Strategic Realty Trust, Inc. (Form: 10-K, Received: 03/23/2018 15:41:29)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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(Mark One)



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

For the fiscal year ended December 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

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STRATEGIC REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

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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)

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Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Name of Each Exchange on Which Registered
None			None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share

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Indicate by check mark whether the registrant is a well-known season issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment of this Form 10-K. ý

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

There is no established trading market for the registrant’s common stock. On August 2, 2017, the registrant’s board of directors approved an estimated value per share of the registrant’s common stock of $6.27 per share based on (i) the estimated value of the registrant’s real estate assets as of June 30, 2017, plus the estimated value of the registrant’s tangible other assets as of April 30, 2017, less the estimated value of the registrant’s liabilities as of April 30, 2017, divided by (ii) the number of shares and operating partnership units outstanding as of April 30, 2017. For a full description of the methodologies used to value the registrant’s assets and liabilities in connection with the calculation of the estimated value per share as of April 30, 2017, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Market Information” of this Annual Report on Form 10-K.

As of June 30, 2017, the last business day of the Company’s most recently completed second fiscal quarter, 10,629,677 shares of its common stock were held by non-affiliates.

As of March 20, 2018 , there were 10,988,438 shares of the registrant’s common stock issued and outstanding.

STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

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		Page

Special Note Regarding Forward-Looking Statements		3

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	46

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions, and Director Independence	47
Item 14.	Principal Accountant Fees and Services	47

PART IV
Item 15.	Exhibits and Financial Statement Schedules	48

Signatures

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Special Note Regarding Forward-Looking Statements

Certain statements included in this Annual Report on Form 10-K (“this Annual Report”) 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.

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this Annual Report. 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 Annual Report, 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 Annual Report, 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 Annual Report, and the risks described in Part I, Item 1A, 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 Annual Report will be achieved.

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PART I

ITEM 1. BUSINESS

Overview

Strategic Realty Trust, Inc., is a Maryland corporation 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. We have elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes, commencing with the taxable year ended December 31, 2009. As used herein, the terms “we” “our” “us” and “Company” refer to Strategic Realty Trust, Inc., and, as required by context, Strategic Realty 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. We own substantially all of our assets and conduct our operations through our operating partnership, of which we are the sole general partner. We also own a majority of the outstanding limited partner interests in the operating partnership.

On November 4, 2008, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 100,000,000 shares of our common stock to the public in our primary offering at $10.00 per share and up to 10,526,316 shares of our common stock to our stockholders at $9.50 per share pursuant to our distribution reinvestment plan (“DRIP”) (collectively, the “Offering”). On August 7, 2009, the SEC declared the registration statement effective and we commenced the Offering. On February 7, 2013, we terminated the Offering and ceased offering shares of common stock in the primary offering and under the DRIP.

As of February 2013 when we terminated the Offering, we had accepted subscriptions for, and issued, 10,688,940 shares of common stock in the Offering for gross offering proceeds of approximately $104.7 million, and 391,182 shares of common stock pursuant to the DRIP for gross offering proceeds of approximately $3.6 million. We have also granted 50,000 shares of restricted stock and we issued 273,729 shares of common stock to pay a portion of a special distribution on November 4, 2015.

On April 1, 2015, our board of directors approved the reinstatement of the share redemption program and adopted the Amended and Restated Share Redemption Program (the “SRP”). The program was previously suspended, effective as of January 15, 2013. 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. For more information regarding our share redemption program, refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities - Share Redemption Program.” Cumulatively, through December 31, 2017 , we have redeemed 612,115 shares of common stock sold in the Offering and/or the DRIP for approximately $4.6 million .

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 every year through 2017. The current term of the Advisory Agreement terminates on August 10, 2018. 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.

Our office is located at 66 Bovet Road, Suite 100, San Mateo, California 94402, and our main telephone number is (650) 343-9300.

Investment Objectives

Our investment objectives are to:


•	preserve, protect and return stockholders’ capital contributions;


•	pay predictable and sustainable cash distributions to stockholders; and


•	realize capital appreciation upon the ultimate sale of the real estate assets.

Business Strategy

On February 7, 2013, as a result of the termination of the Offering, we ceased offering shares of our common stock in our primary offering and under our DRIP. Additionally, in March 2013, we filed an application with the SEC to withdraw our registration statement on Form S-11 for a contemplated follow-on public offering of our common stock. Prior to the termination of the Offering, we funded our investments in real properties and other real-estate related assets primarily with the proceeds

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from the Offering and debt financing. Since the termination of the Offering, we intend to fund our future cash needs, including any future investments, with debt financing, cash from operations, proceeds to us from asset sales, cash flows from investments in joint ventures and the proceeds from any offerings of our securities that we may conduct in the future. As a result of the termination of the Offering and the resulting decrease in our capital resources, we expect our investment activity to be reduced until we are able to engage in an offering of our securities or are able to identify other significant sources of financing.

We intend to continue to focus on investments in income-producing retail properties. Specifically, we are focused on acquiring high quality urban retail properties in major west coast markets and building a joint venture platform with institutional investors to invest in value–add retail properties. Our investments may include urban store front retail buildings, free standing single tenant buildings, neighborhood, community, power and lifestyle shopping centers, and multi-tenant shopping centers. We may also invest in real estate loans or real estate-related assets that we believe meet our investment objectives.

Investment Portfolio

As of December 31, 2017 , our portfolio included 10 properties, including 3 properties classified as held for sale, which we refer to as “our properties” or “our portfolio,” comprising an aggregate of approximately 303,000 square feet of single and multi-tenant commercial retail space located in four states, which we purchased for an aggregate purchase price of approximately $73.4 million . Refer to Item 2, “Properties” for additional information on our portfolio. In addition to the properties, in 2015 we invested in two joint ventures with an institutional partner. These ventures acquired two portfolios comprising 19 properties and approximately 1,447,000 square feet. As of December 31, 2017, these ventures own in aggregate, 8 properties, comprising an aggregate of approximately 599,000 square feet and located in four states. During the first quarter of 2016, we invested, through joint ventures, in two significant retail projects under development.

Borrowing Policies

We use, and may continue to use in the future, secured and unsecured debt as a means of providing additional funds for the acquisition of real property, real estate-related loans, and other real estate-related assets. Our use of leverage increases the risk of default on loan payments and the resulting foreclosure on a particular asset. In addition, lenders may have recourse to assets other than those specifically securing the repayment of our indebtedness. As of December 31, 2017 , our aggregate outstanding indebtedness, excluding outstanding indebtedness included in liabilities related to assets held for sale, and including deferred financing costs, net of accumulated amortization, totaled approximately $42.2 million , or 46.3% of the book value of our total assets, excluding assets held for sale.

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 December 31, 2017 and 2016, our borrowings, excluding line of credit balances which have been classified as held for sale, were approximately 93.0% and 73.6%, respectively, of the book value of our net assets, excluding assets held for sale.

Our Advisor uses its best efforts to obtain financing on the most favorable terms available to us and will seek to refinance assets during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing loan, when an existing loan matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such an investment. The benefits of any such refinancing may include increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.

Economic Dependency

We are dependent on our Advisor and its affiliates for certain services that are essential to us, including the disposition of real estate and real estate-related investments and, to the extent we acquire additional assets, the identification, evaluation, negotiation and purchase of these assets, management of the daily operations of our real estate and real estate-related investment portfolio, and other general and administrative responsibilities. In the event that our Advisor is unable to provide such services to us, we will be required to obtain such services from other sources.

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Competitive Market Factors

To the extent that we acquire additional real estate investments in the future, we will be subject to significant competition in seeking real estate investments and tenants. We compete with many third-parties engaged in real estate investment activities, including other REITs, other real estate limited partnerships, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies, and other entities. Some of our competitors may have substantially greater financial and other resources than we have and may have substantially more operating experience than us. The marketplace for real estate equity and financing can be volatile. There is no guarantee that in the future we will be able to obtain financing or additional equity on favorable terms, if at all. Lack of available financing or additional equity could result in a further reduction of suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do.

Tax Status

We elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, beginning with the taxable year ended December 31, 2009. We believe we are organized and operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. As a REIT, we generally are not subject to federal income tax on our taxable income that is currently distributed to our stockholders, provided that distributions to our stockholders equal at least 90% of our taxable income, subject to certain adjustments. If we fail to qualify as a REIT in any taxable year without the benefit of certain relief provisions, we will be subject to federal income taxes on our taxable income at regular corporate income tax rates. We may also be subject to certain state or local income taxes, or franchise taxes.

We have elected to treat one of our subsidiaries as a taxable REIT subsidiary, which we refer to as a 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.

Environmental Matters

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on a real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretations of existing laws may require us to incur material expenditures or may impose material environmental liability. Additionally, tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third-parties may affect our real properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

We do not believe that compliance with existing environmental laws will have a material adverse effect on our consolidated financial condition or results of operations. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

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Employees

We have no paid employees. The employees of our Advisor and its affiliates provide management, acquisition, disposition, advisory and certain administrative services for us.

Available Information

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as a result, file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC. The SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly and current reports, proxy and information statements and other information we file electronically with the SEC. Access to these filings is free of charge on the SEC’s website as well as on our website (www.srtreit.com).

ITEM 1A. RISK FACTORS

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to an Investment in Us

The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment.

On August 2, 2017, our board of directors approved an estimated value per share of our common stock of $6.27 per share based on the estimated value of the our real estate assets as of June 30, 2017 plus the estimated value of our tangible other assets less the estimated value of our liabilities divided by the number of shares and operating partnership units outstanding, as of April 30, 2017. We provided this estimated value per share to assist broker-dealers that participated in the Offering in meeting their customer account statement reporting obligations under the rules of National Association of Securities Dealers Conduct Rule 2340 as required by the Financial Industry Regulatory Authority (“FINRA”).

FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, our Advisor’s methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The estimated value per share is not audited and does not represent the fair value of our assets or liabilities according to generally accepted accounting principles (“GAAP”). Accordingly, with respect to the estimated value per share, we can give no assurance that:


•	a stockholder would be able to resell his or her shares at this estimated value;


•	a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company;


•	our shares of common stock would trade at the estimated value per share on a national securities exchange;


•	an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or


•	the methodology used to estimate our value per share would or would not be acceptable to FINRA or for compliance with ERISA reporting requirements.

The value of our shares will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets and in response to the real estate and finance markets. As such, the estimated value per share does not take into account estimated disposition costs and fees for real estate properties that are not held for sale, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of debt. For a description of the methodologies used to value our assets and liabilities in connection with the calculation of the estimated value per share, refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Market Information”.

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Our business could be negatively affected as a result of stockholder activities. Proxy contests threatened or commenced against us could be disruptive and costly and the possibility that stockholders may wage proxy contests or gain representation on or control of our board of directors could cause uncertainty about our strategic direction .

Campaigns by stockholders to effect changes at public companies are sometimes led by investors seeking to increase stockholder value through actions such as financial restructuring, corporate governance changes, special dividends, stock repurchases or sales of assets or the entire company. Proxy contests, if any, could be costly and time-consuming, disrupt our operations and divert the attention of management and our employees from executing our strategic plan. Additionally, perceived uncertainties as to our future direction as a result of stockholder activities or changes to the composition of the board of directors may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If such perceived uncertainties result in delay, deferral or reduction in transactions with us or transactions with our competitors instead of us because of any such issues, then our revenue, earnings and operating cash flows could be adversely affected.

Failure to maintain effective disclosure controls and procedures and internal controls over financial reporting could have an adverse effect on our operations.

Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of the Company’s internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, we may not be able to ensure that we can conclude on an ongoing basis that we have an effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and are important in helping to prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, REIT qualification could be jeopardized, and investors could lose confidence in our reported financial information.

There is no trading market for shares of our common stock, and we are not required to effectuate a liquidity event by a certain date. As a result, it will be difficult for you to sell your shares of common stock and, if you are able to sell your shares, you are likely to sell them at a substantial discount.

There is no current public market for the shares of our common stock and we have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders. It will therefore be difficult for you to sell your shares of common stock promptly, or at all. Even if you are able to sell your shares of common stock, the absence of a public market may cause the price received for any shares of our common stock sold to be less than what you paid or less than your proportionate value of the assets we own. We have adopted the Amended and Restated SRP, but only shares submitted for repurchase in connection with the death or “qualifying disability” (as defined in the Amended and Restated SRP) of a stockholder are eligible for repurchase under the Amended and Restated SRP and the number of shares to be redeemed under the Amended and Restated SRP is limited to the lesser of (i) a total of $3,500,000 for redemptions sought upon a stockholder’s death and a total of $1,000,000 for redemptions sought upon a stockholder’s qualifying disability, and (ii) 5% of the weighted average of the number of shares of our common stock outstanding during the prior calendar year. Additionally, our charter does not require that we consummate a transaction to provide liquidity to stockholders on any date certain or at all. As a result, you should be prepared to hold your shares for an indefinite length of time.

You are limited in your ability to sell your shares of common stock pursuant to the Amended and Restated SRP. You may not be able to sell any of your shares of our common stock back to us, and if you do sell your shares, you may not receive the price you paid upon subscription.

The Amended and Restated SRP may provide you with an opportunity to have your shares of common stock redeemed by us. However, our share redemption program contains certain restrictions and limitations. Only shares submitted for repurchase in connection with the death or “qualifying disability” (as defined in the Amended and Restated SRP) of a stockholder are eligible for repurchase under the Amended and Restated SRP. Further, we limit the number of shares to be redeemed under the Amended and Restated SRP to the lesser of (i) a total of $3,500,000 for redemptions sought upon a stockholder’s death and a total of $1,000,000 for redemptions sought upon a stockholder’s qualifying disability, and (ii) 5% of the weighted average of the number of shares of our common stock outstanding during the prior calendar year. In addition, our board of directors reserves the right to reject any redemption request for any reason or to amend or terminate the Amended and Restated SRP at any time. Therefore, you may not have the opportunity to make a redemption request prior to a potential termination of the Amended and Restated SRP and you may not be able to sell any of your shares of common stock back to us pursuant to the Amended and Restated SRP. Moreover, if you do sell your shares of common stock back to us pursuant to the Amended and Restated SRP, you may not receive the price you paid for any shares of our common stock being redeemed.

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Distributions are not guaranteed, may fluctuate, and may constitute a return of capital or taxable gain from the sale or exchange of property.

From August 2009 to December 2012, our board of directors declared monthly cash distributions. Due to short-term liquidity issues and defaults under certain of our loan agreements, effective January 15, 2013, our board of directors determined to pay future distributions on a quarterly basis (as opposed to monthly). However, our board of directors did not declare or pay a distribution for the first three quarters of 2013. On December 9, 2013, our board of directors re-established a quarterly distribution that has continued through 2017. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Distributions” for additional information regarding distributions.

The actual amount and timing of any future distributions will be determined by our board of directors and typically will depend upon, among other things, the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time.

To the extent that we are unable to consistently fund distributions to our stockholders entirely from our funds from operations, the value of your shares upon a listing of our common stock, the sale of our assets or any other liquidity event will likely be reduced. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will either be (1) a return of capital or (2) gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions. In addition, to the extent we make distributions to stockholders with sources other than funds from operations, the amount of cash that is distributed from such sources will limit the amount of investments that we can make, which will in turn negatively impact our ability to achieve our investment objectives and limit our ability to make future distributions.

Because we are dependent upon our Advisor and its affiliates to conduct our operations, any adverse changes in the financial health of our Advisor or its affiliates or our relationship with them could hinder our operating performance and the return on our stockholders’ investment.

We are dependent on our Advisor to manage our operations and our portfolio of real estate and real estate-related assets. Our Advisor depends on fees and other compensation that it receives from us in connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of our Advisor or our relationship with our Advisor could hinder our Advisor’s ability to successfully manage our operations and our portfolio of investments. If our Advisor is unable to provide services to us, we may spend substantial resources in identifying alternative service providers to provide advisory functions.

If we internalize our management functions, your interest in us could be diluted and we could incur other significant costs associated with being self-managed.

Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate the acquisition of our Advisor’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the earnings per share and funds from operations per share attributable to your investment.

Additionally, while we would no longer bear the costs of the various fees and expenses we pay to our Advisor under the Advisory Agreement, our direct expenses would include general and administrative costs, including legal, accounting and other expenses related to corporate governance, SEC reporting and compliance. We would also be required to employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances as well as incur the compensation and benefits costs of our officers and other employees and consultants that were being paid by our Advisor or its affiliates. We may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations and may further dilute your investment. We cannot reasonably estimate the amount of fees to our Advisor that we would save or the costs that we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our Advisor, our earnings per share and funds from operations per share would be lower as a result of the internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.

Internalization transactions involving the acquisition of advisors or property managers affiliated with entity sponsors have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend

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significant amounts of money defending claims which would reduce the amount of funds available for us to invest in properties or other investments or to pay distributions.

If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, our Advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. These personnel have substantial know-how and experience which provides us with economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could thus result in our incurring excess costs and suffering potential deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our real properties and other real estate-related assets.

Provisions of the Maryland General Corporation Law may limit the ability of a third party to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

Our board of directors has elected for us to be subject to certain provisions of the Maryland General Corporation Law (the “MGCL”) relating to corporate governance that may have the effect of delaying, deferring or preventing a transaction or a change of control of us that might involve a premium to the market price of our common stock or otherwise be in our stockholders' best interests. Pursuant to Subtitle 8 of Title 3 of the MGCL, our board of directors has implemented (i) a classified board of directors having staggered three year terms and (ii) a requirement that a vacancy on the board be filled only by the remaining directors. Such provisions may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if the acquisition would be in our stockholders’ best interests, and may therefore prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

Risks Related To Our Business

We are uncertain of our sources for funding our future capital needs and our cash and cash equivalents on hand is limited. If we cannot obtain debt or equity financing on acceptable terms, our ability 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.

Our cash and cash equivalents on hand are currently limited. In the event that we develop a need for additional capital in the future for investments, the improvement of our real properties or for any other reason, sources of funding may not be available to us. If we cannot establish reserves out of cash flow generated by our investments or out of net sale proceeds in non-liquidating sale transactions, or obtain debt or equity financing on acceptable terms, our ability to acquire real properties and other real estate-related assets, to expand our operations and make distributions to our stockholders will be adversely affected. Furthermore, if our liquidity were to become severely limited it could jeopardize our ability to continue as a going concern or to make the annual distributions required to continue to qualify as a REIT, which would adversely affect the value of our stockholders’ investment in us.

Uninsured losses or premiums for insurance coverage relating to real property may adversely affect your returns.

We attempt to adequately insure all of our real properties against casualty losses. There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Additionally, mortgage lenders sometimes require commercial property owners to purchase specific coverage against terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our real properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our real properties incurs a casualty loss which is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we cannot assure you that funding will be available to us for repair or reconstruction of damaged real property in the future.

Risks Relating to Our Organizational Structure

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock unless exempted by our board of directors. This restriction may discourage a change of control of us and may deter individuals or entities from making tender

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offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell your shares of our common stock.

We may issue preferred stock or other classes of common stock, which could adversely affect the holders of our common stock.

Our stockholders do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of your shares of common stock. However, the issuance of preferred stock must also be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. In some instances, the issuance of preferred stock or other classes of common stock would increase the number of stockholders entitled to distributions without simultaneously increasing the size of our asset base.

Our charter authorizes us to issue 450,000,000 shares of capital stock, of which 400,000,000 shares of capital stock are designated as common stock and 50,000,000 shares of capital stock are designated as preferred stock. Our board of directors may amend our charter to increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. If we ever create and issue preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:


•	a merger, tender offer or proxy contest;


•	the assumption of control by a holder of a large block of our securities; and


•	the removal of incumbent management.

Actions of joint venture partners could negatively impact our performance.

We have entered into and may enter into joint ventures with third-parties, including with entities that are affiliated with our Advisor. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with a direct investment in real estate, including, for example:


•	the possibility that our venture partner or co-tenant in an investment might become bankrupt;


•	that the venture partner or co-tenant may at any time have economic or business interests or goals which are, or which become, inconsistent with our business interests or goals;


•	that such venture partner or co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;


•	the possibility that we may incur liabilities as a result of an action taken by such venture partner;


•	that disputes between us and a venture partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business;


•	the possibility that if we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so; or


•	the possibility that we may not be able to sell our interest in the joint venture if we desire to exit the joint venture.

Under certain joint venture arrangements, one or all of the venture partners may have limited powers to control the venture and an impasse could be reached, which might have a negative influence on the joint venture and decrease potential returns to you. In addition, to the extent that our venture partner or co-tenant is an affiliate of our Advisor, certain conflicts of interest will exist.

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Risks Related To Conflicts of Interest

We may compete with other affiliates of our Advisor for opportunities to acquire or sell investments, which may have an adverse impact on our operations.

We may compete with other affiliates of our Advisor for opportunities to acquire or sell real properties and other real estate-related assets. We may also buy or sell real properties and other real estate-related assets at the same time as other affiliates are considering buying or selling similar assets. In this regard, there is a risk that our Advisor will select for us investments that provide lower returns to us than investments purchased by another affiliate. Certain of our Advisor’s affiliates may own or manage real properties in geographical areas in which we may expect to own real properties. As a result of our potential competition with other affiliates of our Advisor, certain investment opportunities that would otherwise be available to us may not in fact be available. This competition may also result in conflicts of interest that are not resolved in our favor.

The time and resources that our Advisor and some of its affiliates, including our officers and directors, devote to us may be diverted, and we may face additional competition due to the fact that affiliates of our Advisor are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target.

Our Advisor and some of its affiliates, including our officers and directors, are not prohibited from raising money for, or managing, another investment entity that makes the same types of investments as those we target. For example, our Advisor’s management currently manages several privately offered real estate programs sponsored by affiliates of our Advisor. As a result, the time and resources they could devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities. We may also co-invest with any such investment entity. Even though all such co-investments will be subject to approval by our independent directors, they could be on terms not as favorable to us as those we could achieve co-investing with a third-party.

Our Advisor and its affiliates, including certain of our officers and directors, face conflicts of interest caused by compensation arrangements with us and other affiliates, which could result in actions that are not in the best interests of our stockholders.

Our Advisor and its affiliates receive substantial fees from us in return for their services and these fees could influence the advice provided to us. Among other matters, the compensation arrangements could affect their judgment with respect to:


•	acquisitions of property and other investments and originations of loans, which entitle our Advisor to acquisition or origination fees and management fees; and, in the case of acquisitions of investments from other programs sponsored by Glenborough, may entitle affiliates of our Advisor to disposition or other fees from the seller;


•	real property sales, since the asset management fees payable to our Advisor will decrease;


•	incurring or refinancing debt and originating loans, which would increase the acquisition, financing, origination and management fees payable to our Advisor; and


•	whether and when we seek to sell the company or its assets or to list our common stock on a national securities exchange, which would entitle the Advisor and/or its affiliates to incentive fees.

Further, our Advisor may recommend that we invest in a particular asset or pay a higher purchase price for the asset than it would otherwise recommend if it did not receive an acquisition fee. Certain acquisition fees and asset management fees payable to our Advisor and property management fees payable to the property manager are payable irrespective of the quality of the underlying real estate or property management services during the term of the related agreement. These fees may influence our Advisor to recommend transactions with respect to the sale of a property or properties that may not be in our best interest at the time. Investments with higher net operating income growth potential are generally riskier or more speculative. In addition, the premature sale of an asset may add concentration risk to the portfolio or may be at a price lower than if we held on to the asset. Moreover, our Advisor has considerable discretion with respect to the terms and timing of acquisition, disposition, refinancing and leasing transactions. In evaluating investments and other management strategies, the opportunity to earn these fees may lead our Advisor to place undue emphasis on criteria relating to its compensation at the expense of other criteria, such as the preservation of capital, to achieve higher short-term compensation. Considerations relating to our affiliates’ compensation from us and other affiliates of our Advisor could result in decisions that are not in the best interests of our stockholders, which could hurt our ability to pay you distributions or result in a decline in the value of your investment.

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We may purchase real property and other real estate-related assets from third-parties who have existing or previous business relationships with affiliates of our Advisor, and, as a result, in any such transaction, we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.

We may purchase real property and other real estate-related assets from third-parties that have existing or previous business relationships with affiliates of our Advisor. The officers, directors or employees of our Advisor and its affiliates and the principals of our Advisor who also perform services for other affiliates of our Advisor may have a conflict in representing our interests in these transactions on the one hand and preserving or furthering their respective relationships on the other hand. In any such transaction, we will not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties, and the purchase price or fees paid by us may be in excess of amounts that we would otherwise pay to third-parties.

Risks Associated with Retail Property

Our retail properties are subject to property taxes that may increase in the future, which could adversely affect our cash flow.

Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Certain of our leases provide that the property taxes, or increases therein, are charged to the lessees as an expense related to the real properties that they occupy, while other leases provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. In addition, we will generally be responsible for real property taxes related to any vacant space.

An economic downturn in the United States may have an adverse impact on the retail industry generally. Slow or negative growth in the retail industry may result in defaults by retail tenants which could have an adverse impact on our financial operations.

An economic downturn in the United States may have an adverse impact on the retail industry generally. As a result, the retail industry may face reductions in sales revenues and increased bankruptcies. Adverse economic conditions may result in an increase in distressed or bankrupt retail companies, which in turn could result in an increase in defaults by tenants at our commercial properties. Additionally, slow economic growth is likely to hinder new entrants in the retail market which may make it difficult for us to fully lease our properties. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of our retail properties and our results of operations.

Our properties consist of retail properties. Our performance, therefore, is linked to the market for retail space generally.

As of December 31, 2017 , we owned 10 properties, including three properties held for sale, each of which is a retail property and the majority of which have multiple tenants. The joint ventures in which we have invested also own retail centers. The market for retail space has been and in the future could be adversely affected by weaknesses in the national, regional and local economies, the adverse financial condition of some large retailing companies, consolidation in the retail sector, excess amounts of retail space in a number of markets and competition for tenants with other shopping centers in our markets. Customer traffic to these shopping areas may be adversely affected by the closing of stores in the same shopping center, or by a reduction in traffic to such stores resulting from a regional economic downturn, a general downturn in the local area where our retail center is located, or a decline in the desirability of the shopping environment of a particular shopping center. Such a reduction in customer traffic could have a material adverse effect on our business, financial condition and results of operations.

Our retail tenants face competition from numerous retail channels, which may reduce our profitability and ability to pay distributions.

Retailers at our current retail properties and at any retail property we may acquire in the future face continued competition from discount or value retailers, factory outlet centers, wholesale clubs, mail order catalogs and operators, television shopping networks and shopping via the Internet. Such competition could adversely affect our tenants and, consequently, our revenues and funds available for distribution.

Retail conditions may adversely affect our base rent and subsequently, our income.

Some of our leases may provide for base rent plus contractual base rent increases. A number of our retail leases may also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases that contain percentage rent clauses, our revenue from tenants may increase as the sales of

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our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue that we may derive from percentage rent leases could decline upon a general economic downturn.

Our revenue will be impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space and adversely affect the returns on your investment.

In the retail sector, a tenant occupying all or a large portion of the gross leasable area of a retail center, commonly referred to as an “anchor tenant,” may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events at one of our properties or any retail property we may acquire in the future would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A lease termination by an anchor tenant at one of our properties or any retail property we may acquire in the future could result in lease terminations or reductions in rent by other tenants whose leases may permit cancellation or rent reduction if another tenant’s lease is terminated. In such event, we may be unable to re-lease the vacated space. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer of a lease to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases. In the event that we are unable to re-lease vacated space at one of our properties or any retail property we may acquire in the future to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant. As of December 31, 2017, excluding properties classified as held for sale, Clover Juice accounted for more than 10% of our annual minimum rent.

One of our tenants accounts for a meaningful portion of the gross leasable area of our portfolio and/or our annual minimum rent, and the inability of of this tenant to make its contractual rent payments to us could expose us to potential losses in rental revenue, expense recoveries, and percentage rent.

A concentration of credit risk may arise in our business when a nationally or regionally-based tenant is responsible for a substantial amount of rent in multiple properties owned by us. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to us, exposing us to potential losses in rental revenue, expense recoveries, and percentage rent. Further, the impact may be magnified if the tenant is renting space in multiple locations. Generally, we do not obtain security from nationally-based or regionally-based tenants in support of their lease obligations to us. As of December 31, 2017, excluding properties classified as held for sale, Clover Juice accounted for more than 10% of our annual minimum rent.

The bankruptcy or insolvency of a major tenant may adversely impact our operations and our ability to pay distributions.

The bankruptcy or insolvency of a significant tenant or a number of smaller tenants at one of our properties or any retail property we may acquire in the future may have an adverse impact on our income and our ability to pay distributions. Generally, under bankruptcy law, a debtor tenant has 120 days to exercise the option of assuming or rejecting the obligations under any unexpired lease for nonresidential real property, which period may be extended once by the bankruptcy court. If the tenant assumes its lease, the tenant must cure all defaults under the lease and may be required to provide adequate assurance of its future performance under the lease. If the tenant rejects the lease, we will have a claim against the tenant’s bankruptcy estate. Although rent owing for the period between filing for bankruptcy and rejection of the lease may be afforded administrative expense priority and paid in full, pre-bankruptcy arrears and amounts owing under the remaining term of the lease will be afforded general unsecured claim status (absent collateral securing the claim). Moreover, amounts owing under the remaining term of the lease will be capped. Other than equity and subordinated claims, general unsecured claims are the last claims paid in a bankruptcy and therefore funds may not be available to pay such claims in full.

The costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been

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amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third-parties may affect our real properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to you.

The costs associated with complying with the Americans with Disabilities Act may reduce the amount of cash available for distribution to our stockholders.

Investment in real properties may also be subject to the Americans with Disabilities Act of 1990, as amended, or “ADA”. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. We are committed to complying with the act to the extent to which it applies. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. With respect to the properties we acquire, the ADA’s requirements could require us to remove access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third-party, such as a tenant, to ensure compliance with the ADA. We cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. Any monies we use to comply with the ADA will reduce the amount of cash available for distribution to our stockholders.

Real properties are illiquid investments, and we may be unable to adjust our portfolio in response to changes in economic or other conditions or sell a property if or when we decide to do so.

Real properties are illiquid investments. We may be unable to adjust our portfolio in response to changes in economic or other conditions. In addition, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and supply and demand that are beyond our control. We cannot predict whether we will be able to sell any real property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a real property. Also, we may acquire real properties that are subject to contractual “lock-out” provisions that could restrict our ability to dispose of the real property for a period of time. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

In acquiring a real property, we may agree to restrictions that prohibit the sale of that real property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that real property. Our real properties may also be subject to resale restrictions. All these provisions would restrict our ability to sell a property, which could reduce the amount of cash available for distribution to our stockholders.

Risks Associated With Debt Financing

Restrictions imposed by our loan agreements may limit our ability to execute our business strategy and could limit our ability to make distributions to our stockholders.

We are a party to loan agreements that contain a variety of restrictive covenants. These covenants include requirements to maintain certain financial ratios and requirements to maintain compliance with applicable laws. A lender could impose restrictions on us that affect our ability to incur additional debt and our distribution and operating policies. In general, we expect our loan agreements to restrict our ability to encumber or otherwise transfer our interest in the respective property without the prior consent of the lender. Loan documents we enter may contain other customary negative covenants that may limit our ability to further mortgage the property, discontinue insurance coverage, replace our Advisor or impose other limitations. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions to you.

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We will incur mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of your investment.

We have, and may in the future, obtain lines of credit and long-term financing that may be secured by our real properties and other assets. Under 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 are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts or other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75% of the aggregate cost of our investments before non-cash reserves and depreciation. Our charter allows us to borrow in excess of these amounts if such excess is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report, along with justification for such excess. As of December 31, 2017, our aggregate borrowings did not exceed 300% of the value of our net assets. Also, we may incur mortgage debt and pledge some or all of our investments as security for that debt to obtain funds to acquire additional investments or for working capital. We may also borrow funds as necessary or advisable to ensure we maintain our REIT tax qualification, including the requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the distribution paid deduction and excluding net capital gains). Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.

High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Instability in the debt markets may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the purchase of additional properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to you and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Increases in interest rates could increase the amount of our debt payments and negatively impact our operating results.

Interest we pay on our debt obligations will reduce cash available for distributions. If we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to you. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times, which may not permit realization of the maximum return on such investments.

Derivative financial instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment.

We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets, but no hedging strategy can protect us completely. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test.

Federal Income Tax Risks

Our failure to continue to qualify as a REIT would subject us to federal income tax and reduce cash available for distribution to you.

We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31,

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2009. We intend to continue to operate in a manner so as to continue to qualify as a REIT for federal income tax purposes. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT status. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to continue to qualify as a REIT. If we fail to continue to qualify as a REIT in any taxable year, we would be subject to federal and applicable state and local income tax on our taxable income at corporate rates, in which case we might be required to borrow or liquidate some investments in order to pay the applicable tax. Losing our REIT status would reduce our net income available for investment or distribution to you because of the additional tax liability. In addition, distributions to you would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. Furthermore, if we fail to qualify as a REIT in any taxable year for which we have elected to be taxed as a REIT, we would generally be unable to elect REIT status for the four taxable years following the year in which our REIT status is lost.

