative agent, and KeyBanc Capital Markets, LLC, as sole lead bookrunner and sole lead arranger, dated February 15, 2017	X

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

99.1	Strategic Realty Trust, Inc. Amended and Restated Share Redemption Program Adopted August 26, 2016		8-K	8/30/2016

101.INS	XBRL Instance Document	X

101.SCH	XBRL Taxonomy Extension Schema Document	X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X