Complying with REIT requirements may force us to borrow funds to make distributions to you or otherwise depend on external sources of capital to fund such distributions.

To continue to qualify as a REIT, we are required to distribute annually at least 90% of our taxable income, subject to certain adjustments, to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we may elect to retain and pay income tax on our net long-term capital gain. In that case, if we so elect, a stockholder would be taxed on its proportionate share of our undistributed long-term gain and would receive a credit or refund for its proportionate share of the tax we paid. A stockholder, including a tax-exempt or foreign stockholder, would have to file a federal income tax return to claim that credit or refund. Furthermore, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

From time-to-time, we may generate taxable income greater than our net income (loss) for GAAP. In addition, our taxable income may be greater than our cash flow available for distribution to you as a result of, among other things, investments in assets that generate taxable income in advance of the corresponding cash flow from the assets (for instance, if a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise).

If we do not have other funds available in the situations described in the preceding paragraphs, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.

Because of the distribution requirement, it is unlikely that we will be able to fund all future capital needs, including capital needs in connection with investments, from cash retained from operations. As a result, to fund future capital needs, we likely will have to rely on third-party sources of capital, including both debt and equity financing, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital will depend upon a number of factors, including our current and potential future earnings and cash distributions.

Despite our qualification for taxation as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you.

Despite our qualification for taxation as a REIT for federal income tax purposes, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income or property. Any of these taxes would decrease cash available for distribution to you. For instance:


•	in order to continue to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) to you.


•	to the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income.


•	we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.


•	if we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the

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highest corporate income tax rate.


•	if we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business and do not qualify for a safe harbor in the Internal Revenue Code, our gain would be subject to the 100% “prohibited transaction” tax.


•	any domestic taxable REIT subsidiary, or TRS, of ours will be subject to federal corporate income tax on its income, and on any non-arm’s-length transactions between us and any TRS, for instance, excessive rents charged to a TRS could be subject to a 100% tax.


•	we may be subject to tax on income from certain activities conducted as a result of taking title to collateral.


•	we may be subject to state or local income, property and transfer taxes, such as mortgage recording taxes.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.

To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to stockholders and the ownership of our stock. As discussed above, we may be required to make distributions to you at disadvantageous times or when we do not have funds readily available for distribution. Additionally, we may be unable to pursue investments that would be otherwise attractive to us in order to satisfy the requirements for qualifying as a REIT.

We must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets) and no more than 20% of the value of our gross assets (25% for taxable years before 2018) may be represented by securities of one or more TRSs. Finally, for the taxable years after 2015, no more than 25% of our assets may consist of debt investments that are issued by “publicly offered REITs” and would not otherwise be treated as qualifying real estate assets. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences, unless certain relief provisions apply. As a result, compliance with the REIT requirements may hinder our ability to operate solely on the basis of profit maximization and may require us to liquidate investments from our portfolio, or refrain from making, otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to stockholders.

Our acquisition of debt or securities investments may cause us to recognize income for federal income tax purposes even though no cash payments have been received on the debt investments.

We may acquire debt or securities investments in the secondary market for less than their face amount. The amount of such discount will generally be treated as a “market discount” for federal income tax purposes. If these debt or securities investments provide for “payment-in-kind” interest, we may recognize “original issue discount,” or OID, for federal income tax purposes. Moreover, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt constitute “significant modifications” under the applicable Treasury Regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. In that event, if the debt is considered to be “publicly traded” for federal income tax purposes, the modified debt in our hands may be considered to have been issued with OID to the extent the fair market value of the modified debt is less than the principal amount of the outstanding debt. In the event the debt is not considered to be “publicly traded” for federal income tax purposes, we may be required to recognize taxable income to the extent that the principal amount of the modified debt exceeds our cost of purchasing it. Also, certain loans that we originate and later modify and certain previously modified debt we acquire in the secondary market may be considered to have been issued with the OID at the time it was modified.

In general, we will be required to accrue OID on a debt instrument as taxable income in accordance with applicable federal income tax rules even though no cash payments may be received on such debt instrument on a current basis.

In the event a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of when their corresponding cash payments are received.

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In order to meet the REIT distribution requirements, it might be necessary for us to arrange for short-term, or possibly long-term borrowings, or to pay distributions in the form of our shares or other taxable in-kind distributions of property. We may need to borrow funds at times when the market conditions are unfavorable. Such borrowings could increase our costs and reduce the value of your investment. In the event in-kind distributions are made, your tax liabilities associated with an investment in our common stock for a given year may exceed the amount of cash we distribute to you during such year.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our operations effectively. Our aggregate gross income from non-qualifying hedges, fees and certain other non-qualifying sources cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. Any hedging income earned by a TRS would be subject to federal, state and local income tax at regular corporate rates. This could increase the cost of our hedging activities or expose us to greater risks associated with interest rate or other changes than we would otherwise incur.

Liquidation of assets may jeopardize our REIT qualification.

To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% prohibited transaction tax on any resulting gain if we sell assets that are treated as dealer property or inventory.

The prohibited transactions tax may limit our ability to engage in transactions, including disposition of assets and certain methods of securitizing loans, which would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of dealer property, other than foreclosure property, but including loans held primarily for sale to customers in the ordinary course of business. We might be subject to the prohibited transaction tax if we were to dispose of or securitize loans in a manner that is treated as a sale of the loans, for federal income tax purposes. In order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans and may limit the structures we use for any securitization financing transactions, even though such sales or structures might otherwise be beneficial to us. Additionally, we may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe-harbor exception to prohibited transaction treatment is available, we cannot assure you that we can comply with such safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of our trade or business. Consequently, we may choose not to engage in certain sales of real property or may conduct such sales through a TRS.

It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that we engage in such activities through a TRS, the income associated with such activities will be subject to a corporate income tax. In addition, the IRS may attempt to ignore or otherwise recast such activities in order to impose a prohibited transaction tax on us, and there can be no assurance that such recast will not be successful.

We also may not be able to use secured financing structures that would create taxable mortgage pools, other than in a TRS or through a subsidiary REIT.

We may recognize substantial amounts of REIT taxable income, which we would be required to distribute to you, in a year in which we are not profitable under GAAP principles or other economic measures.

We may recognize substantial amounts of REIT taxable income in years in which we are not profitable under GAAP or other economic measures as a result of the differences between GAAP and tax accounting methods. For instance, certain of our assets will be marked-to-market for GAAP purposes but not for tax purposes, which could result in losses for GAAP purposes that are not recognized in computing our REIT taxable income. Additionally, we may deduct our capital losses only to the extent of our capital gains in computing our REIT taxable income for a given taxable year. Consequently, we could recognize substantial amounts of REIT taxable income and would be required to distribute such income to you, in a year in which we are not profitable under GAAP or other economic measures.

We may distribute our common stock in a taxable distribution, in which case you may sell shares of our common stock to pay tax on such distributions, and you may receive less in cash than the amount of the dividend that is taxable.

We may make taxable distributions that are payable in cash and common stock. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable distributions that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes.

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Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. Accordingly, it is unclear whether and to what extent we will be able to make taxable distributions payable in cash and common stock. If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such distributions will be required to include the dividend as taxable income to the extent of our current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, you may be required to pay income tax with respect to such distributions in excess of the cash distributions received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount recorded in earnings with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to continue to qualify as a REIT. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code and to avoid corporate income tax and the 4% excise tax. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Our qualification as a REIT could be jeopardized as a result of an interest in joint ventures or investment funds.

We may hold certain limited partner or non-managing member interests in partnerships or limited liability companies that are joint ventures or investment funds. If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, we could fail to continue to qualify as a REIT unless we are able to qualify for a statutory REIT “savings” provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.

Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.

The maximum tax rate for “qualified dividends” paid by corporations to non-corporate stockholders is currently 20%. Distributions paid by REITs, however, generally are taxed at ordinary income rates (subject to a maximum rate of 29.6% for non-corporate stockholders), rather than the preferential rate applicable to qualified dividends.

Legislative or regulatory tax changes could adversely affect us or stockholders.

At any time, the federal income tax laws can change. Laws and rules governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or stockholders.

On November 16, 2017, the U.S. House of Representatives passed the Tax Cuts and Jobs Act (H.R. 1). On December 2, 2017, the Senate passed a different version of the Tax Cuts and Jobs Act. On December 15, 2017, the House and Senate released a Conference report reconciling the House and Senate bills and producing a bill, which was subsequently adopted by both the House and the Senate, and signed into law by the President on December 22, 2017.

The Tax Cuts and Jobs Act made significant changes to the U.S. federal income tax rules for taxation of individuals and corporations. In the case of individuals, the tax brackets were adjusted, the top federal income rate was reduced to 37%, special rules reduce taxation of certain income earned through pass-through entities and reduce the top effective rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received that are not “capital gain dividends” or “qualified dividend income,” subject to complex limitations) and various deductions were eliminated or limited, including limiting the deduction for state and local taxes to $10,000 per year. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The top corporate income tax rate was reduced to 21%, and the corporate alternative minimum tax was repealed. The deduction of net interest expense is limited for all businesses, other than certain electing businesses, including certain real estate businesses. There are only minor changes to the REIT rules (other than the 20% deduction applicable to individuals for ordinary REIT dividends received). The Tax Cuts and Jobs Act makes numerous other large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us. For example, the Tax Cuts and Jobs Act amended the rules for accrual of income so that income is taken into account no later than when it is taken into account on

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applicable financial statements, even if financial statements take such income into account before it would accrue under the original issue discount rules, market discount rules or other rules in the Internal Revenue Code. Such rule may cause us to recognize income before receiving any corresponding receipt of cash, which may make it more likely that we could be required to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which such income is recognized, although the precise application of this rule is unclear at this time.

Stockholders are urged to consult with their tax advisors with respect to the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our common stock.

Retirement Plan Risks

If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of the Internal Revenue Code (such as an IRA) fails to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, the fiduciary could be subject to penalties and other sanctions.

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares. Fiduciaries and IRA owners investing the assets of such a plan or account in our common stock should satisfy themselves that:


•	the investment is consistent with their fiduciary and other obligations under ERISA and the Internal Revenue Code;


•	the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;


•	the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;


•	the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA;


•	the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;


•	our stockholders will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA annually; and


•	the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with counsel before making an investment in our common stock.

If our assets are deemed to be plan assets, the Advisor and we may be exposed to liabilities under Title I of ERISA and the Internal Revenue Code.

In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Title I of ERISA or Section 4975 of the Internal Revenue Code, may be applicable, and there may be liability under these and other provisions of ERISA and the Internal Revenue Code. We believe that our assets should not be treated as plan assets because the shares should qualify as “publicly-offered securities” that are exempt from the look-through rules under applicable Treasury Regulations. We note, however, that because certain limitations are imposed upon the transferability of shares so that we may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if the Advisor or we are exposed to liability under ERISA or the Internal Revenue Code, our performance and results of operations could be adversely affected. Prior to making an investment in us, you should consult with your legal and other advisors concerning the impact of ERISA and the Internal Revenue Code on your investment and our performance.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Property Portfolio

As of December 31, 2017 , our property portfolio included 10 retail properties, including 3 properties held for sale, which we refer to as “our properties” or “our portfolio,” comprising an aggregate of approximately 303,000 square feet of single- and multi-tenant, commercial retail space located in four states. We purchased our properties for an aggregate purchase price of approximately $73.4 million . As of December 31, 2017 and 2016 , approximately 96% and 91% of our portfolio was leased (based on rentable square footage), respectively, with a weighted-average remaining lease term of approximately seven years and four years, respectively.



(dollars in thousands)		Rentable Square Feet ⁽¹⁾	Percent Leased ⁽²⁾		Effective Rent ⁽³⁾ (Sq. Foot)		Date Acquired	Original Purchase Price ⁽⁴⁾
Property Name	Location	Rentable Square Feet ⁽¹⁾	Percent Leased ⁽²⁾		Effective Rent ⁽³⁾ (Sq. Foot)		Date Acquired	Original Purchase Price ⁽⁴⁾
Topaz Marketplace	Hesperia, CA	50,699	83	%	$	22.08	9/23/2011	$	13,500
400 Grove Street	San Francisco, CA	2,000	100	%	60.00		6/14/2016	2,890
8 Octavia Street	San Francisco, CA	3,640	47	%	32.00		6/14/2016	2,740
Fulton Shops	San Francisco, CA	3,758	100	%	55.91		7/27/2016	4,595
450 Hayes	San Francisco, CA	3,724	100	%	89.82		12/22/2016	7,567
388 Fulton	San Fancisco, CA	3,110	100	%	63.05		1/4/2017	4,195
Silver Lake	Los Angeles, CA	10,497	100	%	62.96		1/11/2017	13,300
		77,428						48,787

Properties Held for Sale
Ensenada Square	Arlington, TX	62,628	100	%	7.55		2/27/2012	5,025
Florissant Marketplace	Florissant, MO	146,257	98	%	10.24		5/16/2012	15,250
Shops at Turkey Creek	Knoxville, TN	16,324	100	%	27.71		3/12/2012	4,300
		225,209						24,575
		302,637						$	73,362


(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 December 31, 2017 .


(3)	Effective rent per square foot is calculated by dividing the annualized December 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.

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Lease Expirations

The following table reflects the timing of tenant lease expirations at our properties, excluding properties held for sale, as of December 31, 2017 (dollar amounts in thousands):



Year of Expiration ⁽¹⁾	Number of Leases Expiring	Annualized Base Rent ⁽²⁾		Percent of Portfolio Annualized Base Rent Expiring	Square Feet Expiring
2018	1	$	19	0.8%	1,306
2019	—	—		—%	—
2020	6	417		16.8%	11,514
2021	3	105		4.2%	5,673
2022	1	17		0.7%	1,012
2023	2	247		9.9%	11,417
2024	2	260		10.5%	3,948
2025	1	401		16.2%	6,549
2026	3	227		9.2%	4,090
2027	2	188		7.6%	8,834
Thereafter	3	598		24.1%	12,390
Total	24	$	2,479	100.0%	66,733


(1)	Represents the expiration date of the lease as of December 31, 2017 , and does not take into account any tenant renewal options.


(2)	Annualized base rent represents annualized contractual base rent as of December 31, 2017 . These amounts do not include other items such as tenant concession (e.g. free rent), percentage rent and expense recoveries.

Based on our forecasts, the estimated market rents in 2018 are expected to be approximately 11% higher than the expiring rents in 2018.

Properties Under Development

As of December 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
Wilshire Property	Santa Monica, CA	September, 2018	12,500	$	8,500
Gelson’s Property	Hollywood, CA	February, 2019	37,000	10,700
Total			49,500	$	19,200

Concentration of Credit Risk

A concentration of credit risk arises in our business when a nationally or regionally-based tenant occupies a substantial amount of space in multiple properties owned by us. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to us, exposing us to potential losses in rental revenue, expense recoveries, and percentage rent. Further, the impact may be magnified if the tenant is renting space in multiple locations. Generally, we do not obtain security from nationally-based or regionally-based tenants in support of their lease obligations to us. We regularly monitor our tenant base to assess potential concentrations of our credit risk. As of December 31, 2017 , excluding properties classified as held for sale, Clover Juice accounted for more than 10% of our annual minimum rent. Clover Juice is a healthy juice company based in Los Angeles, California. No other tenant accounted for 10% or more of our annual minimum rent.

2017 Property Acquisitions

On January 4, 2017, we 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 us or the Advisor. 388 Fulton is comprised of two leased

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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. We drew down $4.0 million on our line of credit to fund this acquisition.

On January 11, 2017, we purchased certain property located in the Silver Lake neighborhood of Los Angeles, California (“Silver Lake”). The seller was not affiliated with us 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. We drew down $11.0 million on our line of credit to fund this acquisition.

2017 Property Dispositions

On November 1, 2017, we consummated the disposition of Morningside Marketplace, located in Fontana, California for $12.7 million in cash. The net proceeds were used to pay down amounts outstanding under our line of credit.

On October 31, 2017, we consummated the disposition of Cochran Bypass, located in Chester, South Carolina, for a sales price of approximately $2.5 million in cash. The net proceeds from the sale of Cochran Bypass were used to repay a portion of the outstanding balance under our line of credit.

On April 17, 2017, we consummated the disposition of Woodland West Marketplace, located in Arlington, Texas, for a sales price of approximately $14.6 million in cash. We used the net proceeds from the sale of Woodland West Marketplace to repay $13.7 million of the outstanding balance on its line of credit.

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. We used the net proceeds from the sale of Pinehurst Square East to repay $18.4 million of the outstanding balance on its line of credit.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder. Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for the shares will develop.

On August 2, 2017, our board of directors approved an estimated value per share of our common stock of $6.27 per share based on the estimated value of our real estate assets as of June 30, 2017 plus the estimated value of our tangible other assets less the estimated value of our liabilities divided by the number of shares and operating partnership units outstanding, as of April 30, 2017. We are providing this estimated value per share to assist broker-dealers that participated in our initial public offering in meeting their customer account statement reporting obligations under National Association of Securities Dealers Conduct Rule 2340 as required by the Financial Industry Regulatory Authority (“FINRA”). The valuation with an effective date of April 30, 2017 was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association (“IPA”) in April 2013.

Our independent directors are responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine our estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals. The estimated value per share was determined after consultation with the Advisor and Robert A. Stanger & Co, Inc. (“Stanger”), an independent third-party valuation firm. The engagement of Stanger was approved by the board of directors, including all of its independent members. Stanger prepared individual appraisal reports (individually an “Appraisal Report”; collectively the “Appraisal Reports”), summarizing key inputs and assumptions, on 17 of the 23 properties in which we wholly owned or owned an interest in as of June 30, 2017 (the “Appraised Properties”). Stanger also prepared a net asset value report (the “NAV Report”) which estimates the net asset value per share of our stock as of April 30, 2017. The NAV Report relied upon: (i) the Appraisal Reports for the Appraised Properties; (ii) the book value as of April 30, 2017 for the Gelson’s Market and Wilshire properties (the “Development Properties”); (iii) the pending disposition price, per the executed purchase and sale agreement, less estimated transaction costs, as estimated by the Advisor, on the South Pond Center property (the “Pending Disposition Property”); (iv) the acquisition prices including transaction costs on the 450 Hayes Street, 388 Fulton Street and Silver Lake properties (the “Acquisition Price Properties”) which were acquired within 5 months of the valuation date; (v) Stanger's estimated value of our mortgage loans payable and other debt; (vi) Stanger's valuation of our unconsolidated joint venture interests; and (vii) the Advisor's estimate of the value of our other assets and liabilities as of April 30, 2017, to calculate an estimated net asset value per share of our common stock.

Upon the board of directors’ receipt and review of Stanger’s Appraisal Reports and NAV Report, and in light of other factors considered, the board of directors, including the independent directors, approved $6.27 per share as the estimated value of our common stock as of April 30, 2017, which determination is ultimately and solely the responsibility of the board of directors.

The table below sets forth the calculation of our estimated value per share as of April 30, 2017:

Strategic Realty Trust, Inc. and Subsidiaries

Estimated Value Per Share

(in thousands, except shares and per share amounts)

(unaudited)



Assets
Investments in real estate, net	$	92,729
Properties under development and development costs	32,501
Cash and cash equivalents	1,976
Restricted cash	3,572
Prepaid expenses and other assets, net	205
Tenants receivables, net	271
Investments in unconsolidated joint ventures	3,372
Deferred costs and intangibles, net	24
Total assets	134,650

Liabilities
Notes payable and line of credit	(62,232		)
Accounts payable and accrued expenses	(1,069		)
Other liabilities	(326		)
Total liabilities	(63,627		)

Stockholders’ equity	$	71,023

Shares and OP units outstanding	11,328,637

Estimated value per share	$	6.27

Methodology and Key Assumptions

Our goal in calculating an estimated value per share is to arrive at a value that is reasonable and supportable using what we deem to be appropriate valuation methodologies and assumptions and a process that is in compliance with the valuation guidelines established by the IPA.

FINRA’s current rules provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The estimated value per share is not audited and does not represent the fair value of our assets less our liabilities according to U.S. generally accepted accounting principles (“GAAP”), nor does it represent a liquidation value of our assets and liabilities or the amount our shares of common stock would trade at on a national securities exchange. The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of debt.

The following is a summary of the valuation and appraisal methodologies used to value our assets and liabilities:

Real Estate

Independent Valuation Firm

Stanger was selected by the Advisor and approved by our independent directors and board of directors to appraise the 17 Appraised Properties in which we wholly own or own an interest in with a valuation date of June 30, 2017. Stanger is engaged in the business of appraising commercial real estate properties and is not affiliated with us or the Advisor. The compensation we paid to Stanger was based on the scope of work and not on the appraised values of the Appraised Properties. The Appraisal Reports were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation. Each Appraisal Report was reviewed, approved and signed by an individual with the professional designation of MAI licensed in the state where each real property is located. The use of the Appraisal Reports are subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. In preparing the Appraisal Reports, Stanger did not, and was not requested to, solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of us.

Stanger collected reasonably available material information that it deemed relevant in appraising the Appraised Properties. Stanger relied in part on property-level information provided by the Advisor, including (i) property historical and projected operating revenues and expenses; (ii) property lease agreements and/or lease abstracts; and (iii) information regarding recent or planned capital expenditures.

In conducting their investigation and analyses, Stanger took into account customary and accepted financial and commercial procedures and considerations as they deemed relevant. Although Stanger reviewed information supplied or otherwise made available by us or the Advisor for reasonableness, they assumed and relied upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to them by any other party and did not independently verify any such information. Stanger has assumed that any operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Stanger were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management, board of directors and/or the Advisor. Stanger relied on us to advise them promptly if any information previously provided became inaccurate or was required to be updated during the period of their review.

In performing its analyses, Stanger made numerous other assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond their control and our control. Stanger also made assumptions with respect to certain factual matters. For example, unless specifically informed to the contrary, Stanger assumed that we have clear and marketable title to each Appraised Property, that no title defects exist, that any improvements were made in accordance with law, that no hazardous materials are present or were present previously, that no significant deed restrictions exist, and that no changes to zoning ordinances or regulations governing use, density or shape are pending or being considered. Furthermore, Stanger’s analyses, opinions and conclusions were necessarily based upon market, economic, financial and other circumstances and conditions existing as of or prior to the date of the Appraisal Reports, and any material change in such circumstances and conditions may affect Stanger’s analyses and conclusions. The Appraisal Reports contain other assumptions, qualifications and limitations that qualify the analyses, opinions and conclusions set forth therein. Furthermore, the prices at which the Appraised Properties may actually be sold could differ from Stanger’s analyses.

Stanger is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection with public security offerings, private placements, business combinations and similar transactions. We engaged Stanger to deliver the Appraisal Reports and assist in the net asset value calculation and Stanger received compensation for those efforts. In addition, we have agreed to indemnify Stanger against certain liabilities arising out of this engagement. In the two years prior to the date of this filing, Stanger has provided appraisal and valuation services for us and has received usual and customary fees in connection with those services. Stanger may from time to time in the future perform other services for us, so long as such other services do not adversely affect the independence of Stanger as certified in the applicable Appraisal Report.

Although Stanger considered any comments received from us or the Advisor regarding the Appraisal Reports, the final appraised values of the Appraised Properties were determined by Stanger. The Appraisal Reports are addressed solely to us to assist it in calculating an updated estimated value per share of our common stock. The Appraisal Reports are not addressed to the public and may not be relied upon by any other person to establish an estimated value per share of our common stock and do not constitute a recommendation to any person to purchase or sell any shares of our common stock.

The foregoing is a summary of the standard assumptions, qualifications and limitations that generally apply to the Appraisal Reports. All of the Appraisal Reports, including the analysis, opinions and conclusions set forth in such reports, are qualified by the assumptions, qualifications and limitations set forth in each respective Appraisal Report.

Real Estate Valuation

As described above, we engaged Stanger to provide an appraisal of the Appraised Properties consisting of 17 of the 23 properties in our portfolio (including properties owned through joint ventures), as of June 30, 2017. In preparing the Appraisal Reports, Stanger, among other things:


•	performed a site visit of each Appraised Property in connection with this assignment and prior assignments;


•	interviewed our officers or the Advisor's personnel to obtain information relating to the physical condition of each Appraised Property, including known environmental conditions, status of ongoing or planned property additions and reconfigurations, and other factors for such leased properties;


•	reviewed lease agreements for those properties subject to a long-term lease and discussed with us or Advisor certain lease provisions and factors on each property; and


•	reviewed the acquisition criteria and parameters used by real estate investors for properties similar to the Appraised Properties, including a search of real estate data sources and publications concerning real estate buyer's criteria, discussions with sources deemed appropriate, and a review of transaction data for similar properties.

Stanger appraised each of the Appraised Properties, using various methodologies including a direct capitalization analysis, discounted cash flow analyses and sales comparison approach, as appropriate, and relied primarily on the discounted cash flow analyses for the final valuations of each of the Appraised Properties. Stanger calculated the discounted cash flow value of the Appraised Properties using property-level cash flow estimates, terminal capitalization rates and discount rates that fall within ranges they believe would be used by similar investors to value the Appraised Properties based on survey data adjusted for unique property and market-specific factors.

The Development Properties were included in the NAV Report at their respective book values as of April 30, 2017. The Pending Disposition Property was included in the NAV Report at its pending disposition price, per the executed purchase and sale agreement, less estimated transaction costs, as estimated by the Advisor; and the Acquisition Price Properties were included in the NAV Report at their respective acquisition prices including transaction costs.

As for those properties consolidated on our financials, and for which we do not own 100% of the ownership interest, the property value was adjusted to reflect our ownership interest in such property after consideration of the distribution priorities associated with such property.

As of June 30, 2017, we wholly owned 12 real estate assets of which Stanger appraised nine properties. The remaining three wholly owned real estate assets (450 Hayes, 388 Fulton and Silverlake) were not appraised for purposes of this valuation, as they had been acquired by us within five months of the valuation date. The total acquisition cost of the nine wholly owned properties as appraised by Stanger was $62,088,000 excluding acquisition fees and expenses. In addition, we had invested $633,000 in capital and tenant improvements on these 9 real estate assets since inception. As of June 30, 2017, the total appraised value of the nine wholly owned appraised properties was $66,200,000. The total appraised real estate value of those nine properties as of June 30, 2017 compared to the total acquisition cost of those nine real estate properties plus subsequent capital improvements through June 30, 2017, results in an overall increase in the real estate value of those nine properties of approximately $4,112,000 or approximately 6.62%. The following summarizes the key assumptions that were used in the discounted cash flow models used to arrive at the appraised value of the Appraised Properties:



	Range	Weighted Average
Terminal capitalization rate	5.00% - 9.75%	7.44%
Discount rate	5.50% - 12.00%	8.45%
Income and expense growth rate	3.00%	3.00%
Projection period	10.0 Years - 14.0 Years	10.1 Years

As of June 30, 2017, we owned an interest in one property through a joint venture (the “Joint Venture Property”) between our wholly owned subsidiary, Grocery Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree Real Estate Opportunities Fund VI, L.P., and GLB SGO, LLC, a wholly owned subsidiary of Glenborough Property Partners, LLC (the “Joint Venture”). Stanger valued the Joint Venture using the terms of the joint venture agreement relating to the allocation of the economic

interests between us and our joint venture partners, as applied to a 10-year discounted cash flow analysis derived from the Appraisal Report of the Joint Venture Property and the terms of liabilities encumbering the Joint Venture Property and other fees and expenses of the Joint Venture. Our interest in the Joint Venture was included in the NAV Report based on a 15.0% discount rate applied to the projected cash flows. For more information regarding the Joint Venture, please see our Current Report on Form 8-K, filed with the SEC on March 17, 2015.

As of June 30, 2017, we owned an interest in eight properties through a joint venture between our wholly owned subsidiary, MN Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree Real Estate Opportunities Fund VI, L.P., and GLB SGO MN, LLC, a wholly owned subsidiary of Glenborough Property Partners, LLC (the “MN Joint Venture”). The business plan for one of the eight properties (herein referred to as the “Category A Property” per the MN Joint Venture Agreement (as defined below)) is to liquidate such property within the next 12 months. The fair market value of our interest in the Category A Property was estimated by:


1.	Utilizing the value of the Category A Property that is owned by MN Joint Venture based upon the Appraisal Report as prepared by Stanger;


2.	Adding the other tangible assets allocated to the Category A Property held by MN Joint Venture;


3.	Deducting the tangible liabilities allocated to the Category A Property, including any mortgage debt allocated to the Category A Property, after considering mark-to-market adjustments on such mortgage debt; and


4.	Taking the resulting equity from the above steps relating to the Category A Property and processing such equity through the MN Joint Venture (the “MN Joint Venture Agreement”) as it pertains to capital distribution allocations related to the Category A Property, to determine the amount of equity attributable to us;

The business plan for the remaining seven properties (herein referred to as the “Category B Properties” per the MN Joint Venture Agreement) in the MN Joint Venture is a long term hold. The fair market value of our interest in the Category B Properties was estimated by using the terms of the MN Joint Venture Agreement relating to the allocation of the economic interests between us and our joint venture partners, as applied to a 10-year discounted cash flow analysis derived from the Appraisal Report for each of the Category B Properties and the terms of liabilities encumbering the Category B Properties and other fees and expenses of the MN Joint Venture. Our interest in the Category B Properties was included in the NAV Report based on a 15.0% discount rate applied to the projected cash flows. For more information regarding the MN Joint Venture, please see our Current Report on Form 8-K, filed with the SEC on October 6, 2015.

While we believe that Stanger’s assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the calculation of the appraised value of the Appraised Properties and thus, the estimated value per share. The table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 25 basis points, and assuming all other factors remain unchanged, with respect to the real estate properties referenced in the table above. Additionally, the table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 5% in accordance with the IPA guidance:



	Increase (Decrease) on the Estimated Value per Share due to
	Decrease 25 Basis Points		Increase 25 Basis Points			Decrease 5.0%		Increase 5.0%
Terminal capitalization rates	$	0.11	$	(0.13	)	$	0.16	$	(0.18	)
Discount rates	$	0.09	$	(0.11	)	$	0.17	$	(0.19	)

Notes Payable

Values for mortgage loans were estimated by Stanger using a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including remaining loan term, loan-to-value ratios, debt-service-coverage ratios, prepayment terms, and collateral property attributes (i.e. age, location, etc.). The current market interest rate was generally determined based on market rates for available comparable debt. The estimated current market interest rates for our consolidated mortgage loans ranged from 2.94% to 10.65%.

As of April 30, 2017, Stanger’s estimate of fair value and carrying value of our consolidated notes payable were $62.2 million and $62.0, respectively. The weighted-average discount rate applied to the future estimated debt payments, which have a weighted-average remaining term of 1.0 years, was approximately 6.2%. The table below illustrates the impact on our estimated value per share if the discount rates were adjusted by 25 basis points, and assuming all other factors remain

unchanged, with respect to our notes payable. Additionally, the table below illustrates the impact on the estimated value per share if the discount rates were adjusted by 5% in accordance with the IPA guidance:



	Adjustment to Discount Rates
	+25 Basis Points			-25 Basis Points			+5%			-5%
Estimated fair value	$	62,089		$	62,377		$	62,077		$	62,388
Weighted average discount rate	6.3		%	6.0		%	6.4		%	5.9		%
Change in value per share	$	0.01		$	(0.01	)	$	0.01		$	(0.01	)

Other Assets and Liabilities

The carrying values of a majority of our other assets and liabilities are considered to equal their fair value due to their short maturities or liquid nature. Certain balances, such as straight-line rent receivables, lease intangible assets and liabilities, deferred financing costs, unamortized lease commissions and unamortized lease incentives, have been eliminated for the purpose of the valuation due to the fact that the value of those balances were already considered in the valuation of the respective investments.

Different parties using different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The value of our shares will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets and in response to the real estate and finance markets.

Limitations of Estimated Value Per Share

As mentioned above, we are providing this estimated value per share to assist broker-dealers that participated in our initial public offering in meeting their customer account statement reporting obligations. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share. The estimated value per share is not audited and does not represent the fair value of our assets or liabilities according to GAAP.

Accordingly, with respect to the estimated value per share, we can give no assurance that:


•	a shareholder would be able to resell his or her shares at this estimated value;


•	a shareholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company;


•	our shares of common stock would trade at the estimated value per share on a national securities exchange;


•	an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or


•	the methodology used to estimate our value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.

Further, the value of our shares will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets and in response to the real estate and finance markets. The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share does not take into account estimated disposition costs and fees for real estate properties that are not held for sale, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of debt. We currently expect to utilize the Advisor and/or an independent valuation firm to update the estimated value per share in 2018, in accordance with the recommended IPA guidelines.

Stockholder Information

As of March 20, 2018 , we had 10,988,438 shares of our common stock outstanding held by a total of approximately 3,019 stockholders. The number of stockholders is based on the records of our transfer agent.

Quarterly Distributions

In order to qualify as a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, to our stockholders. Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.

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.

Under the terms of the our credit facility, we may pay distributions to our stockholders so long as the total amount paid does not exceed certain thresholds specified in our 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.

The following tables set forth the quarterly distributions declared to our common stockholders and common unit holders for the years ended December 31, 2017 and 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
Second Quarter 2017	6/30/2017	7/31/2017	0.06		652		25		677
Third Quarter 2017	9/30/2017	10/31/2017	0.06		660		16		676
Fourth Quarter 2017	12/31/2017	1/31/2018	0.06		659		14		673
Total					$	2,626	$	80	$	2,706



	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

The tax composition of our distributions paid during the years ended December 31, 2017 and 2016 , was as follows:



	2017		2016
Unrecaptured section 1250 gain	54	%	—	%
Capital gain	46		—
Return of capital	—		100
Total	100	%	100	%

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 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 August 7, 2015, the board of directors approved the amendment and restatement of the SRP (the “First A&R SRP”). Under the First A&R SRP, the redemption date with respect to third quarter 2015 redemptions was November 10, 2015 or the next practicable date as the Chief Executive Officer determined so that redemptions with respect to the third quarter of 2015 were delayed until after the payment date for a special distribution. With this revision, stockholders who were to have 100% of their shares redeemed were not left holding a small number of shares from the Special Distribution after the date of the redemption of their shares. The other material terms of the First A&R SRP were consistent with the terms of the SRP.

On August 10, 2016, our board of directors authorized our management to prepare and implement an amendment and restatement of the SRP (the “Second A&R SRP”) to revise the definition of disability under the SRP. The Second A&R SRP became effective August 26, 2016. Under the Second A&R SRP, a person is deemed to be disabled and therefore eligible to redeem shares pursuant to the Second A&R SRP if they are disabled pursuant to the definition of “disability” in the Internal Revenue Code of 1986, as amended, at the time that the person’s written redemption request is received by us. The other material terms of the Second A&R SRP are consistent with the terms of the First A&R SRP.

On August 2, 2017, our board of directors approved, pursuant to Section 3(a) of the SRP, an additional $1.0 million of funds available for the redemption of shares in connection with the death of a stockholder.

During the year ended December 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
April 2017	—	—		—	712,431
May 2017	—	—		—	712,431
June 2017	37,820	6.36		37,820	471,900
July 2017	—	—		—	471,900
August 2017	—	—		—	1,471,900
September 2017	18,233	6.27		18,233	1,357,581
October 2017	—	—		—	1,357,581
November 2017	—	—		—	1,357,581
December 2017	48,993	6.27		48,993	1,050,393
Total	136,921			136,921


(1)	All of our purchases of equity securities during the year ended December 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 December 31, 2017 , we have redeemed 612,115 shares for $4.6 million .

Unregistered Sales of Equity Securities and Use of Offering Proceeds

During the year ended December 31, 2017 , we did not issue any securities that were not registered under the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data has been omitted as permitted under rules applicable to smaller reporting companies.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto included in this Annual Report. Also refer to “Forward Looking Statements” preceding Part I.

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.

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.

On November 4, 2008, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) for our initial public offering of up to 100,000,000 shares of our common stock at $10.00 per share in our primary offering and up to 10,526,316 shares of our common stock to our stockholders at $9.50 per share pursuant to our distribution reinvestment plan (“DRIP”). On August 7, 2009, the SEC declared our registration statement effective and we commenced our initial public offering. On February 7, 2013, we terminated our initial public offering and ceased offering shares of our common stock in our primary offering and under our DRIP.

As of February 2013 when we terminated the initial public offering, we had accepted subscriptions for, and issued, 10,688,940 shares of common stock in the initial public offering for gross offering proceeds of approximately $104.7 million , and 391,182 shares of common stock pursuant to the DRIP for gross offering proceeds of approximately $3.6 million . We have also granted 50,000 shares of restricted stock and we issued 273,729 shares of common stock to pay a portion of a special distribution on November 4, 2015. Refer to Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for details regarding the special distribution.

On April 1, 2015, our board of directors approved the reinstatement of the share redemption program and adopted the Amended and Restated Share Redemption Program (the “SRP”). The program was previously suspended, effective as of January 15, 2013. For more information regarding our share redemption program, refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities – Share Redemption Program.” Cumulatively, through December 31, 2017 , we have redeemed 612,115 shares of common stock sold in the Offering for approximately $4.6 million .

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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.

Beginning in December 2012 and ending upon execution of the Advisory Agreement, Glenborough performed certain services for us pursuant to a consulting agreement (“Consulting Agreement”). We entered the Consulting Agreement to assist us with the process of transitioning to a new external advisor, as well as to provide other services.

Market Outlook - Real Estate and Real Estate Finance Markets

Retail net absorption in 2017 was 85.9 million square feet according to CoStar as compared to deliveries of 81.9 million square feet. This lowered CoStar’s reported vacancy rate to 4.5%. CoStar’s average quoted rental rates trended up, ending the year at $16.45 per square foot, an increase of 3.9% from $15.81 a year earlier.

While the supply and demand indicators were healthy, the overall retail real estate sector continued to face negative headlines. According to Cushman and Wakefield, there were nearly 9,000 major chain store announced closures in 2017, more than double the number of chain stores in 2016. Data from the U.S. Department of Commerce showed pressure from online retailers grew as e-commerce sales increased by 15.5% compared to total sales growth of 4.3% for the comparable 12-month period.

Publicly traded real estate investment trusts (“REITs”) in the shopping center and mall sectors showed losses for 2017 with shopping REITs posting total return losses of 5.28% and malls posting total return losses of 15.01%, while the overall REIT market saw total return profits of 5.91% according to KeyBanc Capital Markets.

According to CoStar, sales volume for retail properties was $19.5 billion for the first nine months of 2017, down from $24.4 billion during the same period in 2016.

2017 Significant Events

Property Acquisitions

•

On January 4, 2017, we purchased certain property located in the Hayes Valley neighborhood at 388 Fulton Street in San Francisco, California (“388 Fulton”). 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. We drew down $4.0 million on our line of credit to fund this acquisition.

•

On January 11, 2017, we purchased certain property located in the Silver Lake neighborhood of Los Angeles, California (“Silver Lake”). 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. We drew down $11.0 million on our line of credit to fund this acquisition.

Property Dispositions and Loan Pay-offs


•	On November 1, 2017, we consummated the disposition of Morningside Marketplace, located in Fontana, California for $12.7 million in cash. The proceeds were used to pay down amounts outstanding under our line of credit.

•

On October 31, 2017, we borrowed $26.0 million under our line of credit, and used the proceeds to repay the existing secured financing that encumbered the following properties: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace, Ensenada Square and Cochran Bypass. The total amount of the repayment was $25.4 million, which included a payment of yield maintenance due upon prepayment of $1.4 million. In connection with that borrowing, we added the following property as additional collateral security under the terms of our line of credit: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace and Ensenada Square.


•	On October 31, 2017, we consummated the disposition of Cochran Bypass, located in Chester, South Carolina, for a sales price of approximately $2.5 million in cash. The net proceeds from the sale of Cochran Bypass were used to repay a portion of the outstanding balance under our line of credit.


•	On April 17, 2017, we consummated the disposition of Woodland West Marketplace, located in Arlington, Texas, for a sales price of approximately $14.6 million in cash. We used the net proceeds from the sale of Woodland West Marketplace to repay $13.7 million of the outstanding balance on our line of credit.

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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. We used the net proceeds from the sale of Pinehurst Square East to repay $18.4 million of the outstanding balance on our line of credit.

Share Redemption under the Share Redemption Program


•	On August 2, 2017, our board of directors approved, pursuant to Section 3(a) of the SRP, an additional $1.0 million of funds available for the redemption of shares in connection with the death of a stockholder.


•	During the year ended December 31, 2017 , we redeemed 136,921 shares of common stock for $0.9 million under the SRP at an average price of $6.32 per share.

Review of our Policies

Our board of directors, including our independent directors, has reviewed our policies described in this Annual Report and determined that they are in the best interest of our stockholders because: (1) they increase the likelihood that we will be able to successfully maintain and manage our current portfolio of investments and acquire additional income-producing properties and other real estate-related investments in the future; (2) our executive officers, directors and affiliates of our Advisor have expertise with the type of properties in our current portfolio; and (3) to the extent that we acquire additional real properties or other real estate-related investments in the future, the use of leverage should enable us to acquire assets and earn rental income more quickly, thereby increasing the likelihood of generating income for our stockholders.

Critical Accounting Policies

Below is a discussion of the accounting policies and estimates that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our consolidated 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.

Revenue Recognition

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


•	whether the lease stipulates how a tenant improvement allowance may be spent;


•	whether the amount of a tenant improvement allowance is in excess of market rates;


•	whether the tenant or landlord retains legal title to the improvements at the end of the lease term;


•	whether the tenant improvements are unique to the tenant or general-purpose in nature; and


•	whether the tenant improvements are expected to have any residual value at the end of the lease term.

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

We maintain an allowance for doubtful accounts, including an allowance for straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. We

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monitor the liquidity and creditworthiness of our tenants on an ongoing basis. For straight-line rent amounts, our assessment is based on amounts estimated to be recoverable over the term of the lease.

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

We recognize gains or losses on sales of real estate in accordance with Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment . Profits are not recognized until (1) a sale has been consummated; (2) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (3) our receivable, if any, is not subject to future subordination; and (4) we have transferred to the buyer the usual risks and reward of ownership, and we do not have a substantial continuing involvement with the property. Effective January 1, 2018, we will no longer apply existing sales criteria in ASC 360 , and will, instead, apply the provisions of ASC 610-20, Other Income . Under ASC 610-20, we plan to recognize any gains at the time control of a property is transferred and when it is probable that substantially all of the related consideration will be collected.

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 that occurred 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

• 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, 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.

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.

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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 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.

Business Combinations

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

Acquisition costs are expensed as incurred. Also included in transaction expense in the consolidated statements of operations are costs incurred in pursuit of targeted properties for acquisitions not yet closed or those determined to no longer be viable.

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

Impairment of Long-lived Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our investments in real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets through its undiscounted future cash flows (excluding interest) and its eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the investments in real estate and related intangible assets. Key inputs that we estimate in this analysis include projected rental rates, capital expenditures, property sales capitalization rates and expected holding period of the property.

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We evaluate our equity investments for impairment in accordance with ASC Topic 320, Investments – Debt and Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss.

We did not record any impairment loss on our investments in real estate and related intangible assets during the years ended December 31, 2017 and 2016. Refer to Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for more information regarding the methodologies used to estimate fair value of the investments in real estate.

Assets Held for Sale and Discontinued Operations

When certain criteria are met, long-lived assets are classified as held for sale and are reported at the lower of their carrying value or their fair value less costs to sell and are no longer depreciated. With the adoption of Accounting Standards Update No. 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment on April 30, 2014, only disposed properties that represent a strategic shift that has (or will have) a major effect on our operations and financial results are reported as discontinued operations.

Fair Value Measurements

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


•	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.

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

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

We consider the following factors to be indicators of an inactive market (1) there are few recent transactions; (2) price quotations are not based on current information; (3) price quotations vary substantially either over time or among market makers (for example, some brokered markets); (4) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability; (5) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with our estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability; (6) there is a wide bid-ask spread or

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significant increase in the bid-ask spread; (7) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities; and (8) little information is released publicly (for example, a principal-to-principal market).

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

Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal results of operations as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially and adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT. Even if we qualify as a REIT, we may be subject to certain state or local income taxes and to U.S. Federal income and excise taxes on our undistributed income.

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

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

Our tax returns remain subject to examination and consequently, the taxability of our distributions is subject to change.

Portfolio Investments

As of December 31, 2017 , our portfolio included:


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


•	Investments in two unconsolidated joint ventures, which own, in aggregate, eight retail centers, comprising an aggregate of approximately 599,000 square feet and located in four states.


•	Ten retail properties, including three properties held for sale, comprising an aggregate of approximately 303,000 square feet of single- and multi-tenant, commercial retail space located in four states.

Results of Operations

As of December 31, 2017 and 2016 , approximately 96% and 91% of our then owned retail properties were leased (based on rentable square footage), respectively, with weighted-average remaining lease terms of approximately seven and four years, respectively. In 2017, there were two property acquisitions and four property dispositions. In 2016, there were three property acquisitions and one property disposition.

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Leasing Information

Committed tenant improvement costs and leasing commissions for new leases during the year ended December 31, 2017 were $16.91 per square foot and $7.29 per square foot, respectively. Committed tenant improvement costs and leasing commissions for new leases during the year ended December 31, 2016 were $20.00 per square foot and $8.25 per square foot, respectively. The following table provides information regarding our leasing activity, excluding leasing activity in held for sale properties, for the year ended December 31, 2017.



Total Vacant Rentable Sq. Feet at	Lease Expirations in 2017	New Leases in 2017	Lease Renewals in 2017	Total Vacant Rentable Sq. Feet at	Tenant Retention Rate in
December 31, 2016	(Sq. Feet)	(Sq. Feet)	(Sq. Feet)	December 31, 2017	2017
20,323	10,160	11,558	7,500	11,425	73.8%

Comparison of the year ended December 31, 2017 , versus the year ended December 31, 2016 .

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



	Years Ended December 31,
	2017			2016			$ Change			% Change
Rental revenue and reimbursements	$	9,035		$	10,476		$	(1,441	)	(13.8	)%
Operating and maintenance expenses	3,257			3,745			(488		)	(13.0	)%
General and administrative expenses	1,979			2,196			(217		)	(9.9	)%
Depreciation and amortization expenses	2,848			3,373			(525		)	(15.6	)%
Transaction expense	85			772			(687		)	(89.0	)%
Interest expense	1,824			2,212			(388		)	(17.5	)%
Operating loss	(958		)	(1,822		)	864			(47.4	)%
Other income (loss), net	9,995			(40		)	10,035			(25,087.5	)%
Income taxes	(181		)	(129		)	(52		)	40.3	%
Net income (loss)	$	8,856		$	(1,991	)	$	10,847		(544.8	)%

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

Revenue

The decrease in revenue during the year ended December 31, 2017 , compared to the same period in 2016 , was primarily due to the sales of Bloomingdale Hills in April 2016, Pinehurst Square East in January of 2017, Woodland West Marketplace in April 2017, Cochran Bypass in October 2017 and Morningside Marketplace in November 2017. The decreases were partially offset by a full year of revenue from acquisitions of 8 Octavia and 400 Grove in June 2016, Fulton Shops in July 2016, 450 Hayes in December 2016, and 388 Fulton and Silver Lake during the first quarter of 2017.

Operating and maintenance expenses

Operating and maintenance expenses decreased during the year ended December 31, 2017 , when compared to the same period in 2016 , which corresponds to the decrease in revenue.

General and administrative expenses

General and administrative expenses decreased during the year ended December 31, 2017 , compared to the same period in 2016 primarily due to decreased legal fees, lower asset management fees and smaller decreases overall, across most general and administrative costs.

Depreciation and amortization expenses

Depreciation and amortization expenses decreased during the year ended December 31, 2017 , compared to the same period in 2016, primarily due to the classification of Ensenada Square, Florissant Marketplace, and Shops at Turkey Creek as held for

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sale during the fourth quarter of 2017. The sales of Pinehurst Square, Woodland West Marketplace, Cochran Bypass and Morningside Marketplace also contributed to the decrease.

Transaction expense

The decrease in transaction expense during the year ended December 31, 2017 , as compared to the same period in 2016 was primarily due to our adoption of ASU 2017-01 as of January 1, 2017. Following the adoption of ASU 2017-01, the acquisitions of 388 Fulton and Silver Lake during the first quarter of 2017 were determined to be asset acquisitions and the related acquisition costs were capitalized.

Interest expense

Interest expense has decreased in 2017 over 2016 due to net decreases in debt balances as a result of property acquisitions and dispositions activities and the resulting fluctuations in debt balances from related proceeds and repayments of debt.

Other income (loss), net

Other income, net from the year ended December 31, 2017 , primarily consisted of approximately $11.6 million related to the gains on sales of Pinehurst Square East in January 2017, Woodland West Marketplace in April 2017, Cochran Bypass in October 2017 and Morningside Marketplace in November 2017, as well as the recognition of deferred gain resulting from the first quarter of 2017 sale by SGO Retail Acquisitions Venture, LLC (“SGO Joint Venture”) of Aurora Commons.

Income taxes

In addition to various state tax payments, we have incurred federal tax due to our election 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.

In 2017, we estimated we could owe Alternative Minimum Tax totaling approximately $0.1 million and this amount was accrued and included in expense as of December 31, 2017.

For the year ended December 31, 2016, the income taxes represented tax on our share of the gain from the sale of certain SGO MN Retail Acquisitions Venture, LLC (“SGO MN Joint Venture”) properties, partially offset by the 2016 reversal of an over accrual of estimated Alternative Minimum Tax, 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 December 31, 2017 , our cash and cash equivalents were approximately $3.1 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 $0.8 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 December 31, 2017 and 2016 , our borrowings, excluding line of credit balances which have been classified as held for sale, were approximately 93.0% and 73.6%, respectively, of the carrying value of our net assets, excluding assets held for sale.

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



	Years Ended December 31,
	2017			2016			$ Change
Net cash provided by (used in):
Operating activities	$	3,944		$	1,391		$	2,553
Investing activities	26,349			(38,585		)	64,934
Financing activities	(30,337		)	31,531			(61,868		)
Net decrease in cash and cash equivalents	$	(44	)	$	(5,663	)

Cash Flows from Operating Activities

The increase in cash flows from operating activities was primarily due to a release of restricted cash as a result of repaying existing secured financing as well as a decrease in deposit balances resulting from the closing of the acquisitions of 388 Fulton and Silver Lake during the first quarter of 2017.

Cash Flows from Investing Activities

Cash flows from investing activities during the year ended December 31, 2017, primarily consisted of proceeds from the disposition of Pinehurst Square East, Woodland West Marketplace, Cochran Bypass and Morningside Marketplace of approximately $46.6 million , partially offset by our aggregate $17.8 million in acquisitions of 388 Fulton and Silver Lake in January 2017. Cash flows used in investing activities during the year ended December 31, 2016, primarily consisted of our aggregate $29.4 million investments in the Wilshire and Gelson's Joint Ventures, and our aggregate $17.8 million in acquisitions of the San Francisco Properties in June 2016, our acquisition of the Fulton Shops in July 2016 and our acquisition of 450 Hayes in December 2016.

Cash Flows from Financing Activities

The change in cash flows from financing activities during the year ended December 31, 2017 , was primarily due to an increase in pay down of debt of approximately $73.1 million in connection with the pay down of a portion of our line of credit as a result of the dispositions of Pinehurst Square East and Woodland West Marketplace, as well as repayment of existing secured financing from the borrowings on the increased availability on the line of credit.

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. 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 consolidated financial statements included in this Annual Report on Form 10-K for additional information on the maturity dates and terms of our outstanding indebtedness.

Recent Financing Transactions

Line of Credit

During the years ended December 31, 2017 and 2016 , the following transactions occurred under our line of credit:

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Year ended December 31, 2017 :


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


•	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 our line of credit.


•	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 our line of credit.


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


•	On April 17, 2017, we consummated the disposition of Woodland West Marketplace, located in Arlington, Texas, for a sales price of approximately $14.6 million in cash, $13.7 million of which was used to pay down our line of credit.


•	On June 28, 2017, we drew $1.3 million and used the proceeds for working capital.


•	On August 22, 2017, we drew $1.0 million and used the proceeds for working capital.

•

On October 31, 2017, we drew $26.0 million and used the proceeds to repay the existing secured financing that encumbered the following properties: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace, Ensenada Square and Cochran Bypass. The total amount of the repayment was $25.4 million , which included a payment of yield maintenance due upon prepayment of $1.4 million . In connection with that borrowing, we added the following property as additional collateral security under the terms of the Amended and Restated Credit Facility: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace and Ensenada Square.


•	On October 31, 2017, we consummated the disposition of Cochran Bypass, located in Chester, South Carolina, for a sales price of approximately $2.5 million in cash, $2.1 million of which was used to pay down our line of credit.


•	On November 1, 2017, we consummated the disposition of Morningside Marketplace, located in Fontana, California, for a sales price of approximately $12.7 million in cash, $12.0 million of which was used to pay down our line of credit.


•	On November 20, 2017, we paid down $4.0 million on our line of credit.


•	On December 14, 2017, we drew $5.0 million and used a portion of the proceeds to repay a $2.5 million working capital short-term loan (the “Bridge Loan”) from Glenborough Property Partners, LLC, an affiliate of the Advisor.

Year ended December 31, 2016 :


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


•	On April 4, 2016, we consummated the disposition of Bloomingdale Hills, located in Riverside, Florida, for a sales price of approximately $9.2 million in cash, $3.0 million of which was used to pay down the line of credit.


•	On June 9, 2016, we drew $7.5 million and used the majority of the proceeds to acquire 8 Octavia and 400 Grove.


•	On July 25, 2016, we drew $4.7 million and used the majority of the proceeds to acquire the Fulton Shops.


•	On September 29, 2016, we drew $1.0 million and used the proceeds for working capital.


•	On October 7, 2016, we paid down $2.0 million on our line of credit.


•	On December 22, 2016, we drew $7.2 million and used the proceeds to acquire 450 Hayes. Refer to Note 3. “Real Estate Investments” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.


•	On December 27, 2016, we drew $2.0 million to be used for working capital.

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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”). 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 until September 7, 2017. On August 29, 2017, we exercised the remaining option to extend the loan for an additional six months. The extension was scheduled to mature on March 7, 2018. We extended the loan, with the same terms, for an additional six months, effective March 7, 2018. The new maturity date is September 7, 2018 . 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”). 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 to mature on July 27, 2017. We negotiated a nine month extension of the term on July 27, 2017. The new maturity date is April 27, 2018. 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.

We are working on extending the Gelson’s Loan, and intend to complete this extension prior to the loan’s maturity date.

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 years ended December 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.

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For a presentation of our quarterly distributions, not including Special Distributions, declared and paid to our common stockholders and holders of our common units and for information concerning the tax composition of our distributions paid, refer to Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

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):



	Years Ended December 31,
FFO	2017			2016
Net income (loss) ⁽¹⁾	$	8,856		$	(1,991	)
Adjustments:
Gain on disposal of assets	(11,608		)	(640		)
Adjustment to reflect FFO of unconsolidated joint ventures	408			322
Depreciation of real estate	2,047			2,516
Amortization of in-place leases and leasing costs	801			857
FFO attributable to common shares and Common Units	$	504		$	1,064

FFO per share and Common Unit	$	0.04		$	0.09

Weighted average common shares and units outstanding	11,312,042			11,433,573


(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 consolidated financial statements included in this Annual Report on Form 10-K 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 consolidated financial statements in this Annual Report on Form 10-K. 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 December 31, 2017 and 2016, 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.

Subsequent Events

Distributions

On December 7, 2017, our board of directors declared a fourth quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of December 31, 2017. The distribution was paid on January 31, 2018.

Mortgage Loans Secured by Properties Under Development

On March 7, 2018, we extended the Wilshire loan for six months. The new maturity date is September 7, 2018.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted as permitted under rules applicable to smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and supplementary data can be found beginning on Page F-1 of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. In connection with the preparation of this Annual Report, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on its assessment, our management concluded that, as of December 31, 2017, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report, or any other report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC applicable to smaller reporting companies.

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 December 31, 2017 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

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

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We will file a definitive Proxy Statement for our 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2018 Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to all of our officers, including our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions and all members of our board of directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, record keeping and reporting, payments to foreign and U.S. government personnel and compliance with laws, rules and regulations. We will provide to any person without charge a copy of our Code of Ethics, including any amendments or waivers, upon written request delivered to our principal executive office at the address listed on the cover page of this Annual Report.

Audit Committee Financial Expert

The information required by this Item is incorporated by reference to the 2018 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the 2018 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the 2018 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the 2018 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the 2018 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Annual Report on Form 10-K:

1. The list of financial statements contained herein is set forth on page F-1 hereof.

2. Financial Statement Schedules -


a.	Schedule III - Real Estate Operating Properties and Accumulated Depreciation is set forth beginning on page S-1 here of.


b.	All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted.

3. The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

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Index to Consolidated Financial Statements



Financial Statements		Page Number

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2017 and 2016		F-3

Consolidated Statements of Operations for the years ended December 31, 2017 and 2016		F-4

Consolidated Statements of Equity for the years ended December 31, 2017 and 2016		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016		F-6

Notes to Consolidated Financial Statements		F-7

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Strategic Realty Trust, Inc. and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Strategic Realty Trust, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, equity, and cash flows for the years then ended, and the related notes and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Moss Adams LLP

San Francisco, California

March 23, 2018

We have served as the Company’s auditor since 2013.

F-2

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)



	December 31,
	2017			2016
ASSETS
Investments in real estate
Land	$	14,020		$	15,510
Building and improvements	30,825			47,810
Tenant improvements	1,188			2,307
	46,033			65,627
Accumulated depreciation	(2,579		)	(8,163		)
Investments in real estate, net	43,454			57,464
Properties under development and development costs
Land	25,851			25,851
Buildings	585			601
Development costs	9,609			4,377
Properties under development and development costs	36,045			30,829
Cash and cash equivalents	3,086			3,130
Restricted cash	816			4,728
Prepaid expenses and other assets, net	200			1,070
Tenant receivables, net of $0 and $38 bad debt reserve	1,007			1,269
Investments in unconsolidated joint ventures	2,705			4,761
Lease intangibles, net	2,061			3,825
Assets held for sale	20,646			24,157
Deferred financing costs, net	1,258			264
TOTAL ASSETS ⁽¹⁾	$	111,278		$	131,497
LIABILITIES AND EQUITY
LIABILITIES
Notes payable, net	$	42,223		$	54,304
Accounts payable and accrued expenses	2,006			2,955
Amounts due to affiliates	21			111
Other liabilities	387			461
Liabilities related to assets held for sale	13,017			22,182
Below-market lease liabilities, net	438			3,049
Deferred gain on sale of properties to unconsolidated joint venture	668			1,202
TOTAL LIABILITIES ⁽¹⁾	58,760			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; 10,988,438 and 10,938,245 shares issued and outstanding at December 31, 2017 and 2016, respectively	111			111
Additional paid-in capital	96,097			96,032
Accumulated deficit	(44,741		)	(50,676		)
Total stockholders’ equity	51,467			45,467
Non-controlling interests	1,051			1,766
TOTAL EQUITY	52,518			47,233
TOTAL LIABILITIES AND EQUITY	$	111,278		$	131,497

(1)

As of December 31, 2017 and 2016 , includes approximately $37.2 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 consolidated financial statements.

F-3

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares and per share amounts)



	Year Ended December 31,
	2017			2016
Revenue:
Rental and reimbursements	$	9,035		$	10,476

Expense:
Operating and maintenance	3,257			3,745
General and administrative	1,979			2,196
Depreciation and amortization	2,848			3,373
Transaction expense	85			772
Interest expense	1,824			2,212
	9,993			12,298
Operating loss	(958		)	(1,822		)

Other income (loss):
Equity in income (loss) of unconsolidated joint ventures	(59		)	132
Net gain on disposal of real estate	11,608			640
Other income	91			154
Loss on extinguishment of debt	(1,645		)	(966		)
Income (loss) before income taxes	9,037			(1,862		)
Income taxes	(181		)	(129		)
Net income (loss)	8,856			(1,991		)
Net income (loss) attributable to non-controlling interests	295			(75		)
Net income (loss) attributable to common stockholders	$	8,561		$	(1,916	)

Earnings (loss) per common share - basic and diluted	$	0.78		$	(0.17	)

Weighted average shares outstanding used to calculate earnings (loss) per common share - basic and diluted	10,936,361			11,006,759

See accompanying notes to consolidated financial statements.

F-4

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except shares)



	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity			Non-controlling Interests			Total Equity
BALANCE — December 31, 2015	11,037,948		$	111	$	96,684		$	(46,124	)	$	50,671		$	1,994		$	52,665
Conversion of OP units to common shares	9,588		—		52			—			52			(52		)	—
Redemption of common shares	(109,291	)	—		(704		)	—			(704		)	—			(704		)
Quarterly distributions	—		—		—			(2,636		)	(2,636		)	(101		)	(2,737		)
Net loss	—		—		—			(1,916		)	(1,916		)	(75		)	(1,991		)
BALANCE — December 31, 2016	10,938,245		111		96,032			(50,676		)	45,467			1,766			47,233
Conversion of OP units to common shares	187,114		—		930			—			930			(930		)	—
Redemption of common shares	(136,921	)	—		(865		)	—			(865		)	—			(865		)
Quarterly distributions	—		—		—			(2,626		)	(2,626		)	(80		)	(2,706		)
Net income	—		—		—			8,561			8,561			295			8,856
BALANCE — December 31, 2017	10,988,438		$	111	$	96,097		$	(44,741	)	$	51,467		$	1,051		$	52,518

See accompanying notes to consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Year Ended December 31,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	8,856		$	(1,991	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net gain on disposal of real estate	(11,608		)	(640		)
Loss on extinguishment of debt	1,645			966
Equity in income (loss) of unconsolidated joint ventures	59			(132		)
Straight-line rent	(238		)	(155		)
Amortization of deferred costs	541			492
Depreciation and amortization	2,848			3,373
Amortization of above and below-market leases	(144		)	(196		)
Bad debt expense	14			53
Changes in operating assets and liabilities:
Prepaid expenses and other assets	853			(339		)
Tenant receivables	89			362
Accounts payable and accrued expenses	(613		)	(108		)
Amounts due to affiliates	(90		)	62
Other liabilities	(74		)	(258		)
Net change in restricted cash for operational expenditures	1,806			(98		)
Net cash provided by operating activities	3,944			1,391

Cash flows from investing activities:
Net proceeds from the sale of real estate	46,633			8,763
Acquisition of real estate	(17,812		)	(17,792		)
Investment in properties under development and development costs	(5,081		)	(29,400		)
Improvements, capital expenditures, and leasing costs	(1,494		)	(492		)
Distributions from unconsolidated joint ventures	1,997			2,273
Net change in restricted cash from investments in consolidated variable interest entities	848			(1,666		)
Net change in restricted cash for capital expenditures	1,258			(271		)
Net cash provided by (used in) investing activities	26,349			(38,585		)

Cash flows from financing activities:
Redemption of common shares	(865		)	(704		)
Quarterly distributions	(2,714		)	(2,742		)
Proceeds from notes payable	60,700			47,600
Repayment of notes payable	(84,054		)	(10,976		)
Loan proceeds from an affiliate	2,500			—
Repayment of loan from an affiliate	(2,500		)	—
Payment of penalties associated with early repayment of notes payable	(1,410		)	(839		)
Payment of loan fees from investments in consolidated variable interest entities	(453		)	(719		)
Payment of loan fees and financing costs	(1,541		)	(89		)
Net cash (used in) provided by financing activities	(30,337		)	31,531

Net decrease in cash and cash equivalents	(44		)	(5,663		)
Cash and cash equivalents – beginning of year	3,130			8,793
Cash and cash equivalents – end of year	$	3,086		$	3,130

Supplemental disclosure of non-cash investing and financing activities and other cash flow information:
Distributions declared but not paid	$	673		$	681
Change in accrued liabilities capitalized to investment in development	(340		)	640
Change to accrued mortgage note payable interest capitalized to investment in development	12			166
Amortization of deferred loan fees capitalized to investment in development	463			623
Conversion of OP units to common shares	930			52
Cash paid for interest, net of amounts capitalized	1,351			1,517

See accompanying notes to consolidated financial statements.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 every year through 2017. The current term of the Advisory Agreement terminates on August 10, 2018. 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 December 31, 2017 and 2016 , the Company owned 97.9% and 96.3% , respectively, 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 December 31, 2017 , in addition to the development projects, the Company’s portfolio of properties was comprised of 10 properties, including three properties held for sale, with approximately 303,000 rentable square feet of retail space located in four states. As of December 31, 2017 , the rentable space at the Company’s retail properties was 96% leased.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying 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-K and Regulation S-X.

The 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 consolidated financial position, results of operations and cash flows have been included.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 December 31, 2017 and 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 December 31, 2017 and 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.

Non-Controlling Interests

The Company’s non-controlling interests are comprised of common units in the OP (“Common Units”). The Company accounts for non-controlling interests in accordance with ASC 810. In accordance with ASC 810, the Company reports non-controlling interests in subsidiaries within equity in the consolidated financial statements, but separate from stockholders’ equity. Net income (loss) attributable to non-controlling interests is presented as a reduction from net income (loss) in calculating net income (loss) attributable to common stockholders on the consolidated statement of operations. Acquisitions or dispositions of non-controlling interests that do not result in a change of control are accounted for as equity transactions. In addition, ASC 810 requires that a parent company recognize a gain or loss in the Company’s results of operations when a subsidiary is deconsolidated upon a change in control. In accordance with ASC 480-10, Distinguishing Liabilities from Equity , non-controlling interests that are determined to be redeemable are carried at their fair value or redemption value as of the balance sheet date and reported as liabilities or temporary equity depending on their terms. The Company periodically evaluates individual non-controlling interests for the ability to continue to recognize the non-controlling interest as permanent equity in the consolidated balance sheets. Any non-controlling interest that fails to qualify as permanent equity will be reclassified as liabilities or temporary equity. All non-controlling interests at December 31, 2017 and 2016, qualified as permanent equity.

Use of Estimates

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

Cash and Cash Equivalents

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

Restricted Cash

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

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue Recognition

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


•	whether the lease stipulates how a tenant improvement allowance may be spent;


•	whether the amount of a tenant improvement allowance is in excess of market rates;


•	whether the tenant or landlord retains legal title to the improvements at the end of the lease term;


•	whether the tenant improvements are unique to the tenant or general-purpose in nature; and


•	whether the tenant improvements are expected to have any residual value at the end of the lease.

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

The Company maintains an allowance for doubtful accounts, including an allowance for straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. The Company monitors the liquidity and creditworthiness of its tenants on an ongoing basis. For straight-line rent amounts, the Company’s assessment is based on amounts estimated to be recoverable over the term of the lease. The Company’s straight-line rent receivable (not including receivables on property held for sale), which is included in tenant receivables, net, on the consolidated balance sheets, was approximately $0.5 million and $0.6 million at December 31, 2017 and 2016, respectively.

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

The Company recognizes gains or losses on sales of real estate in accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”). Gains are not recognized and are deferred until (a) a sale has been consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (c) the Company’s receivable, if any, is not subject to future subordination; and (d) the Company has transferred to the buyer the usual risks and reward of ownership, and the Company does not have a substantial continuing involvement with the property. Deferred gain on the sale of properties to the SGO Joint Venture was approximately $0.7 million and $1.2 million , as of December 31, 2017 and 2016, respectively.

Valuation of Accounts Receivable

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

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

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Concentration of Credit Risk

A concentration of credit risk arises in the Company’s business when a nationally or regionally-based tenant occupies a substantial amount of space in multiple properties owned by the Company. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to the Company, exposing the Company to potential losses in rental revenue, expense recoveries, and percentage rent. Generally, the Company does not obtain security deposits from the nationally-based or regionally-based tenants in support of their lease obligations to the Company. The Company regularly monitors its tenant base to assess potential concentrations of credit risk.

As of December 31, 2017, excluding properties classified as held for sale, Clover Juice accounted for more than 10% of the Company’s annual minimum rent. As of December 31, 2017, there were no amounts outstanding from Clover Juice.

As of December 31, 2016, excluding properties classified as held for sale, Ralph’s Grocery and Gold’s Gym , each accounted for more than 10% of the Company’s annual minimum rent. As of December 31, 2016, there were no amounts outstanding from either Ralph’s Grocery or Gold’s Gym.

Business Combinations

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

Acquisition costs are expensed as incurred. Costs incurred in pursuit of targeted properties for acquisitions not yet closed or those determined to no longer be viable and costs incurred which are expected to result in future period disposals of property not currently classified as held for sale properties have been expensed and are also classified in the consolidated statements of operations as transaction expenses.

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

Reportable Segments

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

Investments in Real Estate

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

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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, 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.

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 assets are capitalized. Acquisition costs related to asset acquisitions are capitalized in the 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.

Properties Under Development

The initial cost of properties under development includes the acquisition cost of the property, direct development costs and borrowing costs directly attributable to the development. Borrowing costs associated with direct expenditures on properties under development are capitalized. The amount of capitalized borrowing costs is determined by reference to borrowings specific to the project, where relevant. Borrowing costs are capitalized from the commencement of the development until the date of practical completion. Practical completion is when the property is capable of operating in the manner intended by management. Capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted. Capitalized costs are reduced by any profits from incidental operations.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Interest on projects is based on interest rates in place during the development period, and is capitalized until the project is ready for its intended use. The amount of interest capitalized during the years ended December 31, 2017 and 2016, was approximately $3.4 million and $2.8 million , respectively.

Impairment of Long-lived Assets

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

The Company evaluates its equity investments for impairment in accordance with ASC 320, Investments – Debt and Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss.

The Company continually monitors its properties under development for impairment. Estimates of future cash flows used to test the recoverability of properties under development are based on their expected service potential when development is substantially complete. Those estimates include cash flows associated with all future expenditures necessary to develop the properties under development, including interest payments that will be capitalized as part of the cost of the properties under development.

The Company did not record any impairment losses during the years ended December 31, 2017 and 2016.

Assets Held for Sale and Discontinued Operations

When certain criteria are met, long-lived assets are classified as held for sale and are reported at the lower of their carrying value or their fair value, less costs to sell, and are no longer depreciated. For property sales on or after May 1, 2014, a disposal of a component of an entity is required to be reported as discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Refer to Note 3. “Real Estate Investments” for a discussion of property sales and discontinued operations.

Fair Value Measurements

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


•	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.

When available, the Company utilizes quoted market prices or other observable inputs (Level 2 inputs), such as interest rates or yield curves, from independent third-party sources to determine fair value and classify such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to use significant judgment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third-party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for an asset owned by it to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and external appraisals)

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

and establishes a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets; or (ii) a present value technique that considers the future cash flows based on contractual obligations discounted by observed or estimated market rates of comparable liabilities. The use of contractual cash flows with regard to amount and timing significantly reduces the judgment applied in arriving at fair value.

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

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

Deferred Financing Costs

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

The Company presents deferred financing costs, net of accumulated amortization, as a contra-liability that reduces the carrying amount of the associated note payable, rather than as a deferred asset. Deferred financing costs related to a line-of-credit arrangement are presented on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end.

Accounting for Investments in Unconsolidated Joint Ventures

The Company accounts for its current investments in unconsolidated joint ventures under the equity method of accounting. Under the equity method of accounting, the Company records its initial investment in a joint venture at cost and subsequently adjusts the cost for the Company’s share of the joint venture’s income or loss and cash contributions and distributions each period. Refer to Note 4. “Investments in Unconsolidated Joint Ventures” for a discussion of the Company’s investments in joint ventures.

The Company monitors its investments in unconsolidated joint ventures periodically for impairment. No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2017 and 2016.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular

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corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT. Even if the Company qualifies as a REIT, it may be subject to certain state or local income taxes, and to U.S. federal income and excise taxes on its undistributed income.

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

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

In 2017, the Company estimated it could owe Alternative Minimum Tax totaling approximately $0.1 million and this amount was accrued and included in expense as of December 31, 2017.

In 2016, income taxes primarily represent taxes on the Company’s share of the gains from the sales of certain SGO MN Joint Venture properties.

Earnings Per Share

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

Reclassifications

Certain prior period amounts have been reclassified to conform with current period’s presentation. The reclassifications had no effect on the Company’s 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 consolidated financial statements:

In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses for the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 amends the guidance on nonfinancial assets in Accounting Standards Codification (“ASC”) 610-20. The amendments clarify that (i) a financial asset is within the scope of ASC 610-20 if it meets the definition of an in-substance nonfinancial asset and may include nonfinancial assets transferred within a legal entity to a counter-party, (ii) an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counter-party and de-recognize each asset when a counter-party obtains control of it, and (iii) an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. Further, ASU 2017-05 provides guidance on accounting for partial sales of nonfinancial assets. The amendments are effective at the same time as the amendments in ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), discussed below. The adoption of ASU 2017-05 is not expected to have a material impact on the Company's 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 explains 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

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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 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 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 application of ASU 2016-15 is not expected to have an impact on the Company’s 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 adoption of ASU 2016-13 will not have an effect on the Company’s 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 consolidated balance sheet and disclose 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. 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. On January 5, 2018, the FASB also issued an Exposure Draft proposing to amend ASU 2016-02, which would provide lessors with a practical expedient, by class of underlying assets, to not separate non-lease components from the related lease components and, instead, to account for those components as a single lease component, if certain criteria are met. The amendments in this guidance and the related Exposure Draft are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company believes that the adoption of ASU 2016-02 will not change the accounting for operating leases on its consolidated balance sheets. If finalized, the Company expects to utilize the practical expedients proposed in the Exposure Draft as part of its adoption of ASU 2016-02.

In May 2014, the FASB issued ASU 2014-09. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which effectively deferred 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, management believes the Company’s revenues fall out of the scope of this standard. For gains on sale of real estate, the Company will apply the provisions of ASC 610-20, and plans to recognize any gains at the time control of a property is transferred and when it is probable that substantially all of the related consideration will be collected. The Company will no longer apply existing sales criteria in ASC 360, Property, Plant, and Equipment . Upon adoption of ASC 610-20 on January 1, 2018, the Company recognized $0.7 million of deferred gains relating to sales of properties to the SGO Joint Venture through a cumulative effect adjustment to retained earnings. Other than the cumulative effect adjustment relating to such deferred gains, the adoption of ASC 606 and ASC 610-20 will not have a significant impact on the Company’s consolidated financial statements.

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3. REAL ESTATE INVESTMENTS

2017 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 line of credit 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 line of credit 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 year ended December 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.

2016 Acquisition of Properties

On June 14, 2016, the Company, through an indirect subsidiary, purchased a 100% ownership interest in two retail properties located in the Hayes Valley neighborhood at 400 Grove Street and 8 Octavia Street in San Francisco, California (the “San Francisco Properties”) from each of Octavia Gateway Holdings, LLC and Grove Street Hayes Valley, LLC, each a Delaware limited liability company and each a subsidiary of DDG Partners LLC. The sellers were not affiliated with the Company or the Advisor. The San Francisco Properties encompass four retail condominiums with an aggregate of 5,640 square feet of retail space. The aggregate purchase price of the San Francisco Properties was approximately $5.6 million subject to customary closing costs and proration adjustments. The Company funded the purchase price using borrowings under the Amended and Restated Credit Facility (“KeyBank Credit Facility”). Refer to Note 8. “Notes Payable, Net” for details.

On July 27, 2016, the Company purchased a 100% ownership interest in Fulton Street Shops located in San Francisco, California (“Fulton Shops”). The seller was not affiliated with the Company or the Advisor. Fulton Shops is comprised of five high-quality street retail condominiums with an aggregate of 3,758 square feet of retail space. The aggregate purchase price of Fulton Shops was approximately $4.6 million subject to customary closing costs and proration adjustments. The Company drew down $4.7 million on the KeyBank Credit Facility to fund this acquisition. Refer to Note 8. “Notes Payable, Net” for details.

On September 8, 2016, the Company paid a deposit in the amount of approximately $0.2 million toward the acquisition of a 100% ownership interest in certain property located in the Hayes Valley neighborhood at 388 Fulton Street in San Francisco, California (“388 Fulton”). The deposit was included in prepaid expenses and other assets, net on the consolidated balance sheets. The seller is 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 purchase of this retail property closed on January 4, 2017. Refer to Note 14. “Subsequent Events” for details.

On December 22, 2016, in conjunction with the acquisition of the San Francisco Properties, (as defined below), the Company, through an indirect subsidiary, purchased a 100% ownership interest in certain property located in the Hayes Valley neighborhood at 450 Hayes Street in San Francisco, California (“450 Hayes”). The seller is not affiliated with the Company or its external advisor. 450 Hayes is comprised of two high-quality street retail condominiums with an aggregate of 3,724 square feet of retail space. The aggregate consideration of 450 Hayes was approximately $7.6 million subject to customary closing costs and proration adjustments. The Company drew down $7.2 million on the KeyBank Credit Facility to fund this acquisition. Refer to Note 8. “Notes Payable, Net” for details.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the estimated fair values of the acquired tangible and intangible assets and assumed liabilities as of the acquisition date (amounts in thousands):



	San Francisco Properties			Fulton Shops			450 Hayes
Land	$	1,737		$	1,187		$	2,324
Building and improvements	3,660			3,254			5,009
Lease intangibles, net	376			257			410
Below-market lease liabilities, net	(143		)	(103		)	(176		)
Estimated fair value of net assets acquired	$	5,630		$	4,595		$	7,567

Lease intangibles and below-market lease liabilities generally relate to commercial leases. As of December 31, 2016, the remaining weighted-average amortization periods of lease intangibles and below-market lease liabilities related to the acquired properties were 11.4 years and 11.2 years , respectively.

For the year ended December 31, 2016, the Company incurred $0.7 million of acquisition-related costs. These costs are included in transaction expenses in the consolidated statements of operations. For the year ended December 31, 2016, the Company recognized $0.4 million of total revenues and $0.3 million of operating expenses from these properties.

2017 Sale of Properties

On November 1, 2017, the Company consummated the disposition of Morningside Marketplace, located in Fontana, California for $12.7 million in cash. The proceeds were used to pay down amounts outstanding under the Company’s line of credit. 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 consolidated financial statements. The disposition of Morningside Marketplace resulted in a gain of $2.4 million , which was included in the Company’s consolidated statement of operations.

On October 31, 2017, the Company consummated the disposition of Cochran Bypass, located in Chester, South Carolina, for a sales price of approximately $2.5 million in cash. The net proceeds from the sale of Cochran Bypass were used to repay a portion of the outstanding balance under the Company’s line of credit. 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 consolidated financial statements. The disposition of Cochran Bypass resulted in a gain of $44 thousand , which was included in the Company’s consolidated statement of operations.

On April 17, 2017, the Company consummated the disposition of Woodland West Marketplace, located in Arlington, Texas, for a sales price of approximately $14.6 million in cash. The Company used the net proceeds from the sale of Woodland West Marketplace to repay $13.7 million of the outstanding balance on its line of credit. 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 consolidated financial statements. The disposition of Woodland West Marketplace resulted in a gain of $2.5 million , which was included on the Company’s consolidated statement of operations.

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 line of credit. 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 consolidated financial statements. The disposition of Pinehurst Square East resulted in a gain of $6.1 million , which was included on the Company’s consolidated statement of operations.

The following table summarizes net operating income (loss) related to the properties sold in 2017, that is included in the Company’s consolidated statements of operations for the years ended December 31, 2017 and 2016 (amounts in thousands):



	Year Ended December 31,
	2017								2016
	Pinehurst Square East		Woodland West Marketplace		Cochran Bypass		Morningside Marketplace		Pinehurst Square East		Woodland West Marketplace			Cochran Bypass		Morningside Marketplace
Operating income (loss)	$	22	$	193	$	27	$	322	$	1,028	$	(178	)	$	2	$	51

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2016 Sale of Properties

On April 4, 2016, the Company consummated the disposition of Bloomingdale Hills, located in Riverside, Florida, for a sales price of approximately $9.2 million in cash, a portion of which was used to pay off the related $5.3 million mortgage loan and $3.0 million of which was used to pay down the line of credit under the KeyBank Credit Facility. 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 consolidated financial statements. The disposition of Bloomingdale Hills resulted in a gain of $0.6 million , which was included on the Company’s consolidated statement of operations. The Company’s consolidated statements of operations included net operating income of approximately $69 thousand for the year ended December 31, 2016.

Pro Forma Financial Information

The pro forma financial information below is based upon the Company’s historical consolidated statements of operations for the years ended December 31, 2017 and 2016 , adjusted to give effect to the above sale transactions as if they 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, except per share amounts):



	(Pro Forma)
	Year Ended December 31,
	2017		2016
Rental and reimbursement revenues	$	6,888	$	5,076
Net income	8,292		8,186
Net income attributable to common stockholders	8,017		7,881

Net income per share, attributable to common shares - basic and diluted	$	0.73	$	0.72

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

At December 31, 2017 , Florissant Marketplace, located in Florissant, Missouri, Ensenada Square, located in Arlington, Texas, and Shops at Turkey Creek, located in Knoxville, Tennessee, were classified as held for sale in the consolidated balance sheet. Since the sale of these properties 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 these properties were not reported as discontinued operations in the Company’s financial statements. The Company intends to use the net proceeds from the sale of these properties to repay a portion of the outstanding balance on its line of credit. The Company anticipates the sales of these three properties will occur within one year from December 31, 2017 . The Company’s consolidated statements of operations include net operating income of approximately $0.6 million and $0.2 million for the years ended December 31, 2017 and 2016 , respectively, related to the assets held for sale.

At December 31, 2016, Pinehurst Square East, located in Bismarck, North Dakota, and Woodland West Marketplace, located in Arlington, Texas, were classified as held for sale in the consolidated balance sheet. As previously disclosed, the Company consummated the disposition of Pinehurst Square East on January 6, 2017 and Woodland West Marketplace on April 17, 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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



	December 31,
	2017			2016
ASSETS
Investments in real estate
Land	$	5,248		$	5,718
Building and improvements	17,522			20,261
Tenant improvements	1,189			1,283
	23,959			27,262
Accumulated depreciation	(5,178		)	(4,257		)
Investments in real estate, net	18,781			23,005
Tenant receivables, net	248			135
Lease intangibles, net	1,617			1,017
Assets held for sale	$	20,646		$	24,157
LIABILITIES
Notes payable	$	10,749		$	21,783
Below-market lease intangibles, net	2,268			399
Liabilities related to assets held for sale	$	13,017		$	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

SGO Joint Venture

Entry into SGO Joint Venture Agreement

On March 11, 2015, the Company, through a wholly-owned subsidiary, entered into the Limited Liability Company Agreement of SGO Retail Acquisition Venture, LLC (the “SGO Agreement”) to form a joint venture with Grocery Retail Grand Avenue Partners, LLC, a subsidiary of Oaktree Real Estate Opportunities Fund VI, L.P. (“Oaktree”), and GLB SGO, LLC, a wholly-owned subsidiary of Glenborough Property Partners, LLC (“GPP” and together with the Company and Oaktree, the “SGO Members”). GPP is an affiliate of the Company’s property manager, Glenborough, and an affiliate of the Advisor. The joint venture obtained a $34.0 million non-recourse mortgage loan from an unaffiliated third-party lender to purchase the properties.

The SGO Agreement provides for the ownership and operation of SGO Retail Acquisition Venture, LLC (the “SGO Joint Venture”), in which the Company owns a 19% interest, GPP owns a 1% interest, and Oaktree owns an 80% interest. In exchange for ownership in the SGO Joint Venture, the Company contributed $4.5 million to the SGO Joint Venture, which amount was credited against the sale of the Initial SGO Properties (as defined below) to the Joint Venture (as described below), GPP contributed $0.2 million to the SGO Joint Venture, and Oaktree contributed $19.1 million to the SGO Joint Venture.

Pursuant to the SGO Agreement, GPP manages and conducts the day-to-day operations and affairs of the SGO Joint Venture, subject to certain major decisions set forth in the SGO Agreement that require the consent of at least two members, one of whom must be Oaktree. Income, losses and distributions will generally be allocated based on the members’ respective ownership interests. Additionally, in certain circumstances described in the SGO Agreement, the SGO Members may be required to make additional capital contributions to the SGO Joint Venture, in proportion to the SGO Members’ respective ownership interests.

Pursuant to the SGO Agreement, the SGO Joint Venture pays GPP a monthly asset management fee equal to a percentage of the aggregate investment value of the property owned by the SGO Joint Venture in the preceding month. In addition, if Oaktree has received a 12% internal rate of return on its capital contribution, then promptly following the sale of the last of the Initial SGO Properties, the SGO Joint Venture will pay GPP a disposition fee equal to 1% of the aggregate net sales proceeds received by the SGO Joint Venture from the sales of the Initial SGO Properties.

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The SGO Joint Venture may make distributions of net cash flow to the SGO Members no less than quarterly, if appropriate. Distributions are pro rata to the SGO Members in proportion to their respective ownership interests in the SGO Joint Venture until the SGO Members have received a 12% internal rate of return on their capital contribution. Thereafter distributions will be 5% to the Company, 5% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO Member’s respective ownership interests in the SGO Joint Venture until Oaktree has received aggregate distributions in an amount necessary to provide Oaktree with the greater of a 17% internal rate of return on its capital contribution and a 1.5 equity multiple on its capital contribution. Distributions will then be 12.5% to the Company, 5% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO Member’s respective ownership interests in the SGO Joint Venture until Oaktree has received aggregate distributions in an amount necessary to provide Oaktree with the greater of a 22% internal rate of return on its capital contribution and a 1.75 equity multiple on its capital contribution (the “SGO Promoted Returns”). Distributions will then be 20% to the Company, 5% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO Member’s respective ownership interests in the SGO Joint Venture. The portion of the SGO Promoted Returns payable to GPP are referred to herein as the “GPP SGO Incentive Fee.” The portion of the SGO Promoted Returns payable to the Company are referred to herein as the Company’s “SGO Earn Out.” As a part of the negotiations for the SGO Joint Venture, Glenborough agreed to reduce certain property management and related charges payable by the SGO Joint Venture from levels that were in place for these assets when held by the Company; the GPP SGO Incentive Fee was implemented in order to provide GPP and its affiliates with an opportunity to recoup those reductions should the SGO Joint Venture assets perform well financially.

Sale of Initial Properties to SGO Joint Venture

On March 11, 2015, as part of the formation of the SGO Joint Venture, the Company entered into a Purchase and Sale Agreement to sell Osceola Village, Constitution Trail and Aurora Commons to the SGO Joint Venture.

The closing of the sale was conditioned on the SGO Joint Venture issuing the Company a 19% membership interest and GPP a 1% membership interest in the SGO Joint Venture.

Due to the related party membership interests in the SGO Joint Venture, the sale of the Initial Properties was considered a partial sale in accordance with ASC Subtopic 360-20, Property, Plant, and Equipment – Real Estate Sales . The related party interests consist of the Company’s 19% and GPP’s 1% membership interests in the SGO Joint Venture. As a result, the Company deferred $1.2 million , representing 20% , of the total realized gain from the sale of the Initial Properties to the SGO Joint Venture. During the year ended December 31, 2017, the SGO Joint Venture completed the sales of the Aurora Common property and a portion of Osceola Village. During the year ended December 31, 2016, the SGO Joint Venture completed the sale of Constitution Trail. As a result of the sales, during the years ended December 31, 2017 and 2016, the Company recognized approximately $0.5 million and $23 thousand , respectively, of the previously deferred gain.

SGO MN Joint Venture

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

The SGO MN Agreement provides for the ownership and operation of SGO MN Retail Acquisition Venture, LLC (the “SGO MN Joint Venture”), in which the Company owns a 10% interest, GPP owns a 10% interest, and Oaktree owns an 80% interest. In exchange for ownership in the SGO MN Joint Venture, the Company contributed cash in the amount of $2.8 million to the SGO MN Joint Venture, GPP contributed $2.8 million to the SGO MN Joint Venture, and Oaktree contributed $22.7 million to the SGO MN Joint Venture.

On September 30, 2015, the SGO MN Joint Venture used the capital contributions of the SGO MN Members, together with the proceeds of a loan from Bank of America, NA in the amount of $50.5 million , to acquire 14 retail properties located in Minnesota, North Dakota and Nebraska (the “SGO MN Properties”) from a subsidiary of IRET Properties, L.P., a subsidiary of Investors Real Estate Trust (“IRET”), for a total purchase price of $79.0 million . Subsequently, the SGO MN Joint Venture purchased an additional two retail properties in Minnesota from IRET for a purchase price of $1.6 million , one transaction closed on December 23, 2015 and the other on January 8, 2016. In 2016, the SGO MN Joint Venture sold six of the properties and distributed the net sales proceeds, after required reduction of debt, to the SGO MN Members. In 2017, the SGO MN Joint Venture sold two of the SGO MN Properties and distributed the net sales proceeds, after required reduction of debt, to the SGO MN Members.

Pursuant to the SGO MN Agreement, GPP manages and conducts the day-to-day operations and affairs of the SGO MN Joint Venture, subject to certain major decisions set forth in the SGO MN Agreement that require the consent of at least two of

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the SGO MN Members, one of whom must be Oaktree. Income, losses and distributions are generally allocated based on the SGO MN Members’ respective ownership interests. Additionally, in certain circumstances described in the SGO MN Agreement, the SGO MN Members may be required to make additional capital contributions to the SGO MN Joint Venture, in proportion to the Members’ respective ownership interests.

Pursuant to the SGO MN Agreement, the SGO MN Joint Venture pays GPP a monthly asset management fee equal to a percentage of the aggregate investment value of the property owned by the SGO MN Joint Venture in the preceding month. In addition, if Oaktree has received a 12% internal rate of return on its capital contribution, then promptly following the sale of the last of the SGO MN Properties, the SGO MN Joint Venture will pay GPP a disposition fee equal to one percent of the aggregate net sales proceeds received by the SGO MN Joint Venture from the sales of the SGO MN Properties.

The SGO MN Joint Venture makes distributions of net cash flow to the SGO MN Members no less than quarterly, if appropriate. Distributions are pro rata to the SGO MN Members in proportion to their respective ownership interests in the SGO MN Joint Venture until the SGO MN Members have received a 12% internal rate of return on their capital contribution. Thereafter distributions will be 10% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO MN Member’s respective ownership interests in the SGO MN Joint Venture until Oaktree has received aggregate distributions in an amount necessary to provide Oaktree with the greater of a 17% internal rate of return on its capital contribution and a 1.5 equity multiple on its capital contribution. Distributions will then be 17.5% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO MN Member’s respective ownership interests in the SGO MN Joint Venture until Oaktree has received aggregate distributions in an amount necessary to provide Oaktree with the greater of a 22% internal rate of return on its capital contribution and a 1.75 equity multiple on its capital contribution (the “Promoted Returns”). Distributions will then be 25% to GPP and the balance to the Company, GPP and Oaktree pro rata in proportion to each SGO MN Member’s respective ownership interests in the SGO MN Joint Venture. The portion of the Promoted Returns payable to GPP are referred to herein as the “GPP Incentive Fee.” As a part of the negotiations for the SGO MN Joint Venture, Glenborough agreed to certain reduced property management and related charges payable by the SGO MN Joint Venture; the GPP Incentive Fee was implemented in order to provide GPP and its affiliates with an opportunity to recoup those reductions should the SGO MN Joint Venture assets perform well financially.

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



		Ownership Interest				Investment
Joint Venture	Date of Investment	December 31, 2017		December 31, 2016		December 31, 2017			December 31, 2016
SGO Retail Acquisitions Venture, LLC	3/11/2015	19	%	19	%	$	978		$	3,052
SGO MN Retail Acquisitions Venture, LLC	9/30/2015	10	%	10	%	1,727			1,709
Total						$	2,705		$	4,761

						Year Ended
						December 31, 2017			December 31, 2016
Equity in income (loss) of unconsolidated joint ventures						$	(59	)	$	132

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the aggregate balance sheets and results of operations of the SGO Joint Venture and the SGO MN Joint Venture is presented below (amounts in thousands):



	December 31,
	2017		2016
ASSETS
Investments in real estate, net	$	64,541	$	64,032
Other assets	5,408		18,453
Assets held for sale	1,169		5,265
Total assets	$	71,118	$	87,750

LIABILITIES AND MEMBERS’ CAPITAL
Notes payable	$	45,062	$	40,418
Other liabilities	2,737		8,907
Liabilities held for sale	900		5,273
Total liabilities	48,699		54,598
Members’ capital	22,419		33,152
Total liabilities and members’ capital	$	71,118	$	87,750



	Year Ended December 31,
	2017			2016
RESULTS OF OPERATIONS
Revenue	$	9,129		$	15,523
Expenses	(9,603		)	(17,139		)
Operating loss	(474		)	(1,616		)
Other income	350			3,355
Net income (loss)	$	(124	)	$	1,739

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 December 31, 2017 and 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”).

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 a minimum of $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 and July

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2017, the Company made two additional capital contributions of $0.8 million and $1.3 million , respectively, 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 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 28 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. The Company has the power to direct the activities of the Gelson’s Joint Venture through its approval process of the activities that most significantly impact the economic performance of the Gelson’s Joint Venture. Such activities include the budgeting, leasing, financings, and ultimately, the sale of the property. Income, losses and distributions are generally allocated based on the Gelson’s Members’ respective capital and profits interests. Through the Company’s commitment to contribute 100% of capital to develop and operate the property through the life of the Gelson’s Joint Venture, the Company has an obligation to absorb losses of the Gelson’s Joint Venture. 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. Additionally, the Company has the ability to buy out S&G LA upon certain conditions per the Operating Agreement.

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”). 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, February 2017 and August 2017, the Company made three additional contributions of $0.3 million , $0.6 million and $0.7 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 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. The Company has the power to direct the activities of the Wilshire Joint Venture through its approval process of the activities that most significantly impact the economic performance of the Wilshire Joint Venture. Such activities include the budgeting, leasing, financings, and ultimately, the sale of the property. Income, losses and distributions are generally allocated based on the Wilshire Members’ respective capital and profits interests. Through the Company’s commitment to contribute 100% of capital to develop and operate the property through the life of the Wilshire Joint Venture, the Company has an obligation to absorb losses of the Wilshire Joint Venture. 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.

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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. Additionally, the Company has the ability to buy out 3032 Wilshire SM upon certain conditions per the Operating Agreement.

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



	December 31,
	2017		2016
ASSETS
Properties under development and development costs:
Land	$	25,851	$	25,851
Buildings	585		601
Development costs	9,609		4,377
Properties under development and development costs	36,045		30,829
Restricted cash	818		1,666
Cash and cash equivalents	281		334
Prepaid expenses and other assets, net	9		14
Tenant receivables, net	—		1
TOTAL ASSETS ⁽¹⁾	$	37,153	$	32,844

LIABILITIES
Notes payable, net ⁽²⁾	$	19,116	$	19,103
Accounts payable and accrued expenses	478		806
Amounts due to affiliates	9		9
Other liabilities	9		27
TOTAL LIABILITIES	$	19,612	$	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 December 31, 2017 and 2016 , includes reclassification of approximately $0.1 million 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 December 31, 2017 , the leases at the Company’s properties have remaining terms (excluding options to extend) of up to 14 years with a weighted-average remaining term (excluding options to extend) of approximately seven 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 consolidated balance sheets and totaled approximately $0.2 million as of both December 31, 2017 and 2016 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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



2018	$	2,549
2019	2,619
2020	2,454
2021	2,213
2022	2,230
Thereafter	9,555
Total	$	21,620

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

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



	Lease Intangibles						Below-Market Lease Liabilities
	December 31, 2017			December 31, 2016			December 31, 2017			December 31, 2016
Cost	$	2,783		$	7,000		$	(571	)	$	(3,904	)
Accumulated amortization	(722		)	(3,175		)	133			855
Total	$	2,061		$	3,825		$	(438	)	$	(3,049	)

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



	Lease Intangibles						Below-Market Lease Liabilities
	Year Ended December 31,						Year Ended December 31,
	2017			2016			2017		2016
Amortization	$	(853	)	$	(942	)	$	196	$	279

The scheduled future amortization of lease intangibles and below-market lease liabilities, as of December 31, 2017 , was as follows (amounts in thousands):



	Lease Intangibles		Below-Market Lease Intangibles
2018	$	323	$	(67	)
2019	302		(63		)
2020	259		(53		)
2021	213		(37		)
2022	212		(37		)
Thereafter	752		(181		)
Total	$	2,061	$	(438	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. NOTES PAYABLE, NET

As of December 31, 2017 and 2016 , the Company’s notes payable, net, excluding a portion of the line of credit balance and term loan balance, which have been classified as held for sale, consisted of the following (amounts in thousands):



	Principal Balance						Interest Rates At
	December 31, 2017			December 31, 2016			December 31, 2017
Line of credit ⁽¹⁾	$	23,107		$	11,150		2.66	%
Secured term loan	—			24,277			—	%
Mortgage loans secured by properties under development ⁽²⁾	19,200			19,200			9.5% - 10.0%
Deferred financing costs, net ⁽³⁾	(84		)	(323		)	n/a
	$	42,223		$	54,304

(1)

The Company’s line of credit is a revolving credit facility with an initial maximum aggregate commitment of $30.0 million . Effective February 15, 2017, the Company’s line of credit 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 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 the lender an unused commitment fee, quarterly in arrears, which will accrue at 0.30% per annum, if the usage under the the Company’s line of credit is less than or equal to 50% of the line of credit amount, and 0.20% per annum if the usage under the Company’s line of credit is greater than 50% of the line of credit amount. The Company is providing a guaranty of all of its obligations under the Company’s line of credit and all other loan documents. As of December 31, 2017 , the Company’s line of credit was secured by Topaz Marketplace, 8 Octavia Street, 400 Grove Street, the Fulton Shops, 450 Hayes, 388 Fulton, Silver Lake, Florissant Marketplace, Ensenada Square and The Shops at Turkey Creek. As of December 31, 2016, the Company’s line of credit was secured by Pinehurst Square East, Topaz Marketplace, 8 Octavia Street, 400 Grove Street, the Fulton Shops and 450 Hayes. For information regarding recent draws under the Company’s line of credit, see “– Recent Financing Transactions The Company’s Line of Credit” 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 years ended December 31, 2017 and 2016 , the Company incurred and expensed approximately $1.8 million and $2.2 million , respectively, of interest costs, which included the amortization of deferred financing costs of approximately $0.5 million for both periods. Also during the years ended December 31, 2017 and 2016 , the Company incurred and capitalized approximately $3.4 million and $2.8 million , respectively, of interest expense related to the variable interest entities, which included the amortization of deferred financing costs of approximately $0.5 million and $0.6 million for each period, respectively.

As of December 31, 2017 and 2016 , interest expense payable was approximately $0.3 million and $0.4 million , respectively, including an amount related to the variable interest entities of approximately $0.2 million for each period.

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



2018	$	19,200
2019	—
2020	33,856
Total ⁽¹⁾	$	53,056


(1)	Total future principal payments reflect actual amounts due to creditors, and excludes reclassification of $0.1 million deferred financing costs, net.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recent Financing Transactions

Line of Credit

During the years ended December 31, 2017 and 2016 , the following transactions occurred under the Company’s line of credit:

Year ended December 31, 2017 :


•	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 Company’s line of credit.


•	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 Company’s line of credit.


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


•	On April 17, 2017, the Company consummated the disposition of Woodland West Marketplace, located in Arlington, Texas, for a sales price of approximately $14.6 million in cash, $13.7 million of which was used to pay down the Company’s line of credit.


•	On June 28, 2017, the Company drew $1.3 million and used the proceeds for working capital.


•	On August 22, 2017, the Company drew $1.0 million and used the proceeds for working capital.

•

On October 31, 2017, the Company drew $26.0 million and used the proceeds to repay the existing secured financing that encumbered the following properties: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace, Ensenada Square and Cochran Bypass. The total amount of the repayment was $25.4 million , which included a payment of yield maintenance due upon prepayment of $1.4 million . In connection with that borrowing, the Company added the following property as additional collateral security under the terms of the Amended and Restated Credit Facility: The Shops at Turkey Creek, Morningside Marketplace, Florissant Marketplace and Ensenada Square.


•	On October 31, 2017, the Company consummated the disposition of Cochran Bypass, located in Chester, South Carolina, for a sales price of approximately $2.5 million in cash, $2.1 million of which was used to pay down the Company’s line of credit.


•	On November 1, 2017, the Company consummated the disposition of Morningside Marketplace, located in Fontana, California, for a sales price of approximately $12.7 million in cash, $12.0 million of which was used to pay down the Company’s line of credit.


•	On November 20, 2017, the Company paid down $4.0 million on its line of credit.


•	On December 14, 2017, the Company drew $5.0 million and used a portion of the proceeds to repay a $2.5 million working capital short-term loan (the “Bridge Loan”) from Glenborough Property Partners, LLC, an affiliate of the Advisor.

Year ended December 31, 2016 :


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


•	On April 4, 2016, the Company consummated the disposition of Bloomingdale Hills, located in Riverside, Florida, for a sales price of approximately $9.2 million in cash, $3.0 million of which was used to pay down the line of credit.


•	On June 9, 2016, the Company drew $7.5 million and used the majority of the proceeds to acquire 8 Octavia and 400 Grove.


•	On July 25, 2016, the Company drew $4.7 million and used the majority of the proceeds to acquire the Fulton Shops.

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•	On September 29, 2016, the Company drew $1.0 million and used the proceeds for working capital.


•	On October 7, 2016, the Company paid down $2.0 million on its line of credit.


•	On December 22, 2016, the Company drew $7.2 million and used the proceeds to acquire 450 Hayes. Refer to Note 3. “Real Estate Investments” for additional information.


•	On December 27, 2016, the Company drew $2.0 million to be used for working capital.

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”). 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, the Company exercised the option to extend the loan until September 7, 2017 . On August 29, 2017, the Company exercised the remaining option to extend the loan for an additional six months. The extension was scheduled to mature on March 7, 2018. The Company extended the loan, with the same terms, for an additional six months, effective March 7, 2018. The new maturity date is September 7, 2018 . 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”). 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 to mature on July 27, 2017. The Company negotiated a nine month extension of the term on July 27, 2017. The new maturity date is April 27, 2018 . 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.

The Company is working on extending the Gelson’s Loan, and intends to complete this extension prior to the loan’s maturity date.

9. FAIR VALUE DISCLOSURES

The Company believes the total carrying values reflected on its consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, amounts due to affiliates, mortgage loans secured by properties under development, and the Company’s line of credit 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 December 31, 2017 and 2016 (amounts in thousands):



	Carrying Value ⁽¹⁾				Fair Value ^{(1) (2)}
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Notes payable, net	$	42,223	$	54,304	$	42,223	$	54,781


(1)	The carrying value of the Company’s notes payable represents the outstanding principal as of December 31, 2017 , and 2016 . The carrying values and fair values of the notes payable include the reclassification of deferred financing costs, net, of approximately $0.1 million and $0.3 million , respectively, as a contra-liability, as of December 31, 2017 and 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.

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(unaudited)

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 years ended December 31, 2017 and 2016 , the Company did not record any impairment losses.

10. EQUITY

Common Stock

Under the Company’s Articles of Amendment and Restatement (the “Charter”), the Company has the authority to issue 400,000,000 shares of common stock. All shares of common stock have a par value of $0.01 per share.

On February 7, 2013, the Company terminated the Offering and ceased offering its securities. The Company sold 10,688,940 shares of common stock in its primary offering for gross operating proceeds of $104.7 million , 391,182 shares of common stock under the distribution reinvestment plan (“DRIP”) for gross offering proceeds of $3.6 million , granted 50,000 shares of restricted stock and issued 273,729 common shares to pay a portion of a special distribution on November 4, 2015. Cumulatively, through December 31, 2017, the Company has redeemed 612,115 shares sold in the Offering and/or the DRIP for $4.6 million .

Common Units of the OP

The Company’s prior advisor, TNP Strategic Retail Advisor, LLC, invested $1 thousand in the OP in exchange for Common Units of the OP which were sold to GPP on January 24, 2014. On May 26, 2011, in connection with the acquisition of Pinehurst Square East, a retail property located in Bismarck, North Dakota, the OP issued 287,472 Common Units to certain of the sellers of Pinehurst Square East who elected to receive Common Units for an aggregate value of approximately $2.6 million , or $9.00 per Common Unit. On March 12, 2012, in connection with the acquisition of Turkey Creek, a retail property located in Knoxville, Tennessee, the OP issued 144,324 Common Units to certain of the sellers of Turkey Creek who elected to receive Common Units for an aggregate value of approximately $1.4 million , or $9.50 per Common Unit.

During the year ended December 31, 2017 , in response to anticipated taxable income allocations to OP Unit holders who acquired their OP Units as a part of their contribution of Pinehurst Square East, certain holders of Common Units of the OP elected to convert their common units of the OP into the Company’s common shares on a one-for-one basis. As a result, 187,114 Common Units were converted to common shares for an aggregate basis of approximately $0.9 million .

On June 21, 2016, 9,588 OP units were converted into the Company’s common shares on a one-for-one basis for an aggregate value of approximately $52 thousand .

Pursuant to the Advisory Agreement, in April 2014 the Company caused the OP to issue to the Advisor a separate series of limited partnership interests of the OP in exchange for a capital contribution to the OP of $1 thousand (the “Special Units”). The terms of the Special Units entitle the Advisor to (i) 15% of the Company’s net sale proceeds upon disposition of its assets after the Company’s stockholders receive a return of their investment plus a 7% cumulative, non-compounded rate of return or (ii) an equivalent amount in the event that the Company lists its shares of common stock on a national securities exchange or upon certain terminations of the Advisory Agreement after the Company’s stockholders are deemed to have received a return of their investment plus a 7% cumulative, non-compounded rate of return.

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

Preferred Stock

The Charter authorizes the Company to issue 50,000,000 shares of $0.01 par value preferred stock. As of December 31, 2017 and 2016, no shares of preferred stock were issued and outstanding.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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”). 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 the Company. 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 weighted-average number of shares of the Company’s common stock outstanding during the prior calendar year. Share repurchases pursuant to the SRP are made at the sole discretion of the Company. The Company reserves the right to reject any redemption request for any reason or no reason or to amend or terminate the share redemption program at any time subject to the notice requirements in the SRP.

The redemption price for shares that are redeemed is 100% of the Company’s most recent estimated net asset value per share as of the applicable redemption date. A redemption request must be made within one year after the stockholder’s death or disability, unless such death or disability occurred between January 15, 2013 and April 1, 2015, when the share redemption program was suspended. 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 the Company cannot honor all redemption requests received in a given quarter, all requests, including death and disability redemptions, will be honored on a pro rata basis. If the Company does not completely satisfy a redemption request in one quarter, it will treat the unsatisfied portion as a request for redemption in the next quarter when funds are available for redemption, unless the request is withdrawn. The Company may increase or decrease the amount of funding available for redemptions under the 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 August 10, 2016, the board of directors authorized management of the Company to prepare and implement an amendment and restatement of the SRP (the “Second A&R SRP”) to revise the definition of disability under the SRP. The Second A&R SRP became effective August 26, 2016. Under the Second A&R SRP, a person is deemed to be disabled and therefore eligible to redeem shares pursuant to the Second A&R SRP if they are disabled pursuant to the definition of “disability” in the Internal Revenue Code of 1986, as amended, at the time that the person’s written redemption request is received by the Company. The other material terms of the Second A&R SRP are consistent with the terms of the First A&R SRP.

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

On August 2, 2017, the board of directors of the Company approved, pursuant to Section 3(a) of the SRP, an additional $1.0 million of funds available for the redemption of shares in connection with the death of a stockholder.

F-30

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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



	Year Ended December 31,
	2017		2016
Shares of common stock redeemed	136,921		109,291
Purchase price	$	865	$	704

As stated above, cumulatively, through December 31, 2017 , the Company has redeemed 612,115 shares sold in the Offering and/or its dividend reinvestment plan for $4.6 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 Company’s line of credit; 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 years ended December 31, 2017 , and 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
Second Quarter 2017	6/30/2017	7/31/2017	0.06		652		25		677
Third Quarter 2017	9/30/2017	10/31/2017	0.06		660		16		676
Fourth Quarter 2017	12/31/2017	1/31/2018	0.06		659		14		673
Total					$	2,626	$	80	$	2,706



	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

11. 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

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 December 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 years ended December 31, 2017 and 2016 (amounts in thousands, except shares and per share amounts):



	Year Ended December 31,
	2017		2016
Numerator - basic and diluted
Net income (loss)	$	8,856	$	(1,991	)
Net income (loss) attributable to non-controlling interests	295		(75		)
Net income (loss) attributable to common shares	$	8,561	$	(1,916	)
Denominator - basic and diluted
Basic weighted average common shares	10,936,361		11,006,759
Common Units ⁽¹⁾	—		—
Diluted weighted average common shares	10,936,361		11,006,759
Earnings (loss) per common share - basic and diluted
Net earnings (loss) attributable to common shares	$	0.78	$	(0.17	)


(1)	The effect of 235,194 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 July 25, 2017, the Advisory Agreement with the Advisor was renewed for an additional 12 months, beginning on August 10, 2017. 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.”

Although paid in full on December 14, 2017, on September 27, 2017, the Company, through the OP, entered into a $2.5 million Bridge Loan with Glenborough Property Partners, LLC, an affiliate of the Advisor. The Bridge Loan was scheduled to mature on March 31, 2018, at which point the outstanding balance of the principal and all accrued and unpaid interest would be due and payable. The Bridge loan incurred interest at an adjustable rate equal to the KeyBank prime rate. Interest was payable monthly in arrears. The Company had the right to prepay the Bridge Loan at any time in whole or in part without premium or penalty. There were no other loan fees or financing coordination fees paid or payable in connection with this loan. During the year ended December 31, 2017 , the Company incurred $23 thousand of interest expense related to the Bridge Loan.

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Related Party Fees

The following table sets forth the Advisor related party costs incurred and payable by the Company for the periods presented (amounts in thousands):



	Incurred				Payable as of
	Year Ended December 31,				December 31,
Expensed	2017		2016		2017		2016
Acquisition fees	$	—	$	184	$	—	$	80
Asset management fees	868		902		—		—
Reimbursement of operating expenses	231		197		—		—
Property management fees	350		420		21		2
Disposition fees	589		203		—		29
Total	$	2,038	$	1,906	$	21	$	111

Capitalized
Acquisition fees	$	194	$	275	$	—	$	—
Leasing fees	222		205		—		—
Legal leasing fees	95		78		—		—
Construction management fees	42		4		—		—
Financing coordination fees	814		—		—		—
Total	$	1,367	$	562	$	—	$	—

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 CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 years ended December 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 have been renewed for an additional 12 months, beginning on August 10, 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 years ended December 31, 2017 and 2016 , the SGO Joint Venture recognized related party fees and reimbursements of $0.2 million and $0.5 million , respectively. For the years ended December 31, 2017 and 2016 , the SGO MN Joint Venture recognized related party fees and reimbursements of $0.7 million and $1.0 million , respectively. 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 CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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 December 7, 2017, the Company’s board of directors declared a fourth quarter distribution in the amount of $0.06 per share/unit to common stockholders and holders of common units of record as of December 31, 2017. The distribution was paid on January 31, 2018.

Mortgage Loans Secured by Properties Under Development

On March 7, 2018, the Company extended the Wilshire loan for six months. The new maturity date is September 7, 2018.

F-35

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STRATEGIC REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE III — REAL ESTATE OPERATING PROPERTIES AND ACCUMULATED DEPRECIATION

December 31, 2017



(amounts in thousands)	Initial Cost to Company				Cost Capitalized Subsequent to Acquisition ⁽¹⁾			Gross Amount of Which Carried at Close of Period										Life on which Depreciation in Latest Statement of Operations is Computed ⁽³⁾
	Land		Building & Improvements		Cost Capitalized Subsequent to Acquisition ⁽¹⁾			Land		Building & Improvements		Total ⁽²⁾		Accumulated Depreciation			Acquisition Date
Topaz Marketplace	$	2,120	$	10,724	$	(1,535	)	$	1,900	$	9,409	$	11,309	$	(1,626	)	9/23/2011	5-30
400 Grove Street	1,009		1,813		—			1,009		1,813		2,822		(91		)	6/14/2016	5-30
8 Octavia Street	728		1,847		58			728		1,905		2,633		(93		)	6/14/2016	5-30
Fulton Shops	1,187		3,254		—			1,187		3,254		4,441		(171		)	7/27/2016	5-30
450 Hayes	2,324		5,009		367			2,324		5,376		7,700		(187		)	12/22/2016	5-30
388 Fulton	1,109		2,943		319			1,112		3,259		4,371		(116		)	1/4/2017	5-30
Silver Lake	5,747		6,646		364			5,760		6,997		12,757		(295		)	1/11/2017	5-30
Total	$	14,224	$	32,236	$	(427	)	$	14,020	$	32,013	$	46,033	$	(2,579	)


(1)	The cost capitalized subsequent to acquisition may include negative balances resulting from the write-off and impairment of real estate assets, and parcel sales.


(2)	The aggregate net tax basis of land and buildings for federal income tax purposes is $48.0 million .


(3)	Buildings and building improvements are depreciated over their useful lives as shown. Tenant improvements are amortized over the life of the related lease, which with our current portfolio can vary from 1 year to over 36 years.



(in thousands)	Year Ended December 31,
	2017			2016
Real Estate:
Balance at the beginning of the year	$	65,627		$	75,815
Acquisitions	17,128			17,171
Improvements	746			67
Dispositions	(13,511		)	(10,081		)
Balances associated with changes in reporting presentation ⁽¹⁾	(23,957		)	(17,345		)
Balance at the end of the year	$	46,033		$	65,627

Accumulated Depreciation:
Balance at the beginning of the year	$	8,163		$	10,068
Depreciation expense	2,047			2,515
Dispositions	(2,453		)	(1,058		)
Balances associated with changes in reporting presentation ⁽¹⁾	(5,178		)	(3,362		)
Balance at the end of the year	$	2,579		$	8,163


(1)	The balances associated with changes in reporting presentation represent real estate and accumulated depreciation reclassified as assets held for sale.

See accompanying report of independent registered public accounting firm.

S-1

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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 March 23, 2018 .



	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)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature	Title(s)	Date

/s/ Todd A. Spitzer	Chairman of the Board	March 23, 2018
Todd A. Spitzer	Chairman of the Board

/s/ Andrew Batinovich	Chief Executive Officer, Corporate Secretary and Director (Principal Executive Officer)	March 23, 2018
Andrew Batinovich

/s/ Terri Garnick	Chief Financial Officer (Principal Financial and Accounting Officer)	March 23, 2018
Terri Garnick

/s/ Phillip I. Levin	Director	March 23, 2018
Phillip I. Levin	Director

/s/ Jeffrey S. Rogers	Director	March 23, 2018
Jeffrey S. Rogers	Director

Table of Contents

EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 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.		10-Q	5/11/2017

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.		10-Q	5/11/2017

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		10-Q	5/11/2017

10.4	The Purchase and Sale Agreement by and between TNP SRT Portfolio II, LLC and Baseline Property, LLC, dated September 14, 2017.		10-Q	11/13/2017

10.5	The Purchase and Sale Agreement by and between Kamin Realty LLC and TNP SRT Portfolio II, LLC, dated September 20, 2017.	X

10.6	First Amendment to Purchase and Sale Agreement between Kamin Realty LLC and TNP SRT Portfolio II, LLC, dated October 27, 2017	X

10.7	Second Amendment to Purchase and Sale Agreement between Kamin Realty LLC and TNP SRT Portfolio II, LLC, dated October 30, 2017	X

10.8	Promissory Note between Strategic Realty Operating Partnership, L.P., and Glenborough Property Partners, LLC, dated September 27, 2017	X

21	Subsidiaries of the Company	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

S-3

Table of Contents



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

S-4

PURCHASE AND SALE AGREEMENT

(Cochran Bypass – Bi-Lo Store)

THIS PURCHASE AND SALE AGREEMENT (“ Agreement ”) is dated as of September 20, 2017 (the “ Effective Date ”), by and between KAMIN REALTY LLC , a Delaware limited liability company (“ Buyer ”), and TNP SRT PORTFOLIO II, LLC , a Delaware limited liability company (“ Seller ”). Buyer shall have the right to assign this Agreement as provided in Section 15(g) .

Recitals

A . Buyer desires to acquire the Property from Seller and Seller desires to sell the Property to Buyer, upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE , in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and intending to be legally bound, the Parties hereby agree as follows:

1. Definitions . Capitalized terms used in this Agreement shall have the meanings set forth in Addendum I attached hereto.

2. Agreement to Purchase and Sell . Subject to and upon the terms and conditions herein set forth and the representations and warranties contained herein, Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller.

3. Consideration . Seller and Buyer agree that the total Consideration for the Property shall be Two Million Four Hundred Fifty Thousand and No/100 Dollars ($2,450,000.00). The Consideration shall comprise the following components:

(a) Initial Earnest Money Deposit; Remaining Earnest Money Deposit . Within two (2) Business Days of the Effective Date, Buyer shall deposit the Initial Earnest Money Deposit in escrow with the Escrow Holder. If Buyer notifies Seller in writing on or before the end of the Due Diligence Period of Buyer’s election to proceed to close pursuant to the terms hereof, Buyer shall deposit the Remaining Earnest Money Deposit with the Title Company within two (2) Business Days after the Approval Date. At Buyer’s request made to the Escrow Holder the Earnest Money shall be held in a federally insured interest-bearing account and interest accruing thereon shall be for the account of Buyer; provided, however, Buyer shall be solely responsible for any costs or fees associated with such account and such account shall permit immediate withdrawal of funds without penalty. In the event the transaction contemplated hereby is consummated, the Earnest Money plus interest accrued thereon while held by the Escrow Holder shall be credited against Buyer’s payment obligations under this Agreement.

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(b) Cash . Immediately available funds, in an amount equal to the Consideration, less the Earnest Money.

4. Buyer’s Due Diligence . As more fully provided below, Seller agrees to assist and cooperate with Buyer in obtaining access to the Property and certain documents relating thereto for purposes of inspection and due diligence.

(a) Physical Inspection of the Property . At any time(s) reasonably requested by Buyer following the Effective Date and prior to Closing, Seller shall afford Buyer and its authorized representatives reasonable access to the Property for purposes of satisfying Buyer with respect to the suitability of the Property for Buyer’s purposes, the representations, warranties and covenants of Seller contained herein and the satisfaction of any conditions precedent to the Closing; provided, however, that Buyer shall not unreasonably disturb or interfere with the rights of Tenant. Buyer shall provide Seller with notice on a Business Day not less than two (2) Business Days prior to any such inspections, and Seller, at its election, shall have the right to have a representative present during any such investigations. Seller shall have the right at all times to have a representative of Seller accompany any of Buyer or Buyer’s Agents while such persons are on the Property. Buyer may conduct Tenant interviews, provided Buyer has given Seller notice on a Business Day not less than two (2) Business Days prior to any such interview, and provided further that Seller shall have the right to be present at all such interviews. Notices to Seller pursuant to this Section 4(a) may be delivered orally (if made in person, and not via voicemail, to Alan Shapiro at 650-581-7606), or by email (if made to Alan Shapiro at alan.shapiro@glenborough.com and no “out of office” response or other response indicating delivery failure or Mr. Shapiro’s unavailability is generated).

(b) Physical Testing . Buyer shall not conduct or allow any Physical Testing, on or under the Property, including, without limitation, for Hazardous Materials, without Seller’s prior written consent, which consent may be withheld at Seller’s sole and absolute discretion. Buyer shall provide Seller with notice not less than five (5) Business Days prior to the commencement of any Physical Testing, accompanied by a detailed work plan describing the nature, scope, location and purpose of the proposed work, and if approved by Seller, Seller shall have the right to have its own consultant present for any such work. Buyer acknowledges and agrees that Seller’s review of Buyer’s work plan is solely for the purpose of protecting Seller’s interests, and shall not be deemed to create any liability of any kind on the part of Seller in connection with such review that, for example, the work plan is adequate or appropriate for any purpose or complies with applicable legal requirements. All work and investigations shall be performed in compliance with all local, state and federal laws, rules and regulations, including, without limitation, any and all permits required thereunder, all of which shall be at the sole cost and expense of Buyer.

(c) Damage; Indemnity . Notwithstanding anything in this Agreement to the contrary, any entry upon, inspection, or investigation of the Property by Buyer or Buyer’s Agents, whether performed before or after the Effective Date shall be performed at the sole risk and expense of Buyer, and Buyer shall be solely and absolutely responsible for the acts or

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omissions of Buyer and any of Buyer’s Agents. Furthermore, Buyer shall protect, indemnify, defend and hold Seller, and its successors, assigns, and affiliates harmless from and against any and all losses, damages (whether general, consequential, punitive or otherwise), liabilities, claims, causes of action, judgments, costs and legal or other expenses (including, but not limited to, reasonable attorneys’ fees and costs) (collectively, “ Access Claims ”) suffered or incurred by any or all of such indemnified Parties to the extent resulting from (i) any act or omission of Buyer or Buyer’s Agents in connection with entry upon the Property by Buyer or Buyer’s Agents, or the activities, studies or investigations conducted at, to or on the Property by Buyer or Buyer’s Agents, whether before or after the Effective Date, or (ii) any breach on the part of Buyer of its obligations under this Section 4 , whether the act or omission constituting such breach occurred before or after the Effective Date. If at any time prior to Closing, Buyer or Buyer’s Agents cause any damage to the Property, Buyer shall, at its sole expense, immediately restore the Property to substantially the same condition as existed immediately prior to the occurrence of such damage, as reasonably determined by Seller. Buyer’s obligation to indemnify, defend and hold Seller harmless shall not apply to matters to the extent arising or resulting from (i) the discovery by Buyer of any pre-existing defects in the Property (except to the extent Buyer or Buyer’s Agents exacerbate any such pre-existing condition or such discovery is made in violation of the terms of this Agreement pertaining to Physical Testing); or (ii) the discovery by Buyer of any Hazardous Materials within, on or adjacent to the Property that were not released or deposited by Buyer or any of Buyer’s Agents (except to the extent that Buyer or Buyer’s Agents exacerbate the scope or effect of or cause additional or further release of any such Hazardous Materials or such discovery is made in violation of the terms of this Agreement pertaining to Physical Testing). Buyer’s obligations under this Section 4 shall survive the termination of this Agreement or the Closing, as the case may be, notwithstanding any other provisions herein to the contrary, and shall not be limited by the terms of Section 14(c) . Buyer shall, at all times, keep the Property free and clear of any mechanics’, materialmen’s or design professional’s claims or liens arising out of or relating to its investigations of the Property, whether occurring before or after the Effective Date.

(d) Liability Insurance . Prior to any entry onto the Property by Buyer or Buyer’s Agents, Buyer shall provide Seller written evidence that Buyer has procured or caused Buyer’s Agents to procure, comprehensive general liability insurance specific to the Property (or with the requisite limits dedicated to the Property) on an “occurrence” form policy covering (at a minimum) (i) the activities of Buyer and Buyer’s Agents on the Property during the period from the Effective Date through the Closing Date; and (ii) Buyer’s indemnity obligation under this Agreement. Such policy shall provide for combined single limit coverage in the minimum amount of $2,000,000, be issued by a company authorized to do business in the State in which the Property is located and have a deductible not to exceed $10,000. Seller shall be named as an additional insured under all such liability insurance and Buyer shall deliver to Seller a copy of the insurer’s endorsements which name Seller as an additional insured and provide for contractual liability coverage, prior to any entry onto the Property by Buyer or Buyer’s Agents. In addition, and prior to any entry onto the Property by Buyer or Buyer’s Agents, Buyer shall deliver to Seller certificates evidencing that the insurance required under this section is in full force and effect.

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(e) Delivery of Documents and Records . To the extent not previously delivered, Seller shall deliver the Due Diligence Materials to Buyer within two (2) Business Days after the Effective Date. Except as specifically set forth herein, Seller makes no representations or warranties as to the truth, accuracy or completeness of any materials, data or other information supplied to Buyer in connection with Buyer’s inspection of the Property (e.g., that such materials are complete, accurate, or the final version thereof, or that all such materials are in the Seller’s possession). It is the Parties’ express understanding and agreement that such materials are provided only for Buyer’s convenience in making its own examination and determination prior to the Approval Date, as to whether or not it wishes to purchase the Property, and, in doing so, Buyer shall rely exclusively on its own independent investigation and evaluation of every aspect of the Property and, except as expressly set forth herein, not on any materials supplied by Seller. Buyer expressly disclaims any intent to rely on any such materials provided to it by Seller in connection with its own inspections and agrees that it shall rely solely on its own independently developed or verified information. Buyer agrees that delivery may be accomplished by access to the Due Diligence Materials in an electronic data room established by Seller or Seller’s Broker.

(f) Contacts with Property Managers . At any time reasonably requested by Buyer, following the Effective Date and prior to Closing, Buyer may contact and interview the property manager/leasing agent(s) for the Property, if any, on a Business Day, provided Buyer shall give Seller written notice on a Business Day not less than forty-eight (48) hours in advance of the time Buyer desires to conduct such interview, and Seller or its representative may be present during such interview. Notices to Seller pursuant to this subsection may be delivered orally (if made in person, and not via voicemail, to Alan Shapiro at 650-581-7606), or by email (if made to Alan Shapiro at alan.shapiro@glenborough.com and no “out of office” response or other response indicating delivery failure or Mr. Shapiro’s unavailability is generated ).

(g) Service Contracts . On or prior to the Approval Date, Buyer shall notify Seller in writing which, if any, Service Contracts Buyer elects to assume at Closing. All other Service Contracts to which Seller is a party shall be terminated by Seller at or before the Closing.

(h) Approval of Title . Promptly after the Effective Date, Seller shall request that the Closing Attorney deliver to Buyer a Preliminary Title Report or Title Commitment (as applicable in the State in which the Property is located) with links to or copies of any underlying exceptions or documents referenced therein. No later than six (6) Business Days prior to the end of the Due Diligence Period, Buyer shall advise Seller what exceptions to title, if any, will be accepted by Buyer. Seller shall have three (3) Business Days after receipt of Buyer’s objections to give to Buyer: (A) written notice that Seller will remove such objectionable exceptions on or before the Closing Date; or (B) written notice that Seller elects not to cause such exceptions to be removed. Seller’s failure to give notice to Buyer within the three (3) Business Day period shall be deemed to be Seller’s election not to cause such exceptions to be removed. If Seller gives Buyer notice or is otherwise deemed to have elected to proceed under clause (B), Buyer shall have until the later of (i) three (3) Business Days after receipt of Seller’s actual or deemed notice as to Seller’s unwillingness to cause

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such exceptions to be removed, or (ii) the end of the Due Diligence Period, to elect to proceed with the transaction or terminate this Agreement. If Buyer fails to give Seller notice of its election on or before the expiration of such period, Buyer shall be deemed to have elected to terminate this Agreement. If Seller gives notice pursuant to clause (A) and fails to remove any such objectionable exceptions from title prior to the Closing Date, and Buyer is unwilling to take title subject thereto, Buyer shall have the right to elect to terminate this Agreement and Section 14(a) shall apply. Notwithstanding the foregoing, Buyer shall be deemed to have objected to any lien encumbering the Property that secures the payment of money, such as mechanic’s liens, materialmen’s liens and judgment liens, and the liens of deeds of trust and mortgages (collectively, “ Monetary Liens ”), unless Buyer otherwise notifies Seller in writing. Monetary Liens shall not include non-delinquent assessments or bond amounts encumbering the Property and reflected in the tax bills for the Property, non-delinquent property taxes or assessments, or non-delinquent dues, costs or assessments under declarations, reciprocal easements, or other covenants, conditions or restrictions to which the Property is subject. Seller hereby agrees to remove at or before the Closing and shall cause the Property to be delivered free and clear of, Monetary Liens caused by Seller, subject in the case of the lien in favor of the Existing Lender, to the Existing Lender’s consent to the release of the Property from the lien. Buyer agrees that “removal” of an exception shall include the Title Company’s willingness to endorse over such exception or provide affirmative assurance to Buyer of no loss or damage to Buyer from such exception.

(i) New Exceptions . In the event the Title Company notifies Buyer of any New Exceptions to title after the Approval Date, Buyer shall have two (2) Business Days in which to notify Seller of its approval or disapproval of such New Exception. Failure to deliver notice of approval of such New Exception shall be deemed disapproval of the New Exception. If Buyer disapproves such New Exception, Seller shall notify Buyer within two (2) Business Days thereafter whether or not Seller can or will cause the removal of such New Exception. Failure to deliver such notice by Seller shall be deemed Seller’s refusal to cause the removal of such New Exception. If Seller is unwilling or unable to cause the removal of such New Exception, Buyer shall have the right within two (2) Business Days thereafter in which to waive such objection to title and proceed to Closing, or terminate this Agreement, in which case Section 14(a) shall apply. Failure by Buyer to deliver notice of waiver shall be deemed Buyer’s objection to title and election to terminate this Agreement. Buyer agrees that “removal” of a New Exception shall include the Title Company’s willingness to endorse over such exception or provide affirmative assurance to Buyer of no loss or damage to Buyer from such New Exception.

(j) Survey . Seller has provided Buyer with a copy of an ALTA/NSPS survey of the Property (the “ Survey ”). If Buyer elects ALTA extended coverage title insurance, with survey coverage, Buyer shall have the right, at its cost, to update, modify, amend or re-certify the Survey as necessary in order for the Title Company to delete the survey exception from the Title Policy or to otherwise satisfy Buyer’s objectives. Seller will consent to the use and update of such Survey by Buyer, at Buyer’s cost. Buyer shall have the right to object to any matters shown in the Survey no later than six (6) Business Days prior to the end of

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the Due Diligence Period in accordance with Section 4(h) . The receipt of an updated Survey shall not be a condition precedent to Buyer’s obligation to close the escrow.

(k) Title Commitment during Due Diligence Period . Buyer shall use diligent, good faith efforts to obtain from the Title Company no later than the end of the Due Diligence Period, such assurances and commitments as to policy form, coverage and endorsements as Buyer may request for the Title Policy. Delivery of the Approval Notice to Seller prior to the end of the Due Diligence Period shall constitute Buyer’s approval of matters affecting title to the Property, including any such matters as are shown on the Survey, subject to Buyer’s rights under Section 4(h) and 4(j) and any New Exceptions. Buyer may elect to obtain an owner’s ALTA extended coverage title insurance policy, and such endorsements thereto as Buyer may require, which endorsements shall be at Buyer’s cost. Seller shall execute and deliver to the Title Company the form of owner’s title affidavit set forth in Exhibit F to this Agreement, as modified to reflect any necessary, state-specific format for such affidavit; provided, however, that in no event shall Seller be required to execute or deliver any owner’s title affidavit that includes any indemnity obligations, or that contains statements or representations that are not qualified to Seller’s actual knowledge. It shall be a condition to Buyer’s obligation to close the Escrow that the Title Company not be unwilling or unable to deliver to Buyer as of the Closing its irrevocable commitment to issue to Buyer its Title Policy consistent in all material respects with the commitment, if any, made by the Title Company as of the Approval Date, subject to New Exceptions approved by Buyer. For the avoidance of doubt, and without limiting the foregoing, if, as of the delivery of the Approval Notice, Buyer is negotiating with the Title Company as to the terms, coverage or endorsements to the Title Policy, it shall not be a condition to Buyer’s obligation to close Escrow that the Title Company agree to such requests by Buyer or provide the coverage or assurances sought by Buyer. If, prior to the Approval Date, Buyer fails to obtain a commitment from the Title Company generally or as to any particular exception or term of the Title Policy sought by Buyer, Buyer shall be deemed, as of giving of the Approval Notice, to have waived objections to such matters (notwithstanding any further efforts to address such issues with the Title Company, and notwithstanding any agreement by Seller to cooperate with Buyer or the Title Company in addressing such matters) and approved all exceptions to title other than Monetary Liens and subsequent New Exceptions.

(l) Buyer’s Right to Terminate . At any time up to the Approval Date, Buyer has the unqualified right to terminate this Agreement and obtain a full refund of the Earnest Money (and any interest thereon), subject to Buyer’s obligations to return Due Diligence Materials to Seller as provided in the Section entitled “Conditions to Closing.” On or before the end of the Due Diligence Period, if Buyer is satisfied with its due diligence review of the Property and matters affecting the Property and wishes to proceed with the acquisition of the Property under this Agreement, Buyer shall give the Seller written notice of its approval of the Property and election to proceed under this Agreement (the “ Approval Notice ”). If Buyer fails to deliver an Approval Notice to Seller on or before the end of the Due Diligence Period, Buyer shall be deemed to have elected to terminate this Agreement, the Agreement shall automatically terminate as of the end of the Due Diligence Period, and Buyer’s Earnest Money (and any interest thereon) shall immediately be returned to Buyer. If Buyer timely

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delivers its Approval Notice to Seller, the Earnest Money shall become non-refundable to Buyer except as specifically set forth herein.

5. Conditions to Closing .

(a) Buyer Closing Conditions . The conditions set forth in this Section 5(a) are conditions precedent to Buyer’s obligation to acquire the Property (“ Buyer Closing Conditions ”). The Buyer Closing Conditions are intended solely for the benefit of Buyer. If any of the Buyer Closing Conditions is not satisfied, Buyer shall have the right in its sole discretion either to waive the Buyer Closing Condition and proceed with the acquisition of the Property without adjustment to the Consideration or terminate this Agreement by written notice to Seller and the Escrow Holder.

(i) Conveyances by Seller . At the Closing, Seller shall convey to Buyer all of its right, title and interest to the Property by executing and delivering all documents required to be delivered by Seller pursuant to the Section entitled “Closing and Escrow.”

(ii) Representations and Warranties; Performance . The representations and warranties of the Seller contained in Addendum II shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date, and Seller shall have timely performed all obligations and covenants of Seller under this Agreement requiring performance prior to the Closing.

(iii) Title Company Commitment . The Title Company shall not have withdrawn or modified in any material respect its commitment made as of the Approval Date (if any), to issue the Title Policy at the Closing, subject to New Exceptions approved by Buyer.

(iv) Tenant Estoppel . Seller shall have delivered to Buyer the Tenant Estoppel from the Tenant, on or before the Business Day that is three (3) Business Days prior to the Closing Date, as required under Section 8 hereunder.

(b) Seller Closing Conditions . The conditions set forth in this Section 5(b) are conditions precedent to Seller’s obligation to sell the Property (“ Seller Closing Conditions ”). The Seller Closing Conditions are intended solely for the benefit of Seller. If any of the Seller Closing Conditions is not satisfied, Seller shall have the right in its sole discretion either to waive the Seller Closing Condition and proceed with the transaction or terminate this Agreement by written notice to Buyer and the Escrow Holder.

(i) Lender Consent and Agreement . The Existing Lender shall have confirmed in writing to Seller that all conditions to the release of the Property from such lender’s mortgage have been satisfied, and the Existing Lender shall have released the Property from such mortgage. Seller shall use commercially reasonable efforts to secure the release of the Property from the mortgage of the Existing Lender, but the failure to obtain such release as of the Closing Date shall not be a default on the part

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of Seller. Seller shall have the right, but not the obligation, to extend the Closing for a period up to fifteen (15) days in order to obtain such release.

(ii) Tax Clearance . Seller shall have received a Certificate of Tax Compliance from the South Carolina Department of Revenue.

(iii) Representations and Warranties; Performance . The representations and warranties of Buyer contained herein shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date, and Buyer shall have timely performed all covenants and obligations of Buyer under this Agreement requiring performance prior to the Closing.

(c) Deemed Approval of Conditions . In the event that any Party having the right of cancellation hereunder based on failure of a condition precedent set forth herein does not inform the other Party and Escrow Holder in writing of the failure of any condition precedent made for the benefit of such Party prior to the Closing, such failure shall be deemed to have been waived, effective as of the Closing; provided that a Party shall not be deemed to have waived any claim for breach of any representation or warranty by the other Party unless such Party has Actual Knowledge of such breach prior to Closing.

(d) Return of Materials . Upon termination of this Agreement and the escrow for failure of a condition precedent or upon termination by Buyer prior to the end of the Due Diligence Period, and upon Seller’s written request, Buyer shall return to Seller or otherwise delete or destroy all Due Diligence Materials delivered to Buyer by Seller.

6. Closing and Escrow .

(a) Closing . The Closing shall occur through the Closing Attorney (or at its election, the Escrow Holder) on the Closing Date.

(b) Deposit of Agreement and Escrow Instructions . The Parties shall promptly deposit a fully executed copy of this Agreement with Escrow Holder and Closing Attorney and this Agreement shall serve as escrow instructions to Escrow Holder for consummation of the transactions contemplated hereby. Neither Escrow Holder or Closing Attorney is a party to this Agreement and its execution and acknowledgement of this Agreement is solely for the purpose of acknowledging receipt of a copy of this Agreement, and is not a condition to the effectiveness of this Agreement as between Buyer and Seller. The Parties agree to execute such additional escrow instructions as may be appropriate to enable Escrow Holder and Closing Attorney to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control unless such supplementary instructions are signed by both Buyer and Seller and a contrary intent is expressly indicated in such supplementary instructions. Seller and Buyer hereby designate Escrow Holder as the “reporting person” for the transaction pursuant to Section 6045(e) of the Internal Revenue Code and the regulations promulgated thereunder.

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(c) Seller’s Deliveries to Escrow . At or before the Closing, Seller shall deliver to the Escrow Holder, in escrow, the following:

(i) the duly executed and acknowledged Deed;

(ii) a duly executed Assignment of Lease;

(iii) a duly executed Assignment and Assumption of Warranties and other General Intangibles;

(iv) a FIRPTA affidavit (in the form attached as Exhibit D ) pursuant to Section 1445(b)(2) of the Internal Revenue Code of 1986, and on which Buyer is entitled to rely, that Seller is not a foreign person within the meaning of Section 1445(f)(3) of the Internal Revenue Code, and any equivalents required by the state in which the Property is located;

(v) an owner’s title affidavit in the form attached hereto as Exhibit F , duly executed by Seller;

(vi) a settlement statement approved and signed on behalf of Seller; and

(vii) any other instruments, records or correspondence called for hereunder which have not previously been delivered.

(d) Seller’s Deliveries to Buyer .

(i) Deliveries at Closing . At or before the Closing, Seller shall deliver to Buyer the following:

a) a Rent Roll dated as of the first day of the month in which the Closing Date occurs;

b) subject to Seller’s obligations in Section 8 , a duly executed original Tenant Estoppel;

c) one original form notice to Tenant, informing it of this transaction; and

d) all keys, combinations and electronic passwords to the Property.

(ii) Deliveries After Closing . Promptly after Closing, Seller shall deliver to Buyer the following, to the extent they have not already been delivered:

a) the original of the Lease, to the extent available; and

b) any other instruments, records or correspondence called for hereunder which have not previously been delivered, to the extent available.

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(e) Buyer’s Deliveries to Escrow . At or before the Closing, Buyer shall deliver or cause to be delivered in escrow to the Escrow Holder the following:

(i) a duly executed Assignment of Lease;

(ii) a duly executed Assignment and Assumption of Warranties and other General Intangibles;

(iii) a duly executed SCID 3601, pursuant to Section 38-75-960 S.C. Code of Laws 1976, as amended, and a duly executed Notice of Availability of Title Insurance, in the form provided by the Closing Attorney;

(iv) a settlement statement approved and signed on behalf of Buyer; and

(v) the Cash.

(f) Deposit of Other Instruments . Seller and Buyer shall each deposit such other instruments as are reasonably required by Escrow Holder or the Title Company or otherwise required to close the escrow and consummate the transactions described herein in accordance with the terms hereof.

7. Closing Adjustments and Prorations . With respect to the Property, the following adjustments shall be made, and the following procedures shall be followed:

(a) Basis of Prorations . All prorations shall be calculated as of 12:01 a.m. on the Closing Date, on the basis of a 365-day year, meaning Buyer shall be deemed to be the owner of the Property for the full Closing Date.

(b) Items Not to be Prorated . There shall be no prorations or adjustments of any kind with respect to:

(i) Insurance Premiums . Buyer shall be responsible to obtain insurance covering such risks as Buyer deems necessary or appropriate, commencing as of the Closing Date. Seller shall cancel any insurance for the Property obtained by Seller effective as of the Closing Date. If Tenant has obtained insurance for the Property naming Seller as an additional insured or loss payee, Seller and Buyer shall cooperate in removing Seller as a named insured or loss payee effective as of the Closing Date, and causing Buyer to become the named insured or loss payee as of the Closing Date.

(ii) Delinquent Rents for Full Months Prior to the Month in which the Closing Occurred . Delinquent Rents for full months prior to the month in which the Closing occurs shall remain the property of Seller, and Buyer shall have no claim thereto, whether collected before or after the Closing. Seller shall have the right to take collection measures against any delinquent Tenant (including litigation), however Seller shall not seek any remedy which would interfere with Tenant’s continued occupancy and full use of its premises under such Tenant's Lease, or

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Buyer’s rights to receive Rents with respect to any period from or after the Closing Date. In the event that Buyer collects any delinquent Rents relating to any period before the Closing Date, Buyer shall promptly pay such amounts over to Seller in accordance with the procedures set forth in subsection (d) below. Buyer shall use commercially reasonable efforts to collect such amounts due from any Tenant; provided that Buyer shall not be required to interfere with the Tenant’s continued occupancy and full use of its premises under such Tenant’s Lease, or Buyer’s rights to receive Rents or Additional Rent with respect to any period beginning on the Closing Date.

(c) Closing Adjustments . Prior to Closing, Seller shall prepare and deliver to Buyer for review, comment and agreement, a proration statement for the Property, and each Party shall be credited or charged at the Closing, in accordance with the following:

(i) Rents and Additional Rents . Seller shall account to Buyer for any Rents and Additional Rents actually collected by Seller for the rental period in which the Closing occurs, and Buyer shall be credited for its pro rata share.

(ii) Expenses .

a) Prepaid Expenses . To the extent Expenses have been paid prior to the Closing Date for the period after the Closing Date, Seller shall account to Buyer for such prepaid Expenses, and Seller shall be credited for the amount of such prepaid Expenses applicable to the period after the Closing Date.

b) Unpaid Expenses . To the extent Expenses relating to the period prior to the Closing Date are unpaid as of the Closing Date but are ascertainable, Buyer shall be credited for Seller’s pro rata share of such Expenses for the period prior to the Closing Date (and Buyer shall assume the obligation to pay for said Expenses). If Seller has paid Expenses payable by Tenant, but Seller has not been reimbursed by Tenant, Buyer shall credit Seller at Closing for the amount paid by Seller, and Buyer shall thereafter have the right to collect those Expenses from Tenant after the Closing.

c) Property Taxes . Real property taxes and any special assessments (collectively, “ Property Taxes ”) for the Property are payable by Tenant. Accordingly, Property Taxes shall not be prorated as of the Closing, but if as of the Closing Seller has paid any Property Taxes but has not been reimbursed by Tenant, Buyer shall credit Seller at Closing for the amount paid by Seller, and Buyer shall thereafter have the right to collect those Property Taxes directly from Tenant after the Closing. Buyer shall be solely responsible for any increased taxes resulting from the change in ownership of the Property from Seller to Buyer or resulting from an increased tax levy based upon the Consideration paid hereunder.

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(iii) Utility Deposits . With respect to any deposits with utility companies, if any of the underlying utility contracts or agreements is assignable by Seller to Buyer, then Seller shall transfer to Buyer the applicable deposits, and Buyer shall credit Seller at the Closing with the actual amount of such deposits transferred to Buyer.

(iv) Tenant’s Work Reimbursement Credit . Pursuant to sections 4 and 6 of the Third Amendment to the Lease, dated February 2, 2017, the Tenant is entitled to be reimbursed by the Seller as “Landlord” under the Lease for the cost of certain improvements to the demised premises, up to an amount referred to in the Third Amendment to the Lease as the “Tenant’s Work Reimbursement Credit,” all on the terms and conditions set forth in the Third Amendment to the Lease (the “ TI Credit ”). As of the Effective Date of this Agreement, the outstanding amount of the TI Credit (which outstanding amount has been neither demanded by nor paid to the Tenant) is $86,956.68. At the Closing, Seller shall give Buyer a credit for the total amount of the TI Credit that remains outstanding as of the Closing Date, and pursuant to the Assignment of Lease, Buyer shall thereafter be solely responsible for all reimbursements due and owing or to be made to the Tenant in connection with the “Tenant’s Work Reimbursement Credit.”

(d) Post-Closing Adjustments . After the Closing Date, Seller and Buyer shall make post-Closing adjustments in accordance with the following:

(i) Non-delinquent Rents . If either Buyer or Seller collects any non-delinquent Rents or Additional Rents applicable to the month in which the Closing occurred, such Rents or Additional Rents shall be prorated as of the Closing Date and paid to the Party entitled thereto within ten (10) days after receipt.

(ii) Delinquent Rents for month in which the Closing occurred . If either Buyer or Seller collects any Rents or Additional Rents that were delinquent as of the Closing Date and that relate to the rental period in which the Closing occurred, then such Rents or Additional Rents shall be applied in the following order of priority: first, to reimburse Buyer or Seller for all reasonable out-of-pocket, third-party collection costs actually incurred by Buyer or Seller in collecting such Rents or Additional Rents (including the portion thereof relating to the period after the Closing Date); second, to satisfy Tenant’s Rent or Additional Rent obligations relating to the period after the Closing Date; and third, to satisfy such delinquent Rent or Additional Rent obligations relating to the period prior to the Closing Date. Seller shall have the right to take collection measures (including litigation) against Tenant for any delinquent Rent, however Seller shall not seek any remedy which would interfere with Tenant’s continued occupancy and full use of its premises under the Lease, or Buyer’s rights to receive Rent with respect to any period from or after the Closing Date. Buyer shall use commercially reasonable efforts to collect such amounts due from Tenant; provided that Buyer shall not be required to interfere with Tenant’s continued occupancy and full use of its premises under the Lease, or Buyer’s rights

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to receive Rent or Additional Rent with respect to any period beginning on the Closing Date.

(iii) Percentage Rents . To the extent that Buyer receives any Percentage Rents after the Closing Date that are applicable to the period of time before the Closing Date (including any such amounts received after any cut-off date for prorated rents set forth in this Section 7 ), Buyer shall render an accounting to Seller with respect to such Percentage Rents and such Percentage Rents shall be applied in the following order of priority: (i) first to Buyer for the period covered by such Percentage Rents following the calendar month in which the Closing occurred until the Tenant under its Lease is current with respect to all Percentage Rents applicable to periods after the Closing Date, and all expenses reasonably incurred by Buyer collecting such rents, (ii) then to Seller and Buyer for the calendar month in which the Closing occurred with such rents and other similar payments being prorated in the same manner as otherwise provided in this Section 7 at Closing and on the Closing Statement, and (iii) then to Seller for the period prior to the month in which the Closing occurred. If Percentage Rents are based on other than a month-to-month basis (e.g., on a quarterly or annual basis), Percentage Rents collected by Buyer after the Closing Date and applicable to the period of time before the Closing Date shall be prorated as of the Closing Date based on the number of days in such period for which such Percentage Rents are paid.

(iv) Expenses . With respect to any invoice received by Buyer or Seller after the Closing Date for Expenses that are not payable by Tenant and that relate to the period in which the Closing occurred and for which a proration was not made at the Closing pursuant to the proration statement delivered to Buyer by Seller prior to the Closing, the Party receiving such invoice shall give the other Party written notice of such invoice, and the other Party shall have thirty (30) days to review and approve the accuracy of any such invoice. If the Parties agree that the invoice is accurate and should be paid, Seller shall compute Seller’s pro rata share, write a check for that amount in favor of the vendor, and then send the invoice and check to Buyer, in which case Buyer agrees that it will pay for its share and forward the invoice and the two payments to the vendor.

(v) Additional Rents; Payment of 2017 Expenses by Tenant; True Up . To the extent that Seller has actually collected any portion of Expenses from Tenant under the Lease as Additional Rents for calendar year 2017, Seller may retain all such Additional Rents in amounts not to exceed such Expenses actually paid, as determined by the 2017 Stub Reconciliation (defined below). Within sixty (60) days after the Closing, Seller shall prepare and deliver to Buyer a reconciliation Expense statement for the period from and after January 1, 2017, to but not including the Closing Date (the “ 2017 Stub Reconciliation ”). If the 2017 Stub Reconciliation evidences that Seller under-collected Expenses from Tenant for such period, Buyer shall pay such amounts to Seller within thirty (30) days after delivery of the 2017 Stub Reconciliation, and Buyer shall be responsible to collect such amounts from

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Tenant. If the 2017 Stub Reconciliation evidences that Seller has over-collected Additional Rent from Tenant for such period and Buyer did not receive a credit at Closing for the Expenses to which such Additional Rents applies, Seller shall pay such over-collected amounts to Buyer within thirty (30) days after delivery of the 2017 Stub Reconciliation, and Buyer shall thereafter be responsible for making reimbursement to Tenant or applying the same to Expenses in accordance with the Lease. The 2017 Stub Reconciliation shall be final and binding on the parties as to 2017 Additional Rent and shall not be subject to modification or adjustment based on subsequent or later reconciliations prepared by Buyer or required under the Lease.

(vi) Survival of Obligations . The obligations of Seller and Buyer under the Subsection entitled “Post-Closing Adjustments” shall survive the Closing for a period of six (6) months from the Closing Date, at which point all such adjustments shall be made in a final accounting and all prorations hereunder shall be deemed final for all purposes.

(e) Allocation of Closing Costs . Closing costs shall be allocated as set forth below:

(i) Escrow fee charged by Escrow Holder: 100% to Seller.

(ii) Closing Attorney fees and costs (other than for preparation of the title commitment and Title Policy): 50% to Buyer and 50% to Seller.

(iii) Recording fees for Deed, other transaction documents and any documents in connection with any financing for Buyer: 100% to Buyer.

(iv) Cost of preparation of title commitment by the Closing Attorney and Title Company: 100% to Buyer.

(v) Title insurance premiums and other costs for the Title Policy: 100% to Buyer.

(vi) Transfer taxes and deed tax: 100% to Seller; mortgage taxes, if any, 100% to Buyer.

(vii) Survey costs: 100% to Buyer for any new survey required by Buyer or any updates, modifications and recertification of any existing survey provided by Seller.

(viii) Attorneys’ Fees: Each party to pay its own fees.

(ix) Other: According to custom where the Property is located.

8. Tenant Estoppel . Seller shall use commercially reasonable efforts to obtain a Tenant Estoppel from Tenant, substantially in the form attached hereto as Exhibit E . Seller shall deliver the completed Tenant Estoppel to Buyer when received by Seller, and shall use commercially reasonable efforts to deliver the Tenant Estoppel to Buyer no later than three (3) Business Days prior the Closing Date. It shall be a condition to Buyer’s obligation to close the acquisition of the Property that, not later than the Closing Date, Seller shall have delivered to Buyer a Tenant Estoppel

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which (i) is dated no earlier than thirty (30) days prior to the Closing Date, (ii) conforms to the most recent Rent Roll, (iii) alleges no defaults, offsets, or claims against Seller, and (iv) alleges no facts that are inconsistent in any material respect with the representations and warranties of Seller in this Agreement or the Due Diligence Materials provided by Seller to Buyer. Notwithstanding anything in this Agreement, Buyer agrees that the delivery by Tenant of an estoppel certificate meeting the requirements of the foregoing subclauses (i), (ii), (iii) and (iv) and either (A) substantially in the form attached to or required under such Tenant’s Lease, or (B) on a commercially reasonable, standard form of the Tenant in the case of any Tenant with a national or regional presence and multiple locations, shall be accepted by Buyer.

9. Transfer of Property “As Is”.

(a) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF SELLER MADE IN THIS AGREEMENT, BUYER, FOR ITSELF, ITS AGENTS, AFFILIATES, SUCCESSORS AND ASSIGNS, ACKNOWLEDGES THAT NO SELLER RELATED PARTY HAS MADE ANY ORAL OR WRITTEN REPRESENTATIONS, WARRANTIES, PROMISES OR GUARANTEES WHATSOEVER TO BUYER, WHETHER EXPRESS OR IMPLIED, REGARDING THE PROPERTY OR ANY CONSTITUENT ELEMENT OF THE PROPERTY (INCLUDING THE LAND, IMPROVEMENTS, LEASE, GENERAL INTANGIBLES OR CONTRACTS) AND, IN PARTICULAR, NO SUCH REPRESENTATIONS, WARRANTIES, GUARANTIES OR PROMISES HAVE BEEN MADE WITH RESPECT TO THE PHYSICAL CONDITION OR OPERATION OF THE PROPERTY, TITLE TO OR THE BOUNDARIES OF THE PROPERTY, SOIL CONDITIONS, THE ENVIRONMENTAL CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE PRESENCE, DISCOVERY, RELEASE, THREATENED RELEASE OR REMOVAL OF HAZARDOUS MATERIALS (INCLUDING, WITHOUT LIMITATION, THE PRESENCE OF ASBESTOS OR ASBESTOS CONTAINING MATERIALS), THE ACTUAL OR PROJECTED REVENUE AND EXPENSES FOR THE PROPERTY, THE ZONING AND OTHER LAWS, REGULATIONS OR RULES APPLICABLE TO THE PROPERTY OR THE COMPLIANCE OF THE PROPERTY THEREWITH, THE QUANTITY, QUALITY OR CONDITION OF THE PERSONAL PROPERTY INCLUDED IN THE TRANSACTIONS CONTEMPLATED HEREBY, THE USE OR OCCUPANCY OF THE PROPERTY OR ANY PART THEREOF, OR ANY OTHER MATTER OR THING AFFECTING OR RELATED TO THE PROPERTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT AS, AND SOLELY TO THE EXTENT, SPECIFICALLY SET FORTH IN THIS AGREEMENT. EXCEPT FOR ITS RELIANCE ON THE REPRESENTATIONS AND WARRANTIES OF SELLER SPECIFICALLY SET FORTH HEREIN AND SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, BUYER AGREES TO ACCEPT THE PROPERTY “ AS IS, WHERE-IS, AND WITH ALL FAULTS ” IN ITS PRESENT CONDITION, SUBJECT IN THE CASE OF THE REAL PROPERTY TO REASONABLE USE, WEAR AND TEAR, BETWEEN THE DATE HEREOF AND THE CLOSING DATE, AND FURTHER AGREES THAT EXCEPT FOR ANY BREACH OF ITS REPRESENTATIONS AND WARRANTIES SPECIFICALLY SET FORTH HEREIN, SELLER SHALL NOT BE LIABLE FOR ANY LATENT

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DEFECTS IN THE PROPERTY OR BOUND IN ANY MANNER WHATSOEVER BY ANY GUARANTEES, PROMISES, PROJECTIONS, OPERATING STATEMENTS, SETUPS OR OTHER INFORMATION PERTAINING TO THE PROPERTY MADE, FURNISHED OR CLAIMED TO HAVE BEEN MADE OR FURNISHED BY SELLER OR ANY SELLER RELATED PARTY, WHETHER ORALLY OR IN WRITING.

(a) Buyer’s approval of the Property under Section 4(l) above is Buyer’s acknowledgement that it will have reviewed or have had adequate time and opportunity to review the Due Diligence Materials and conduct its diligence review of the Property and matters affecting the Property.

(b) Buyer further acknowledges that certain of the Due Diligence Materials may have been prepared by parties other than Seller and Seller makes no representation or warranty of any kind whatsoever, express or implied, as to the accuracy or completeness of any Due Diligence Materials prepared by third parties.

(c) Buyer acknowledges that it has not relied upon any representations or warranties by Seller or any Seller Related Party not specifically set forth herein, and has entered into this Agreement after having made and relied solely on its own independent investigation, inspections, analyses, appraisals and evaluations of facts and circumstances.

(d) Buyer is an experienced purchaser of commercial real properties, and has retained, or has access to, advisors and consultants sophisticated in the purchase of commercial real property. Buyer and its advisors have experience in acquiring, owning and operating real property in the nature of the Property. Buyer is familiar with the risks associated with sale transactions that involve purchases based on limited information, representations and disclosures. Buyer understands and is freely taking all risks involved in connection with this transaction.

(e) Buyer acknowledges that, except as specifically set forth herein, Seller hereby specifically disclaims any warranty or guaranty, oral or written, implied or arising by operation of law, and any warranty of condition, habitability, merchantability or fitness for a particular purpose, in respect to the Property.

(f) Except for those matters expressly set forth in this Agreement to survive the Closing and except for the agreements of Seller and Buyer set forth in the closing documents or otherwise entered into at the Closing, Buyer agrees that Buyer’s acceptance of the Deed shall be and be deemed to be an agreement by Buyer that Seller has fully performed, discharged and complied with all of Seller’s obligations, covenants and agreements hereunder and that Seller shall have no further liability with respect thereto.

(g) AS A MATERIAL INDUCEMENT TO SELLER TO AGREE TO SELL THE PROPERTY TO BUYER AND TO EXECUTE THIS AGREEMENT, EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED TO THE CONTRARY HEREIN OR IN THE DEED AND OTHER INSTRUMENTS TO BE EXECUTED AND DELIVERED BY SELLER AT THE CLOSING, OR ANY ACTION FOR BREACH OF ANY REPRESENTATION, WARRANTY AND/OR COVENANT OF SELLER

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SPECIFICALLY SET FORTH HEREIN, BUYER, FOR ITSELF AND ITS AGENTS, AFFILIATES, SUCCESSORS AND ASSIGNS, HEREBY WAIVES, RELEASES, ACQUITS AND FOREVER DISCHARGES THE SELLER RELATED PARTIES FROM ALL CLAIMS, CAUSES OF ACTION, DEMANDS, LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEY’S FEES AND DISBURSEMENTS WHETHER SUIT IS INSTITUTED OR NOT) WHICH BUYER HAS OR MAY HAVE IN THE FUTURE ON ACCOUNT OF OR IN ANY WAY ARISING OUT OF THE PROPERTY OR ANY OF ITS CONSTITUENT ELEMENTS (INCLUDING THE LAND, THE IMPROVEMENTS, THE GENERAL INTANGIBLES, THE CONTRACTS AND THE LEASE), INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO (I) ALL MATTERS DESCRIBED IN SUBPARAGRAPH (A), ABOVE AS ACCEPTED BY BUYER IN “AS IS, WHERE IS, WITH ALL FAULTS” CONDITION, (II) THE STRUCTURAL AND PHYSICAL CONDITION OF THE REAL PROPERTY OR ITS SURROUNDINGS, (III) THE FINANCIAL CONDITION OF THE OPERATION OF THE PROPERTY EITHER BEFORE OR AFTER THE CLOSING DATE, (IV) ANY LAW, ORDINANCE, RULE, REGULATION, RESTRICTION OR LEGAL REQUIREMENT WHICH IS NOW OR MAY HEREAFTER BE APPLICABLE TO THE PROPERTY, (V) THE FINANCIAL CONDITION OR STATUS OF TENANT OR TENANCY FOR THE PROPERTY, (VI) THE ENVIRONMENTAL CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE PRESENCE, DISCOVERY OR REMOVAL OF ANY HAZARDOUS MATERIALS IN, AT, ABOUT OR UNDER THE PROPERTY OR THE APPLICABILITY TO THE PROPERTY OF ANY ENVIRONMENTAL LAWS, AS SUCH ACTS MAY BE AMENDED FROM TIME TO TIME, OR ANY OTHER FEDERAL, STATE OR LOCAL STATUTE OR REGULATION RELATING TO ENVIRONMENTAL CONTAMINATION AT, IN OR UNDER THE PROPERTY, (VII) THE PRESENCE OR CONDITION OF UNDERGROUND STORAGE TANKS AT THE PROPERTY, OR THEIR COMPLIANCE WITH APPLICABLE LAWS, (VIII) ANY OTHER CONDITIONS, INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL AND OTHER PHYSICAL CONDITIONS, AFFECTING THE PROPERTY WHETHER THE SAME ARE A RESULT OF NEGLIGENCE OR OTHERWISE, INCLUDING SPECIFICALLY, BUT WITHOUT LIMITATION, ANY CLAIM FOR INDEMNIFICATION OR CONTRIBUTION ARISING UNDER ENVIRONMENTAL LAWS (AS DEFINED IN ADDENDUM 1 ), WHETHER ARISING BASED ON EVENTS THAT OCCURRED BEFORE, DURING, OR AFTER SELLER’S PERIOD OF OWNERSHIP OF THE PROPERTY AND WHETHER BASED ON THEORIES OF INDEMNIFICATION, CONTRIBUTION OR OTHERWISE. THE RELEASE SET FORTH IN THIS SECTION SPECIFICALLY INCLUDES, WITHOUT LIMITATION, ANY CLAIMS UNDER ENVIRONMENTAL LAWS (AS DEFINED IN ADDENDUM 1 ) OR UNDER THE AMERICANS WITH DISABILITIES ACT OF 1990, AS ANY OF THOSE LAWS MAY BE AMENDED FROM TIME TO TIME AND ANY REGULATIONS, ORDERS, RULES OF PROCEDURES OR GUIDELINES PROMULGATED IN CONNECTION WITH SUCH LAWS, REGARDLESS OF WHETHER THEY ARE IN EXISTENCE ON THE DATE OF THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, SELLER SHALL REMAIN LIABLE FOR, AND BUYER DOES NOT WAIVE OR RELEASE CLAIMS BASED ON FRAUD, GROSS

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NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF SELLER OR ANY SELLER RELATED PARTY, OR BASED ON SELLER’S FAILURE TO DISCLOSE TO BUYER ANY MATERIAL FACT OF WHICH SELLER HAS ACTUAL KNOWLEDGE. BUYER SHALL NOT MAKE OR INSTITUTE ANY CLAIMS AGAINST ANY OF THE SELLER RELATED PARTIES WHICH ARE INCONSISTENT WITH THE FOREGOING. BUYER AGREES THAT THIS RELEASE SHALL BE GIVEN FULL FORCE AND EFFECT ACCORDING TO EACH OF ITS EXPRESSED TERMS AND PROVISIONS. THIS RELEASE INCLUDES CLAIMS OF WHICH BUYER IS PRESENTLY UNAWARE OR WHICH BUYER DOES NOT PRESENTLY SUSPECT TO EXIST, WHICH IF KNOWN BY BUYER, WOULD MATERIALLY AFFECT BUYER’S RELEASE TO SELLER. IN THIS CONNECTION AND TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER AGREES AND ACKNOWLEDGES THAT FACTUAL MATTERS NOW UNKNOWN TO IT MAY HAVE GIVEN OR MAY HEREAFTER GIVE RISE TO CAUSES OF ACTION, CLAIMS, DEMANDS, DEBTS, CONTROVERSIES, DAMAGES, COSTS, LOSSES AND EXPENSES WHICH ARE PRESENTLY UNKNOWN, UNANTICIPATED AND UNSUSPECTED, AND BUYER FURTHER AGREES AND ACKNOWLEDGES THAT THE WAIVERS AND RELEASES HEREIN HAVE BEEN NEGOTIATED AND AGREED UPON IN LIGHT OF THAT REALIZATION AND THAT BUYER NEVERTHELESS HEREBY INTENDS TO RELEASE, DISCHARGE, AND ACQUIT THE SELLER RELATED PARTIES FROM ANY SUCH UNKNOWN CAUSES OF ACTION, CLAIMS, DEMANDS, DEBTS, CONTROVERSIES, DAMAGES, COSTS, LOSSES AND EXPENSES EXCEPT TO THE EXTENT CAUSED BY FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF SELLER OR ANY SELLER RELATED PARTY. BUYER ACKNOWLEDGES THAT BUYER HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF BUYER’S SELECTION AND BUYER IS GRANTING THIS RELEASE OF ITS OWN VOLITION AND AFTER CONSULTATION WITH BUYER’S COUNSEL. BUYER ACKNOWLEDGES THAT BUYER HAS CAREFULLY REVIEWED THIS SECTION 9 AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THE PROVISIONS OF THIS SECTION 9 ARE A MATERIAL PART OF THIS AGREEMENT.

Buyer’s Initials ______

(h) In no event shall Seller be liable to Buyer for any incidental, special, exemplary, punitive or consequential damages, including, without limitation, loss of profits or revenue, interference with business operations, loss of tenants, lenders, investors, buyers, diminution in value of the Property, or inability to use the Property, due to the condition of the Property.

(i) THIS SECTION 9 SHALL SURVIVE CLOSING AND DELIVERY OF THE DEED, OR TERMINATION OF THIS AGREEMENT, AND SHALL BE DEEMED INCORPORATED BY REFERENCE AND MADE A PART OF ALL DOCUMENTS DELIVERED BY SELLER TO BUYER IN CONNECTION WITH THE SALE OF THE PROPERTY.

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10. Seller’s Representations and Warranties .

(a) Seller’s Representations and Warranties . Seller represents and warrants to Buyer the matters set forth on Addendum II , which is incorporated herein by this reference as though fully set forth herein. Other than as expressly contained in this Agreement and Addendum II , Seller makes no representations or warranties of any kind relating to the Property or its condition or fitness. Buyer is entitled to rely on Seller’s representations and warranties notwithstanding Buyer’s inspection and investigation of the Property, except to the extent that Buyer has Actual Knowledge on or before the Closing Date that any such representation or warranty is inaccurate in any material respect, and such inaccuracy did not result from a Seller R&W Breach (as defined below). Seller shall promptly notify Buyer if, prior to the Closing, Seller has Actual Knowledge that any representation or warranty of Seller was inaccurate in any material respect on the Effective Date (a “ Seller R&W Breach ”), or was true when given on the Effective Date but became inaccurate in any material respect after the Effective Date (a “ Seller R&W Change ”).

(b) Seller R&W Breach . If, prior to the Closing, Buyer has Actual Knowledge (whether from Seller or its own investigation) that a Seller R&W Breach has occurred and Seller is unable to cure such Seller R&W Breach within ten (10) days after notice from Buyer of such Seller R&W Breach, such Seller R&W Breach shall be a default on the part of Seller, and Buyer shall have the right, as its sole and exclusive remedies, to (i) terminate this Agreement, upon which termination the Earnest Money (plus interest earned thereon) shall be returned to Buyer, and if such Seller R&W Breach has resulted in a loss in excess of the Material Damage Floor, Seller shall pay the Expense Reimbursement to Buyer, in which case the Parties shall have no further rights or obligations under this Agreement except for those rights and obligations which expressly survive termination of this Agreement, or (ii) waive such Seller R&W Breach and proceed to Closing.

(c) Seller R&W Change . If, prior to the Closing, Buyer has Actual Knowledge (whether from Seller or its own investigation) that a Seller R&W Change has occurred, such Seller R&W Change was not caused by a material breach by Seller of its covenants under this Agreement or by an affirmative, intentional act on the part of Seller which caused such representation and warranty to become inaccurate in any material respect, and Seller is unable within ten (10) days after notice from Buyer of such R&W Change to eliminate such inaccuracy, Buyer shall have the right, as its sole and exclusive remedy, to (i) terminate this Agreement, upon which termination the Earnest Money (plus interest earned thereon) shall be returned to Buyer and the Parties shall have no further rights or obligations under this Agreement except for those rights and obligations which expressly survive termination of this Agreement, or (ii) waive such Seller R&W Change and proceed to Closing.

(d) Seller R&W Change Caused By Seller . If, however, such Seller R&W Change was caused by a material breach by Seller of its covenants under this Agreement or by an affirmative, intentional act on the part of Seller which caused such representation and warranty to become inaccurate in any material respect, such Seller R&W Change shall constitute a Seller R&W Breach, and if Seller is unable to cure such Seller R&W Breach

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within ten (10) days after notice from Buyer of such Seller R&W Breach, such Seller R&W Breach shall be a default on the part of Seller, and Buyer, in its sole discretion, shall have the right, as its sole and exclusive remedies, to (i) terminate this Agreement, upon which termination the Earnest Money (plus interest earned thereon) shall be returned to Buyer, and if such Seller R&W Breach has resulted in a loss in excess of the Material Damage Floor, Seller shall pay the Expense Reimbursement to Buyer within ten (10) Business Days after delivery to Seller of reasonable evidence of the loss sustained by Buyer and a statement of Buyer’s reimbursable expenses, in which case the Parties shall have no further rights or obligations under this Agreement except for those rights and obligations which expressly survive termination of this Agreement, or (ii) waive such Seller R&W Breach and proceed to Closing.

(e) Prior Knowledge of Inaccuracy . If, prior to the Closing, Buyer has Actual Knowledge that any representation or warranty of Seller is inaccurate in any material respect and Buyer consummates the Closing, such representation or warranty shall be deemed modified by Buyer’s Actual Knowledge.

(f) Seller Post-Closing Liability for Breach . Seller shall be liable to Buyer for damages resulting from a breach by Seller of any one or more of the representations and warranties of Seller made herein, only if (i) the breach thereof is first discovered subsequent to Closing, (ii) the claim thereon is asserted by Buyer to Seller in writing on or before the date one hundred eighty (180) days after Closing, and (iii) the amount of any such loss, cost, liability, damage and expense suffered by Buyer (when aggregated with all other amounts for which Seller may be liable in connection with breaches of its representations, warranties or covenants under this Agreement) shall exceed the Material Damage Floor. In no event shall the amount of any such loss, cost, liability, damage and expense for which Seller shall be liable under this Section 10 (when aggregated with all other damages for which Seller may be liable in connection with breaches of its representations, warranties or covenants under this Agreement) exceed the Material Damage Ceiling.

11. Buyer’s Representations and Warranties . Buyer hereby represents and warrants, as of the Effective Date and as of the Closing Date, to Seller as follows:

(a) Buyer is duly organized, validly existing and in good standing under the laws of the State of its formation, and as of the Closing will be qualified to do business in the State in which the Property is located.

(b) Buyer has full power and authority to execute and deliver this Agreement and to perform all of the terms and conditions hereof to be performed by Buyer and to consummate the transactions contemplated hereby. This Agreement and all documents executed by Buyer which are to be delivered to Seller at Closing have been duly executed and delivered by Buyer and are or at the time of Closing will be the legal, valid and binding obligation of Buyer and enforceable against Buyer in accordance with its or their respective terms, except as the enforcement thereof may be limited by applicable Creditors’ Rights Laws. Buyer is not presently subject to any bankruptcy, insolvency, reorganization, moratorium, or similar proceeding.

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(c) The entities and individuals executing this Agreement and the instruments referenced herein on behalf of Buyer and its constituent entities, if any, have the legal power, right and actual authority to bind Buyer to the terms and conditions hereof and thereof.

(d) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement, nor the compliance with the terms and conditions hereof will violate or conflict, in any material respect, with any provision of Buyer’s organizational documents or to Buyer’s Actual Knowledge any statute, regulation or rule, or, to Buyer’s Actual Knowledge, any injunction, judgment, order, decree, ruling, charge or other restrictions of any government, governmental agency or court to which Buyer is subject, and which violation or conflict would have a material adverse effect on Buyer. Buyer is not a party to any contract or subject to any other legal restriction that would prevent fulfillment by Buyer of all of the terms and conditions of this Agreement or compliance with any of the obligations under it.

(e) To Buyer’s Actual Knowledge all material consents required from any governmental authority or third party in connection with the execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby have been made or obtained or shall have been made or obtained by the Closing Date. Complete and correct copies of all such consents shall be delivered to Seller.

(f) Buyer has made (or will make prior to the Closing Date) an independent investigation with regard to the Property, will have ascertained to its satisfaction the extent to which the Property complies with applicable zoning, building, environmental, health and safety and all other laws codes and regulations, and Buyer’s intended use thereof, including without limitation, review and/or approval of matters disclosed by Seller pursuant to this Agreement.

(g) There is no litigation pending or, to Buyer’s Actual Knowledge, threatened, against Buyer or any basis therefor that might materially and detrimentally affect the ability of Buyer to perform its obligations under this Agreement. Buyer shall notify Seller promptly of any such litigation of which Buyer becomes aware.

(h) Buyer is not, nor is any person who owns a controlling interest in or otherwise controls Buyer, (a) listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control (“ OFAC ”), Department of the Treasury, and/or on any other similar list maintained by the OFAC pursuant to any authorizing statute, Executive Order or regulation (collectively, “ OFAC Laws and Regulations ”); or (b) a person either (i) included within the term “designated national” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (ii) designated under Sections 1(a), 1(b), 1(c) or 1(d) of Executive Order No. 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), 66 Fed. Reg. 49079 (effective September 24, 2001, and published September 25, 2001) or similarly designated under any related enabling legislation or any other similar Executive Orders (collectively, the “ Executive Orders ”). Neither Buyer nor any of its principals or affiliates is (x) a person or entity with which Seller is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, or that commits, threatens or conspires to commit

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or supports “terrorism” as defined in the Executive Orders, or (y) is directly or indirectly affiliated or associated with a person or entity listed in the preceding clause (x). To the best knowledge of Buyer, neither Buyer nor any of its principals or affiliates, nor any brokers or other agents acting in any capacity in connection with the transactions contemplated herein (I) directly or indirectly deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Orders, (II) directly or indirectly engages in any transaction in violation of any Laws relating to drug trafficking, money laundering or predicate crimes to money laundering or (III) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. As used herein, “ Anti-Terrorism Law ” means the OFAC Laws and Regulations, the Executive Orders and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001), as amended.

12. Risk of Loss.

(a) Notice of Loss . If, prior to the Closing Date, any portion of the Property suffers a Minor or Major Loss, Seller shall immediately notify Buyer of that fact, which notice shall include sufficient detail to apprise Buyer of the current status of the Property following such loss, the insurance providing coverage with respect thereto, and the amount offered under any proposed condemnation award.

(b) Minor Loss . Buyer’s obligations hereunder shall not be affected by the occurrence of a Minor Loss, provided that: (i) upon the Closing, the amount of any insurance proceeds or condemnation awards collected by Seller as a result of such Minor Loss (together with the amount of any applicable insurance deductible) are sufficient to cover the Minor Loss, in which case Seller shall provide Buyer with a credit against the Consideration equal to the amount of such proceeds or condemnation awards, plus the amount of any applicable insurance deductible; or (ii) insurance or condemnation proceeds available to Seller (together with the amount of any applicable insurance deductible) are sufficient to cover the cost of restoration of the Minor Loss and the insurance carrier has admitted in writing liability for the payment of such costs. If subclause (ii) applies, then Seller’s right, title and interest to such proceeds or awards shall be assigned to Buyer at the Closing, together with a credit against the Consideration in the amount of any insurance deductible. If neither subclause (i) nor (ii) applies, then Buyer shall have the same rights with respect to such Minor Loss as if it were a Major Loss; provided, however, Seller shall have the right, at Seller’s option and election, to credit to Buyer as of the Closing the amount of such Minor Loss, in which case such Minor Loss shall not be treated as a Major Loss and Buyer shall be obligated to proceed with the transactions contemplated by this Agreement. This provision shall not limit any of the Buyer’s repair obligations under the Lease.

(c) Major Loss . In the event of a Major Loss, Buyer may, at its option to be exercised by written notice to Seller within twenty (20) days of Seller’s notice to Buyer of the occurrence thereof, elect to either (i) terminate this Agreement, or (ii) consummate the

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acquisition of the Property for the full Consideration, subject to the following. If Buyer elects to proceed with the acquisition of the Property, then the Closing shall be postponed if necessary, to occur on the later of the then-scheduled Closing Date or the date which is ten (10) Business Days after Buyer makes such election and, upon the Closing, Buyer shall be given a credit against the Consideration equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of such Major Loss, plus the amount of any insurance deductible. If the proceeds or awards have not been collected as of the Closing, then Seller’s right, title and interest to such proceeds or awards shall be assigned to Buyer, and Seller will cooperate with Buyer as reasonably requested by Buyer in the collection of such proceeds or award. If Buyer fails to give Seller notice within such twenty (20) day period, then Buyer will be deemed to have elected to terminate this Agreement. If the Agreement is not terminated, Buyer shall be responsible for performance by Buyer as “landlord” under the Lease, including any repair obligations of landlord, and nothing herein shall limit Buyer’s repair obligations or other obligations under the Lease.

13. Seller’s Continued Operation of the Property.

(a) General . Except as otherwise contemplated or permitted by this Agreement or approved by Buyer in writing, from the Effective Date to the Closing Date Seller will operate, maintain and repair the Property in a prudent manner, in the ordinary course of business, on an arm’s-length basis and consistent with its past practices.

(b) Actions Requiring Buyer’s Consent . Notwithstanding the above terms of this Section, from the Approval Date until the Closing Date, Seller shall not, without the prior written approval of Buyer, which approval shall not be unreasonably withheld or delayed, take any of the following actions except as required by law or existing contractual obligations of Seller:

(i) Leases . Execute any new Lease or renew the Lease; or bring an action to enforce the Lease; or terminate the Lease; or modify or waive any material term of the Lease; provided, however, that if Seller has delivered notice to Buyer of Seller’s request for Buyer’s approval and Buyer has not responded to Seller’s request for approval within three (3) Business Days, then Buyer shall be deemed to have approved the Lease activity in question; or

(ii) Contracts . Except as otherwise required under this Agreement, enter into, execute or terminate any easement agreement, management agreement or any lease, contract, agreement or other commitment of any sort (including any contract for capital items or expenditures), with respect to the Property that will survive the Closing and be binding on Buyer or the Property after the Closing; provided, however, that if Seller has delivered notice to Buyer of Seller’s request for Buyer’s approval and Buyer has not responded to Seller’s request for approval within three (3) Business Days, then Buyer shall be deemed to have approved the activity in question.

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(c) Condition of Roof . Buyer acknowledges that the roof on the Improvements is the original roof and may require repair or replacement, the cost of which shall be borne by Buyer. Seller shall have no obligation to make any pre-closing repairs or replacement of all or any portion of the roof and Buyer agrees to acquire the Property, if at all, with the roof in its then-current “as-is, where-is, with all faults” condition, as provided in Section 9 above.

14. Non-Consummation of the Transaction. If the transaction is not consummated on or before the Closing Date, the following provisions shall apply:

(a) No Default . If the purchase and sale of the Property under this Agreement is not consummated for a reason other than a default by one of the Parties, then (i) the Escrow Holder and each Party shall return to the depositor thereof the Earnest Money and all other funds and items which were deposited hereunder; and (ii) Seller and Buyer shall each bear one-half of any Escrow cancellation charges. Any return of funds or other items by the Escrow Holder or any Party as provided herein shall not relieve either Party of any liability it may have for its wrongful failure to close.

(b) Default by Seller . If the transaction is not consummated as a result of a default by Seller, then Buyer, as its sole and only remedies hereunder, to the exclusion of all other potential remedies under this Agreement, at law or in equity, may either (i) terminate this Agreement by delivery of notice of termination to Seller, whereupon (A) the Earnest Money plus interest accrued thereon shall be immediately returned to Buyer, and (B) Seller shall pay to Buyer its Expense Reimbursement, in which case neither Party shall have any further rights or obligations hereunder other than those rights and obligations which expressly survive termination of this Agreement; or (ii) continue this Agreement pending Buyer’s action for specific performance, provided, however, that any such action for specific performance shall not include an action for damages and shall be filed and served by Buyer within thirty (30) days of the date which is the later of (x) the attempted termination of this Agreement in writing by Seller, or (y) the date on which Buyer has Actual Knowledge of the event or occurrence comprising the alleged default on the part of Seller, it being the intent of the Parties hereto that any failure of Buyer to meet the time deadline set for filing shall be deemed to be Buyer’s election to waive and relinquish any rights to enforce specific performance of this Agreement. Notwithstanding anything in this Agreement to the contrary, (i) in no event or circumstance shall Seller be liable to Buyer in connection with any breach or default on the part of Seller under this Agreement for any incidental, special, exemplary, punitive or consequential damages, including, without limitation, loss of profits or revenue, interference with business operations, loss of tenants, lenders, investors, buyers, diminution in value of the Property, or inability to use the Property, and (ii) in no event or circumstance shall any of the members, partners, employees, representatives, officers, directors, agents, property management company, affiliated or related entities of Seller or Seller’s property management company (each a “ Seller Party ” and collectively, the “ Seller Parties ”) have any personal liability under this Agreement. Buyer on its own behalf and on behalf of its agents, members, partners, employees, representatives, officers, directors, agents, related and affiliated entities, successors and assigns (collectively, the “ Buyer Parties ”) hereby

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waives any and all rights to assert or claim personal liability under this Agreement against any Seller Party.

Buyer’s Initials

(c) Default by Buyer . If the Closing does not occur as a result of a default by Buyer, then (i) Buyer shall pay all escrow cancellation charges, (ii) to the extent it has not previously been delivered to Seller, the Escrow Holder shall deliver the Earnest Money to Seller as its full and complete liquidated damages and its sole and exclusive remedy for Buyer’s default (provided that this provision shall not limit the Seller’s right to enforce Buyer’s obligations pursuant to Sections 4(c) , 15(f) and 15(l) , and to obtain monetary damages from Buyer pursuant to those provisions above and beyond any amounts collected pursuant to this liquidated damages provision), and (iii) this Agreement shall be terminated. If the transaction is not consummated because of a default by Buyer, the Earnest Money together with the interest accrued thereon shall be paid to and retained by Seller as liquidated damages. THE PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY BUYER, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES (IN ADDITION TO ANY FEES AND COSTS TO WHICH SELLER IS ENTITLED UNDER SECTION 15(l) ) AND AS SELLER’S EXCLUSIVE REMEDY AGAINST BUYER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER; PROVIDED, HOWEVER, NOTHING HEREIN SHALL RELIEVE BUYER OF THE INDEMNITY OBLIGATIONS OF BUYER UNDER SECTIONS 4(c) AND 15(f) , WHICH EXPRESSLY SURVIVE THE TERMINATION OF THIS AGREEMENT. Notwithstanding anything to the contrary contained in this Section 14(c) , in the event of (i) Buyer’s default under this Agreement, (ii) a termination of this Agreement by Buyer, or (iii) a termination of this Agreement by Seller as a result of a default on the part of Buyer, Seller shall have all remedies available at law or in equity if, subsequent to or in connection with any of the foregoing events in subphrases (i), (ii) or (iii), Buyer or any Person related to or affiliated with Buyer asserts any claims or right to the Property that (y) delays or prevents Seller from having clear, indefeasible, and marketable title to the Property or (z) constitutes slander of title to the Property. In all other events, Seller’s remedies shall be limited to those described in this Section 14(c) and Sections 15(f) and 15(l) hereof. If Closing is consummated, Seller shall have all remedies available at law or in equity in the event Buyer fails to perform any obligation of Buyer under this Agreement.

INITIALS: Seller _____ Buyer _____

15. Miscellaneous

(a) Disclosure of Transaction . Except as may be permitted in Section 15(o) below, prior to Closing neither Party shall publicly announce or discuss the execution of this Agreement or the transaction contemplated hereby without the prior written consent of the

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other Party, which shall not be unreasonably withheld. Notwithstanding the foregoing, nothing herein shall limit or restrict any public announcement or notification which Seller or any Affiliate is required to make under the applicable provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended and the rules and regulations adopted by the Securities and Exchange Commission thereunder.

(b) Possession . Possession of the Property shall be delivered to Buyer upon the Closing.

(c) Force Majeure. Seller’s corporate headquarters are located in San Mateo, California. If during the term of this Agreement, there occurs a Force Majeure Event (a fire or other casualty, act of God, riot or other civil disturbance, or any other event out of the control of Seller that prevents Seller from having access to and use of its headquarters facility for the conduct of its operations), Seller shall have the right, exercisable by written notice to Buyer within five (5) Business Days of the date of the Force Majeure Event, to extend any period for Seller’s performance hereunder by a period of time equal to the time that Seller reasonably anticipates that it will be unable to use its headquarters, but not to exceed fourteen (14) days.

(d) Tax Protest . If, as a result of any tax protest, there is any refund or reduction of real property or other tax or assessment relating to the Property applicable to the period prior to Closing, Seller shall be entitled to receive or retain the applicable prorata portion of such refund or the benefit of such reduction, less equitable prorated costs of collection and subject to the rights of Tenant under the Lease as to any such refunds. To the extent any such tax protest or proceeding is ongoing as of the Closing, Seller shall have the right, but not the obligation, to continue to pursue such protest or proceeding following the Closing, but only to the extent that it applies to the pre-Closing tax periods. Any settlement of such a tax protest, however, shall be subject to the prior written approval of Buyer if such settlement would reasonably result in an increase in Property Taxes applicable to the period from and after the Closing Date, in excess of any increase resulting from the conveyance of the Property to Buyer.

(e) Notices . Any notice, consent or approval required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given upon (i) delivery of email on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. local time at the location of the recipient’s mailing address (otherwise, the next following Business Day) (provided that such email contains in all uppercase letters the words “OFFICIAL NOTICE” in the subject line and generates no “out of office” response or other message that such delivery was ineffective or delayed), (ii) personal delivery, (iii) confirmed telecopy delivery on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. local time at the location of the recipient’s mailing address (otherwise, the next following Business Day), (iv) one (1) Business Day after being deposited with Federal Express, DHL Worldwide Express or another reliable, nationally-recognized overnight courier service prior to the specified delivery deadline for next-day service, specifying an address to which such courier makes overnight deliveries, or (v) two (2) Business Days after being deposited in the United States mail, registered or certified mail, postage prepaid, return receipt required, and addressed as

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indicated below, or such other address as either Party may from time to time specify in writing to the other. A notice, consent or approval sent in the above manner by counsel to a Party (whether or not identified below as a “copy to” recipient) shall constitute effective delivery of such notice, consent or approval and shall be binding on such Party as if sent by such Party.



If to Buyer:	If to Seller:

Kamin Realty LLC 490 South Highland Avenue Pittsburgh, PA 15206 Attention: Daniel G. Kamin Fax No. (412) 661-8160 Email: jweight@kaminrealty.com	TNP SRT Portfolio II, LLC c/o Glenborough, LLC 66 Bovet Road, Suite 100 San Mateo, CA 94402 Attention: Alan Shapiro Fax No.: 650-343-9690 Email: alan.shapiro@glenborough.com

with a copy to:	with a copy to:
John Micheal Studeny, Esq. BNY Mellon Center 500 Grant Street, 25th Floor Pittsburgh, PA 15219 Fax No. (412) 391-7500 Email: jstudeny@studenylaw.com	TNP SRT Portfolio II, LLC c/o Glenborough, LLC 66 Bovet Road, Suite 100 San Mateo, CA 94402 Attention: G. Lee Burns, Jr. Fax No.: 650-343-9690 Email: chip.burns@glenborough.com

(f) Brokers and Finder . Seller has engaged Seller’s Broker to act as Seller’s representative in this transaction, and Seller has sole responsibility for the payment of any amounts due to Seller’s Broker as a result of this transaction, pursuant to a separate written agreement. Buyer has engaged Buyer’s Broker as Buyer’s representative in this transaction. Buyer’s Broker shall be entitled to a portion of the commission payable by Seller to Seller’s Broker, pursuant to a separate agreement between Seller’s Broker and Buyer’s Broker. Any commission or finder’s fee due to Buyer’s Broker other than pursuant to the separate agreement between Buyer’s Broker and Seller’s Broker shall be paid by Buyer. Except as set forth in the preceding sentences of this paragraph, neither Party has had any contact or dealings regarding the Property, or any communication in connection with the subject matter of this transaction through any real estate broker or other person who can claim a right to a commission or finder’s fee in connection with the transactions contemplated in this Agreement. In the event that any broker or finder perfects a claim for a commission or finder’s fee based upon any such contact, dealings or communication, the Party through whom the broker or finder makes its claim shall be responsible for said commission or fee and shall indemnify and hold harmless the other Party from and against all liabilities, losses, costs and expenses (including reasonable attorneys’ fees) arising in connection with such claim for a commission or finder’s fee. The provisions of this subsection shall survive the Closing or the termination of this Agreement.

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(g) Successors and Assigns . Subject to the following, this Agreement shall be binding upon, and inure to the benefit of, the Parties and their respective successors, heirs, administrators and assigns. Buyer shall have the right to assign this Agreement in whole or in part to an Affiliate of Buyer at any time before the Closing Date. Buyer shall have no other right to assign this Agreement. Any such assignee(s) shall execute and deliver to Seller a written assignment prepared by Seller and reasonably acceptable to Buyer, pursuant to which such assignee assumes all obligations of Buyer, without releasing Buyer from any obligation hereunder.

(h) Amendments . Except as otherwise provided herein, this Agreement may be amended or modified only by a written instrument executed by Seller and Buyer.

(i) Governing Law . The substantive laws of the State in which the Property is located, without reference to its conflict of law provisions, will govern the validity, construction, and enforcement of this Agreement and the Transaction Documents.

(j) Merger of Prior Agreements . This Agreement and the Addenda, Exhibits and Schedules hereto constitute the entire agreement between the Parties and supersede all prior agreements and understandings between the Parties relating to the subject matter hereof.

(k) Time for Performance . Any time deadlines contained herein shall be calculated by reference to calendar days unless otherwise specifically noted. For notice purposes hereunder, days shall be deemed to end at 5:00 p.m., local time, in the State in which the Property is located. In the event that any time periods for performance hereunder fall on a day that is not a Business Day, the date for performance shall be the next following Business Day.

(l) Enforcement . If either Party fails to perform any of its obligations under this Agreement or if a dispute arises between the Parties concerning the meaning or interpretation of any provision of this Agreement, then the defaulting Party or the Party not prevailing in such dispute shall pay any and all costs and expenses incurred by the other Party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, arbitration or court costs and attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either Party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment.

(m) Time of the Essence . THE TIME FRAMES AND DEADLINES FOR PERFORMANCE IN THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, THE TIME FRAMES AND DEADLINES SET FORTH IN SECTIONS 2, 3 AND 4 WITH RESPECT TO THE EARNEST MONEY, TITLE APPROVAL AND DILIGENCE REVIEW) HAVE BEEN NEGOTIATED BY THE PARTIES AND ARE A MATERIAL PART OF THE CONSIDERATION BETWEEN THE PARTIES. THE PARTIES HERETO AGREE THAT TIME IS OF THE ESSENCE WITH RESPECT TO THIS AGREEMENT,

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AND ALL OF THE TIME FRAMES AND DEADLINES SET FORTH IN THIS AGREEMENT.

INITIALS: Seller _____ Buyer _____

(n) Severability . If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect.

(o) Confidentiality . Buyer and Seller shall each maintain as confidential any and all material or information about the other, or in the case of Buyer and its agents, employees, consultants and contractors, about the Property, and shall not disclose such information to any third party, except, in the case of information about the Property or the Seller, to Buyer’s investment bankers, investors, lender or prospective lenders, insurance and reinsurance firms, attorneys, environmental assessment and remediation service firms and consultants, as may be reasonably required for the consummation of this transaction and/or as required by law.

(p) Counterparts . This Agreement may be executed in counterparts or duplicate originals, each of which shall be deemed an original but all or which together shall constitute as one and the same instrument, and which shall be the official and governing version in the interpretation of this Agreement. This Agreement may be executed and delivered by facsimile or electronic transmission and the Parties agree that such facsimile or electronic (e.g., pdf) execution and delivery shall have the same force and effect as delivery of an original document with original signatures, and that each Party may use such facsimile or electronic signatures as evidence of the execution and delivery of this Agreement by the Parties to the same extent that an original signature could be used.

(q) Addenda, Exhibits and Schedules . All addenda, exhibits and schedules referred to herein are, unless otherwise indicated, incorporated herein by this reference as though set forth herein in full. The Exhibits, Addenda and Schedules to this Agreement are:

Exhibit A – Deed

Exhibit B – Assignment and Assumption of Lease

Exhibit C – Assignment and Assumption of Warranties and other General

Intangibles

Exhibit D – Certificate of Transferor Other than an Individual (FIRPTA

Affidavit)

Exhibit E – Form of Tenant Estoppel

Exhibit F – Form of Owner’s Title Affidavit

Addendum I – Definitions

Addendum II – Seller’s Representations and Warranties

Schedule 1 – Due Diligence Materials

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Schedule 2 – Description of Land

Schedule 3 – Environmental Reports

Schedule 4 – Rent Roll

Schedule 5 – Exceptions to Seller Representations and Warranties

(r) Construction . Headings at the beginning of each section and subsection are solely for the convenience of the Parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. This Agreement shall not be construed as if it had been prepared by one of the Parties, but rather as if both Parties had prepared the same.

(s) Tax Free Exchange . As an accommodation to Buyer, Seller agrees to cooperate with Buyer to accomplish an I.R.C. Section 1031 like kind tax deferred exchange, provided that the following terms and conditions are met; (i) Buyer shall give Seller notice of any desired exchange not later than five (5) days prior to the Closing Date; (ii) Seller shall in no way be liable for any additional costs, fees and/or expenses relating to the exchange; (iii) if, for whatever reason, the Closing does not occur, Seller shall have no responsibility or liability to the third party involved in the exchange transaction, if any; and (iv) Seller shall not be required to make any representations or warranties nor assume or incur any obligations or personal liability whatsoever in connection with the exchange transaction. Buyer indemnifies and agrees to hold Seller and each Seller Related Party harmless from and against any and all causes, claims, demands, liabilities, costs and expenses, including attorneys’ fees, as a result of or in connection with any such exchange. As an accommodation to Seller, Buyer agrees to cooperate with Seller to accomplish an I.R.C. Section 1031 like kind tax deferred exchange, provided that the following terms and conditions are met; (i) Seller shall give Buyer notice of any desired exchange not later than five (5) days prior to the Closing Date; (ii) Buyer shall in no way be liable for any additional costs, fees and/or expenses relating to the exchange; (iii) if, for whatever reason, the Closing does not occur, Buyer shall have no responsibility or liability to the third party involved in the exchange transaction, if any; and (iv) Buyer shall not be required to make any representations or warranties nor assume or incur any obligations or personal liability whatsoever in connection with the exchange transaction. Seller indemnifies and agrees to hold Buyer harmless from and against any and all causes, claims, demands, liabilities, costs and expenses, including attorneys’ fees, as a result of or in connection with any such exchange.

(t) Waiver of Jury Trial . TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ANY ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THIS AGREEMENT OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT OR ANY

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CLAIMS OR DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO AND ACCEPT THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY THE OTHER PARTY AT CLOSING, AND SHALL SURVIVE THE CLOSING OR TERMINATION OF THIS AGREEMENT. Each party hereby authorizes and empowers the other to file this Section and this Agreement with the clerk or judge of any court of competent jurisdiction as a written consent to waiver of jury trial.

[Signatures on following page]

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.

SELLER :

TNP SRT PORTFOLIO II, LLC ,

a Delaware limited liability company

By:

Name:

Title:

BUYER :

KAMIN REALTY LLC,

a Delaware limited liability company

By:

Name:

Title:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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First American Title Insurance Company

The undersigned executes this Agreement for the purpose of acknowledging receipt of a fully executed copy of the Agreement.

ESCROW HOLDER:

First American Title Insurance Company

National Commercial Services

By:

Erwin Broekhuis

Commercial Escrow Officer

CLOSING ATTORNEY, in its capacity as supervising attorney for, and agent of, First American Title Insurance Company:

Rogers Townsend & Thomas, PC, as agent for

First American Title Insurance Company

By:

Kara M. Bailey

Supervising Attorney

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EXHIBIT A

DEED

STATE OF SOUTH CAROLINA )

)

COUNTY OF _______________ )

LIMITED WARRANTY DEED

KNOW ALL MEN BY THESE PRESENTS, THAT ___________________ (hereinafter referred to as Grantor) for and in consideration of __________________ ($_________) Dollars, to it in hand paid at and before the sealing of these presents, by ______________________ (hereinafter referred to as Grantee), in the State aforesaid (the receipt whereof is hereby acknowledged) has granted, bargained, sold and released, and by these presents does grant, bargain, sell and release unto the said Grantee, its successors and assigns, the following described real property to-wit:

SEE ATTACHED LEGAL DESCRIPTION IN EXHIBIT A

Derivation:

TMS#:

Grantee's Address:

This conveyance is made subject to easements and/or restrictions of record and otherwise affecting the property.

TOGETHER with all and singular, the rights, members, hereditaments and appurtenances to the said Premises belonging, or in any wise incident or appertaining.

TO HAVE AND TO HOLD , all and singular, the said premises before mentioned unto the said, Grantee , its successors and assigns , forever.

AND THE SAID GRANTOR does hereby bind itself and its successors and assigns to warrant and forever defend, all and singular, the said premises unto the said Grantee , its successors and assigns, against the said Grantor and its successors and assigns forever.

IN WITNESS WHEREOF, the said Grantor has hereunto set its hand and seal this ______ day of __________, _____.

SIGNED SEALED AND DELIVERED GRANTOR :
IN THE PRESENCE OF :

_______________________ _____________________________
Witness No. 1

Purchase and Sale Agreement

Exhibit A – Deed

_______________________
Witness No. 2

Purchase and Sale Agreement

Exhibit A – Deed

Acknowledgment

ACKNOWLEDGMENT

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of CALIFORNIA )

) ss.

County of )

On _________________ ___, 201_, before me, _____________________________________________ (here insert name and title of officer), personally appeared ___________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity(ies) upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing is true and correct.

WITNESS my hand and official seal.

Signature ________________________________ (Seal)

Purchase and Sale Agreement

Exhibit A – Deed

Acknowledgment

EXHIBIT A

Legal Description

[TO COME FROM TITLE COMPANY]

Purchase and Sale Agreement

Exhibit A – Deed

Exhibit A – Legal Description

EXHIBIT B

Permitted Encumbrances

Insert all of the following as Permitted Encumbrances:

1. All encumbrances included in the exhibits to the vesting deed by which Seller acquired title to the Property;

2. All of the Permitted Exceptions; and

3. All matters shown on the Survey.

Purchase and Sale Agreement

Exhibit A – Deed

Exhibit B – Permitted Encumbrances

EXHIBIT B

ASSIGNMENT AND ASSUMPTION OF LEASE

THIS ASSIGNMENT AND ASSUMPTION OF LEASE (“ Assignment ”) dated as of __________, 2017, is entered into by and between TNP SRT PORTFOLIO II, LLC, a Delaware limited liability company (“ Assignor ”), and ____________________________ a _________________________ (“ Assignee ”).

W I T N E S S E T H:

WHEREAS, Assignor is the lessor under a lease executed with respect to that certain real property located at 1436 J.A. Cochran Bypass, Chester, South Carolina (the “ Property ”), as more fully described in Exhibit A attached hereto, which lease is described in the Rent Roll attached hereto as Schedule 1 (the “ Lease ”); and

WHEREAS, Assignor has entered into that certain Purchase and Sale Agreement (the “ Agreement ”) by which title to the Property is being transferred to Assignee; and

WHEREAS, Assignor desires to assign its interest as lessor in the Lease to Assignee, and Assignee desires to accept the assignment thereof;

NOW, THEREFORE, in consideration of the promises and conditions contained herein, the Parties hereby agree as follows:

1. Effective as of the Closing Date (as defined in the Agreement), Assignor hereby assigns to Assignee all of its right, title and interest in and to the Lease, and any guarantees related thereto, and Assignee hereby accepts such assignment and agrees to assume the obligations of Landlord under the Lease; provided, however, Assignor hereby indemnifies and holds Assignee harmless from any action, cause of action, loss, cost, claim or expense, including without limitation reasonable attorneys’ fees arising out of or related to a breach or default on the part of Assignor as Landlord under the Lease occurring before the date of this Assignment. Assignee hereby indemnifies and holds Assignor harmless from any action, cause of action, loss, cost, claim or expense, including without limitation reasonable attorneys’ fees arising out of or related to a breach or default on the part of Assignee as Landlord under the Lease occurring on or after the date of this Assignment. Notwithstanding the foregoing, if Assignee acquires the Property and (i) the Tenant Estoppel delivered to Assignee on or before the Closing identifies any event, occurrence or matter (whether or not characterized as a breach, default or failure to perform on the part of Assignor) as to which Assignor is or would be required to indemnify Assignee hereunder if such event, occurrence or matter would, with the passage of time or notice or both, constitute a breach, default or failure to perform under the Lease on the part of Assignor, or (ii) Assignee had Actual Knowledge (as defined in the Agreement) as of or prior to the Closing of any event, occurrence or matter (whether or not characterized as a breach, default or failure to perform on the part of Assignor) as to which Assignor is or would be required to indemnify Assignee hereunder if such event, occurrence or matter would, with the passage of time or notice or both, constitute a breach, default or failure to perform under the Lease on the part of Assignor, then in either such instance Assignor shall not be responsible for,

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Exhibit B – Assignment and Assumption of Lease

Page 1 of 3

or obligated to indemnify or hold Assignee harmless from any such event, occurrence or matter or the resulting breach, default or failure to perform.

2. If either Party hereto fails to perform any of its obligations under this Assignment or if a dispute arises between the Parties hereto concerning the meaning or interpretation of any provision of this Assignment, then the defaulting Party or the Party not prevailing in such dispute shall pay any and all costs and expenses incurred by the other Party on account of such default and/or in enforcing or establishing its rights hereunder including, without limitation, court costs and attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either Party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment and such attorneys’ fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.

3. This Assignment shall be binding on and inure to the benefit of the Parties hereto, their heirs, executors, administrators, successors in interest and assigns.

4. The substantive laws of the State in which the Property is located, without reference to its conflict of law provisions, will govern the validity, construction, and enforcement of this Assignment.

5. This Assignment may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Capitalized terms used but not defined in this Assignment have the meaning given to such terms in the Agreement.

[Signatures on following page]

Purchase and Sale Agreement

Exhibit B – Assignment and Assumption of Lease

Page 2 of 3

IN WITNESS WHEREOF Assignor and Assignee have executed this Assignment the day and year first above written.

ASSIGNOR :

TNP SRT PORTFOLIO II, LLC ,

a Delaware limited liability company

By: [EXHIBIT – DO NOT SIGN]

Name:

Title:

ASSIGNEE:

By: [EXHIBIT – DO NOT SIGN]

Name:

Title:

Purchase and Sale Agreement

Exhibit B – Assignment and Assumption of Lease

Page 3 of 3

EXHIBIT A

TO ASSIGNMENT AND ASSUMPTION OF LEASE

REAL PROPERTY DESCRIPTION

Purchase and Sale Agreement

Exhibit B – Assignment and Assumption of Lease

Exhibit A – Real Property Description

SCHEDULE 1

TO ASSIGNMENT AND ASSUMPTION OF LEASE

RENT ROLL

Purchase and Sale Agreement

Exhibit B – Assignment and Assumption of Lease

Schedule 1 – Rent Roll

EXHIBIT C

ASSIGNMENT AND ASSUMPTION OF WARRANTIES AND OTHER GENERAL INTANGIBLES

This Assignment and Assumption of Warranties and Other General Intangibles (“ Assignment ”) is made and entered into as of ________, 2017, by TNP SRT PORTFOLIO II, LLC, a Delaware limited liability company (“ Assignor ”), to _________________________, a ________________ (“ Assignee ”), pursuant to that certain Purchase and Sale Agreement (the “ Agreement ”) between Assignor and Assignee relating to the real property owned by Assignor and located at 1436 J.A. Cochran Bypass, Chester, South Carolina. Capitalized terms used but not defined in this Assignment have the meaning given to such terms in the Agreement.

1. For good and valuable consideration, the receipt of which is hereby acknowledged, effective as of the Closing Date (as defined in the Agreement), Assignor hereby assigns and transfers unto Assignee all of its right, title, claim and interest in and under:

(a) all warranties and guaranties made by or received from any third party with respect to any building, building component, structure, fixture, machinery, equipment, or material situated on, contained in any building or other improvement situated on, or comprising a part of any building or other improvement situated on, any part of that certain real property described in Exhibit A attached hereto including, without limitation, those warranties and guaranties listed in Schedule 1 attached hereto (collectively, “ Warranties ”); provided however, that to the extent there are any third party costs, expenses or fees in connection with the assignment of any Warranties, including, without limitation, reliance fees or transfer fees, Seller shall not be obligated to assign such Warranties to Buyer unless Buyer pays all such costs, expenses and fees;

(b) any General Intangibles (as defined in the Agreement); and

Assignor and Assignee further hereby agree and covenant as follows:

2. Effective as of the Closing Date, Assignee hereby assumes all of Assignor’s obligations under the Warranties, General Intangibles and Service Contracts and agrees to indemnify, protect and defend Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including, without limitation, reasonable attorneys’ fees and costs and court costs, originating on or subsequent to the Closing Date and arising out of failure on the part of Assignee to perform the obligations of owner under the Service Contracts requiring performance on or after the Closing Date.

3. If either Party hereto fails to perform any of its obligations under this Assignment or if a dispute arises between the Parties hereto concerning the meaning or interpretation of any provision of this Assignment, then the defaulting Party or the Party not prevailing in such dispute shall pay any and all costs and expenses incurred by the other Party on account of such default and/or in

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Page 1 of 3

enforcing or establishing its rights hereunder, including, without limitation, court costs and attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either Party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys, fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.

4. Assignor hereby covenants that Assignor will, at any time and from time to time, upon written request therefor, execute and deliver to Assignee any new or confirmatory instruments which Assignee may reasonably request in order to fully assign, transfer to and vest in Assignee, and to protect Assignee’s right, title and interest in and to, any of the items assigned herein or to otherwise realize upon or enjoy such rights in and to those items.

5. This Assignment shall be binding on and inure to the benefit of the Parties hereto, their heirs, executors, administrators, successors in interest and assigns.

6. The substantive laws of the State in which the Property is located, without reference to its conflict of law provisions, will govern the validity, construction, and enforcement of this Assignment.

7. This Assignment may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

[Signatures on following page]

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Page 2 of 3

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the day and year first above written.

ASSIGNOR :

TNP SRT PORTFOLIO II, LLC ,

a Delaware limited liability company

By: [EXHIBIT – DO NOT SIGN]

Name:

Title:

ASSIGNEE :

By: [EXHIBIT – DO NOT SIGN]

Name:

Title:

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Page 3 of 3

EXHIBIT A

ASSIGNMENT AND ASSUMPTION OF WARRANTIES

AND OTHER GENERAL INTANGIBLES

REAL PROPERTY DESCRIPTION

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Exhibit A – Real Property Description

SCHEDULE 1

ASSIGNMENT AND ASSUMPTION OF WARRANTIES

AND OTHER GENERAL INTANGIBLES

WARRANTIES

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Schedule 1 – Warranties

SCHEDULE 2

ASSIGNMENT AND ASSUMPTION OF WARRANTIES

AND OTHER GENERAL INTANGIBLES

SERVICE CONTRACTS

Purchase and Sale Agreement

Exhibit C – Assignment and Assumption of Warranties and Other General Intangibles

Schedule 2 – Service Contracts

EXHIBIT D

CERTIFICATE OF TRANSFEROR

OTHER THAN AN INDIVIDUAL

(FIRPTA AFFIDAVIT)

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform _______________________________, a __________________________, the transferee of certain real property located at 1436 J.A. Cochran Bypass, Chester, South Carolina, that withholding of tax is not required upon the disposition of such U.S. real property interest by TNP SRT PORTFOLIO II, LLC, a Delaware limited liability company and wholly owned subsidiary of ______________________________, LLC, a Delaware limited liability company (“ Transferor ”), the undersigned hereby certifies the following on behalf of Transferor:

1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

2. Transferor is not a disregarded entity as defined in Income Tax Regulations §1.1445-2(b)(2)(iii);

3. Transferor’s U.S. employer identification number is __________; and


4.	Transferor’s office address is: c/o Glenborough, LLC

66 Bovet Road, Suite 100

San Mateo, CA 94402

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalty of perjury, I declare that I have examined this certificate and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

Dated: ______________________, 2017.

[EXHIBIT – DO NOT SIGN]

on behalf of:

____________________________, LLC,

a Delaware limited liability company

Purchase and Sale Agreement

Exhibit D – Certificate of Transferor Other than an Individual (FIRPTA Affidavit)

EXHIBIT E

FORM OF TENANT ESTOPPEL

To: ________________

________________

Attn:

And: TNP SRT PORTFOLIO II, LLC

c/o Glenborough, LLC

66 Bovet Road, Suite 100

San Mateo, CA 94402

Re: BI-LO Store #5268

Cochran Bypass

1436 J.A. Cochran Bypass

Chester, South Carolina

Buyer intends to acquire from Landlord, as successor in interest to Original Landlord (defined below) the real property of which the Premises described below are a part. The undersigned, as tenant (“Tenant”) acknowledges the right of Landlord and Buyer to rely upon the statements and representations of the undersigned contained in this certificate, and further acknowledges that Buyer will be acquiring the Property and Lender will be lending on the Property in material reliance on this certificate.

1. The undersigned, as Tenant of approximately 45,817 square feet of space (the “Premises”) under that certain Lease dated April 24, 1991 (the “Lease”) made with IRT Property Company, a Georgia corporation (the “Original Landlord”), covering space located at 1436 J.A. Cochran Bypass, Chester, South Carolina, hereby certifies to Lender, Buyer and Landlord, and their respective successors and assigns, as follows:

(a) That attached hereto as Exhibit A is a true, correct and complete list of the Lease and all amendments thereto;

(b) That the Lease is in full force and effect and has not been modified, supplemented or amended in any way except as set forth in Exhibit A. Tenant’s interest in the Lease has not been assigned or encumbered;

(c) That the Lease, as amended as indicated in Exhibit A, represents the entire agreement between the parties as to said leasing of the Premises, and that there are no other agreements, written or oral, which affect the occupancy of the Premises by the undersigned;

(d) That the commencement date of the term of the Lease was February 16, 1992;

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Exhibit E – Form of Tenant Estoppel

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(e) That the expiration date of the term of the Lease is September 30, 2026, including any presently exercised option or renewal term, and that the undersigned has no rights to renew, extend or cancel the Lease or to lease additional space in the Premises or the Building, except as expressly set forth in the Lease;

(f) That the Tenant has no option or preferential right to purchase all or any part of the Premises (or any land or buildings of which the Premises are a part), and has no right or interest with respect to the Premises or the building on the Premises other than as Tenant under the Lease;

(g) That all conditions of the Lease to be performed by Landlord and necessary to the enforceability of the Lease have been satisfied. To the best of Tenant’s knowledge, on this date there are no existing defenses, offsets, claims or credits which the undersigned has against the enforcement of the Lease except for prepaid rent through ______________, 2017 (not to exceed one (1) month);

(h) That all contributions required by the Lease to be paid by Landlord to date for improvements to the Premises have been paid in full except Tenant’s Work Reimbursement Credit in the amount of $86,956.68. All improvements or work required under the Lease to be made by Landlord to date, if any, have been completed to the satisfaction of the undersigned. Charges for all labor and materials used or furnished in connection with improvements and/or alterations made for the account of the undersigned in the Building have been paid in full. The undersigned has accepted the Premises, subject to no conditions other than those set forth in the Lease. The undersigned has entered into occupancy of the Premises;

(i) That the annual minimum rent currently payable under the Lease is $234,000.00 and such rent has been paid through ______________ ___, 2017;

(j) That no Percentage rent (“Percentage Rent”) is due or owing under the Lease;

(k) That the undersigned has made no agreement with Landlord or any agent, representative or employee of Landlord concerning free rent, partial rent, rebate of rental payments or any other similar rent or other concession. No rents have been prepaid more than one (1) month in advance and full rental, including basic minimum rent, if any, has commenced to accrue;

(l) That there are no defaults by Tenant or, to Tenant’s knowledge, Landlord under the Lease, and, to Tenant’s knowledge, no event has occurred or situation exists that would, with the passage of time or with notice, constitute a default or breach under the Lease;

(m) That the undersigned has paid to Landlord a security deposit in the amount of $0; and

(n) That as of this date there are no actions, whether voluntary or otherwise, pending against the undersigned or any guarantor of the Lease under the bankruptcy or insolvency laws of the United States or any state thereof.

Purchase and Sale Agreement

Exhibit E – Form of Tenant Estoppel

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2. The undersigned acknowledges the right of Landlord and Buyer, and their respective successors and assigns, to rely on the certifications and agreements in this Certificate in selling and buying the property of which the Premises are a part.

EXECUTED this ____ day of _____________, 2017.

TENANT:

BI-LO, LLC ,

a Delaware limited liability company

By:

Print Name:

Print Title:

Purchase and Sale Agreement

Exhibit E – Form of Tenant Estoppel

Page 3 of 3

EXHIBIT A

LIST OF LEASE AND ALL AMENDMENTS

Lease Agreement dated April 24, 1991

Confirmation of Lease Term Agreement dated March 17, 1992

First Lease Modification Agreement dated September 29, 1999

Memorandum of Lease dated November 7, 2005

Second Lease Modification Agreement dated January 16, 2007

Assignment of Lease dated October 28, 2008

Restrictive Covenants and Release from Memorandum of Lease dated April 9, 2011

Amended and Restated Memorandum of Lease dated January 31, 2012

First Amendment to Memorandum of Lease dated February 2, 2017

Third Amendment to Lease dated February 2, 2017

Purchase and Sale Agreement

Exhibit E – Form of Tenant Estoppel

Exhibit A – List of Lease and all Amendments

EXHIBIT F

FORM OF OWNER’S TITLE AFFIDAVIT

Date: ______________

Commitment Number: NCS -__________ (the “Commitment”)

To the actual knowledge of the undersigned, the following is hereby certified to First American Title Insurance Company (“Title Company”) with respect to the land described in the above Commitment.


1.	He/she is the ______________ of TNP SRT Portfolio II, LLC, a Delaware limited liability company (“Company”).


2.	The Company’s principal place of business is at c/o Glenborough, LLC, 66 Bovet Road, Suite 100, San Mateo, CA 94402 and the Company’s previous place of business during the past ten years has been at 400 South El Camino, 11th Floor, San Mateo, CA 94402-1708.


3.	There have been no:


a.	Bankruptcy proceedings involving the Company or dissolution proceeding involving the Company during the time the Company had any interest in the premises described in the above Commitment (“Land”);


b.	Tax liens filed against the Company;


c.	Unsatisfied judgments of record against the Company, nor any actions pending in any courts, which affect the Land.


4.	Any bankruptcy proceedings or dissolution proceedings of record against entities with the same or similar names, during the time period in which the Company had any interest in the Land, are not against the Company.


5.	Any judgments or tax liens of record against entities with the same or similar names are not against the Company.


6.	There has/have been no labor or materials furnished to the Land at the request of the Company in the past 90 days and there are no plans for any labor or materials to be furnished to the Land at the request of the Company;


7.	There are no unrecorded contracts, leases, easements or other agreements or interest relating to the Land except the lease(s) shown on the rent roll attached hereto as Exhibit A , which the undersigned certifies is a true and correct copy of the Company’s rent roll.


8.	There are no persons in possession of any portion of the Land other than pursuant to a recorded document except tenants pursuant to the lease(s) shown on the rent roll attached hereto as Exhibit A .


9.	There are no encroachments or boundary line questions affecting the Land of which the undersigned has knowledge, other than as shown on any survey delivered to the Title Company for purposes of issuance of an ALTA Owner’s Policy.

The term “actual knowledge” of the undersigned, or references to the “knowledge” of the undersigned means the current, actual knowledge of Alan Shapiro as of the date of this affidavit, upon due inquiry but without

Purchase and Sale Agreement

Exhibit F – Form of Owner’s Title Affidavit

Page 1 of 2

imputation of matters of record or constructive knowledge. The undersigned represents that Alan Shapiro is the person most likely to have current, actual knowledge of the matters described in this affidavit.

______________________________________

Name:

Purchase and Sale Agreement

Exhibit F – Form of Owner’s Title Affidavit

Page 2 of 2

Exhibit A

Rent Roll

[To be attached]

Purchase and Sale Agreement

Exhibit F – Form of Owner’s Title Affidavit

Exhibit A – Rent Roll

ADDENDUM I

DEFINITIONS

Terms used in this Agreement shall have the meanings set forth below:


1.	2017 Stub Reconciliation . As defined in Section 7(d)(v) .

Actual Knowledge of Buyer (or Buyer’s Actual Knowledge.) The knowledge of any Responsible Individual of Buyer, without duty of inquiry; provided that so qualifying Buyer’s knowledge shall in no event give rise to any personal liability on the part of the Responsible Individual, on account of any breach of any representation and warranty of Buyer herein. Actual Knowledge shall not include constructive knowledge, imputed knowledge, or knowledge Buyer or such Responsible Individual do not have but could have obtained through further investigation or inquiry, but shall include information provided by Seller to Buyer in writing (including the Due Diligence Materials).

Actual Knowledge of Seller (or Seller’s Actual Knowledge.) The knowledge of any Responsible Individual of Seller, without duty of inquiry; provided that so qualifying Seller’s knowledge shall in no event give rise to any personal liability on the part of the Responsible Individual, on account of any breach of any representation and warranty of Seller herein. Actual Knowledge shall not include constructive knowledge, imputed knowledge, or knowledge Seller or such Responsible Individual do not have but could have obtained through further investigation or inquiry.

Additional Rents . All amounts, other than Fixed Rents, due from Tenant under the Lease, including without limitation, percentage rents, escalation charges for real estate taxes, parking charges, marketing fund charges, reimbursement of Expenses, maintenance escalation rents or charges, cost of living increases or other charges of a similar nature, if any, and any additional charges and expenses payable under the Lease.


5.	Affiliate . Any Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with another Person. An affiliate of a Person includes any officer, director, managing member, member or general partner, and any record or beneficial owner of more than 10% of any class of ownership interests in such Person.


6.	Agreement . This Agreement between Seller and Buyer, including all Addenda, Schedules and Exhibits attached hereto and incorporated herein by reference.


7.	Approval Date. The Business Day on or prior to the end of the Due Diligence Period on which Buyer delivers its Approval Notice to Seller.


8.	Approval Notice . Buyer’s notice delivered to Seller (if at all) under Section 4(l) of the Agreement.

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Addendum I – Definitions

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9.	Assignment and Assumption of Warranties and Other General Intangibles . An Assignment and Assumption of Warranties and Other General Intangibles in the form attached to this Agreement as Exhibit C .


10.	Assignment of Lease . An Assignment and Assumption of Lease in the form attached to this Agreement as Exhibit B .


11.	Business Day . Any day other than a Saturday, Sunday or holiday on which national banks located in the State in which the Property is located or the State of California, are authorized or required by law to close for business.


12.	Buyer . The “Buyer” in the preamble to this Agreement.


13.	Buyer’s Agents . The employees, agents, contractors, consultants, officers, directors, representatives, managers and members of Buyer or its Affiliates, and such other Persons as are acting under the direction of, or on behalf of, Buyer or any Affiliate of Buyer.


14.	Buyer’s Broker . Tom Kallenbach.


15.	Buyer Closing Conditions . Conditions precedent to Buyer’s obligation to consummate this transaction, as set forth in Section 5(a) .


16.	Cash . Immediately available funds to be paid by Buyer at the Closing, as provided in the Section entitled “Consideration.”


17.	Closing . The delivery of the Deed and the other documents required to be delivered hereunder and the payment of the Consideration.


18.	Closing Attorney. Rogers Townsend & Thomas, PC, as supervising attorney and agent for First American Title Insurance Company, located at 1221 Main Street, 14 ^th Floor, Columbia South Carolina 29201; Attention: Kara M. Bailey, 803-744-1281 (direct), email kara.bailey@rtt-law.com .


19.	Closing Date . Fifteen (15) days after Buyer’s delivery of an Approval Notice.


20.	Consideration . The purchase price for the Property payable by Buyer to Seller as described in the Section entitled “Consideration.”


21.	Contracts . The service contracts, construction contracts for work in progress, any warranties thereunder, management contracts, unrecorded reciprocal easement agreements, operating agreements, maintenance agreements, franchise agreements and other similar agreements relating to the Property.


22.	Creditors’ Rights Laws . All bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally, as well as general equitable principles whether or not the enforcement thereof is considered to be a proceeding at law or in equity.

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23.	Day . The term “day” used herein and not capitalized means a calendar day.


24.	Deed . A deed in the form attached to this Agreement as Exhibit A .


25.	Due Diligence Materials . The materials described in Schedule 1 to this Agreement.


26.	Due Diligence Period. A period of time commencing on the Effective Date and ending at 5:00 p.m., local time, in the State in which the Property is located, on the twentieth (20 ^th ) day after the Effective Date.


27.	Earnest Money . The aggregate of the Initial Earnest Money Deposit and the Remaining Earnest Money Deposit.


28.	Effective Date. The date set forth in the preamble to this Agreement.


29.	Environmental Laws . All federal, state, local or administrative agency ordinances, laws, rules, regulations, orders or requirements relating to Hazardous Materials.


30.	Environmental Reports . All environmental reports and investigations relating to the Property which are available to Seller, which are listed on Schedule 3 to this Agreement.


31.	Escrow Holder . First American Title Insurance Company – National Commercial Services, at its office located at 2755 Campus Drive, Suite 125, San Mateo, CA 94403; Attention: Erwin J. Broekhuis, Commercial Escrow Officer, (650) 356-1729 (direct), email ebroekhuis@firstam.com.


32.	Existing Lender . The lender shown in the preliminary title report as holding the senior mortgage on the Property.

33.

Expenses . All operating expenses normal to the operation and maintenance of the Property, including without limitation: Property Taxes; current installments of any improvement bonds or assessments which are a lien on the Property or which are pending and may become a lien on the Property; water, sewer and utility charges; amounts payable under any Contract for any period in which the Closing occurs; and permits, licenses and inspection fees. Expenses shall not include expenses which are of a capital nature.

34.

Expense Reimbursement. That amount necessary to reimburse Buyer for all of its out-of-pocket, third-party costs and expenses related to the transactions contemplated by this Agreement, including, without limitation, to consultants and for third‐party reports, for legal fees incurred in connection with negotiating and entering into this Agreement, up to a maximum, in the aggregate, of Twenty Thousand and No/100ths Dollars ($20,000.00).


35.	Fixed Rents. The fixed periodic payments under the Lease.


36.	General Intangibles . All general intangibles relating solely to design, development, operation, management and use of the Real Property; all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations, licenses and consents

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Addendum I – Definitions

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obtained from any governmental authority or other person in connection with the development, use, operation or management of the Real Property; all engineering reports, architectural drawings, plans and specifications relating solely to all or any portion of the Real Property, and all payment and performance bonds or warranties or guarantees relating solely to the Real Property; Seller’s right, title and interest in and to any and all of the following to the extent assignable: trademarks, service marks, logos or other source and business identifiers, trademark registration and applications for registration used at or relating solely to the Real Property.

37.

Hazardous Materials . Any substance which is (a) designated, defined, classified or regulated as a hazardous substance, hazardous material, hazardous waste, toxic substance, pollutant or contaminant under any federal or state law or regulation, (b) a petroleum hydrocarbon, including crude oil or any fraction thereof and all petroleum products, (c) PCBs, (d) asbestos or asbestos-containing products, (e) a flammable explosive, (f) an infectious material, (g) a radioactive material, (h) a carcinogenic, or (i) a reproductive toxicant.


38.	Improvements . All buildings, parking lots, parking garages, signs, walks and walkways, fixtures and equipment and all other improvements located at or on or affixed to the Land to the full extent that such items are owned by Seller and constitute realty under the laws of the state in which the Land is located.


39.	Initial Earnest Money Deposit . The initial earnest money deposit paid by Buyer pursuant to the Section entitled “Consideration,” in the amount of Twenty-Five Thousand and No/100ths Dollars ($25,000.00).


40.	Land . The land described in Schedule 2 to this Agreement, together with all appurtenances thereto, including without limitation easements and mineral and water rights.


41.	Laws . All Environmental Laws, zoning and land use laws, and other local, state and federal laws and regulations applicable to the Property, the Parties, and/or the transactions contemplated by this Agreement.


42.	Lease . The lease for the Tenant.


43.	Major Loss. Any damage or destruction to, or condemnation of, any Real Property as to which the cost to repair, or the value of the portion taken, as the case may be, exceeds Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00).


44.	Material Damage Ceiling. Damage in the aggregate of Two Hundred Thousand and No/100ths Dollars ($200,000.00) suffered by Buyer as a result of any inaccuracy or breach of any representation or warranty or covenant (on a cumulative basis and not per occurrence) by Seller hereunder.


45.	Material Damage Floor . Damage in excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00) suffered by Buyer as a result of any inaccuracy or breach of any representation

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Addendum I – Definitions

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or warranty or any breach of any covenant (on a cumulative basis and not per occurrence) by Seller hereunder.


46.	Minor Loss. Damage or destruction to, or condemnation of, any Real Property that is not a Major Loss.


47.	Monetary Liens. As defined in the Section entitled “Approval of Title.”

48.

New Exception. An exception to title to the Real Property that affects the condition of title to the Real Property and is not (i) included in or referenced in any preliminary report delivered to Buyer prior to the Approval Date, or in any exception document delivered to Buyer by the Title Company prior to the Approval Date, (ii) disclosed to Buyer in any of the Due Diligence Materials, (iii) shown on or referenced in the Survey, (iv) caused by Buyer or any of Buyer’s Agents, or (v) previously approved in writing by Buyer or any of Buyer’s Agents.


49.	Parties. Buyer and Seller.


50.	Percentage Rents. Rents under the Lease based on a percentage of Tenant revenue, sales or income, or on the performance of the business of Tenant.


51.	Permitted Exceptions . The Lease, exceptions to title approved by Buyer as of the Approval Date or which Buyer is deemed to have approved as of the Approval Date, and New Exceptions approved by Buyer following the Approval Date, pursuant to the title review procedure set forth in the Agreement.


52.	Person . An individual, partnership, corporation, business trust, joint stock company, limited liability company, trust, unincorporated association, joint venture or governmental authority.

53.

Physical Testing . Any physically intrusive, invasive or destructive testing including, without limitation, (i) taking, sampling or testing surface water, groundwater or soils, (ii) air quality sampling or testing, and (iii) probing, cutting, penetrating, removing or otherwise disturbing any interior or exterior feature, system or component of the Property or any improvements on or at the Property in order to sample, test, observe or monitor normally inaccessible areas, components, features or systems


54.	Property. The Real Property, the Lease, the General Intangibles, and the Contracts (excluding Contracts to be terminated by Seller pursuant to this Agreement).


55.	Property Taxes. As defined in Section 7(c)(ii)(c) , entitled “Property Taxes.”


56.	Real Property . The Land and Improvements.


57.	Remaining Earnest Money Deposit . The additional earnest money deposit paid by Buyer on or after the Approval Date pursuant to the Section entitled “Consideration”, in the amount of Twenty-Five Thousand and No/100ths Dollars ($25,000.00).


58.	Rent Roll . The rent roll attached to this Agreement as Schedule 4 .

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59.	Rents . Fixed Rents and Percentage Rents.


60.	Responsible Individuals . With respect to Buyer: Daniel G. Kamin; and with respect to Seller: Alan Shapiro.


61.	Seller . The “Seller” in the preamble to this Agreement.


62.	Seller Related Party . Seller, any Affiliate of Seller, and any of its or their respective shareholders, partners, members, managers, officers, directors, employees, contractors, agents, attorneys or other representatives of Seller.


63.	Seller’s Broker . Holliday Fenoglio Fowler, L.P. (HFF).


64.	Seller Closing Conditions . Conditions precedent to Seller’s obligation to consummate this transaction, as set forth in Section 5(b) .


65.	Service Contracts . All Contracts involving ongoing services and periodic payment therefor, as distinguished from franchise agreements, easements, guarantees, warranties and the like.


66.	Survey . That certain preliminary ALTA/NSPS Land Title Survey of the Property prepared by Barrett Surveying Group, LLC (under the aegis of American National, LLC), with a revision date of June 6, 2017, delivered to Buyer with the Due Diligence Materials.


67.	Tenant . Bi-Lo Stores.


68.	Tenant Estoppel . An estoppel certificate in the form attached to this Agreement as Exhibit E (or on such other form as may be prescribed in the Lease or otherwise permitted under this Agreement), to be provided by Seller as provided in the Section entitled “Tenant Estoppel.”


69.	TI Credit . As defined in Section 7(c)(iv).


70.	Title Company . First American Title Insurance Company, acting through the Closing Attorney as its supervising attorney and agent.


71.	Title Policy . An owner’s standard coverage (or, if applicable, extended coverage) ALTA title policy, issued by First American Title Insurance Company, in the amount of the Consideration, showing title vested in Buyer subject only to the Permitted Exceptions.


72.	Transaction Documents . The Deed, Assignment and Assumption of Warranties and other General Intangibles, the Assignment of Lease, and any and all other agreements entered into by the Parties in connection with the Closing.

Purchase and Sale Agreement

Addendum I – Definitions

Page 6 of 6

ADDENDUM II

SELLER’S REPRESENTATIONS AND WARRANTIES

Seller hereby represents and warrants to Buyer as follows:

A. Organization and Authorization

1. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business in the State in which the Property is located.

2. Seller has full power and authority to execute and deliver this Agreement and to perform all of the terms and conditions hereof to be performed by Seller and to consummate the transactions contemplated hereby. This Agreement and all documents executed by Seller which are to be delivered to Buyer at Closing have been duly executed and delivered by Seller and are or at the time of Closing will be the legal, valid and binding obligation of Seller and is enforceable against Seller in accordance with its terms, except as the enforcement thereof may be limited by applicable Creditors’ Rights Laws. Seller is not presently subject to any bankruptcy, insolvency, reorganization, moratorium, or similar proceeding.

3. The individuals and entities executing this Agreement and the instruments referenced herein on behalf of Seller and its constituent entities, if any, have the legal power, right and actual authority to bind Seller to the terms and conditions hereof and thereof.

4. Subject to Seller’s satisfaction of the partial release conditions in the Existing Lender loan documents, neither the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement, nor the compliance with the terms and conditions hereof will violate or conflict, in any material respect, with any provision of Seller’s organizational documents or to Seller’s Actual Knowledge any statute, regulation or rule, injunction, judgment, order, decree, ruling, charge or other restrictions of any government, governmental agency or court to which Seller is subject, and which violation or conflict would have a material adverse effect on Seller. Subject to Seller’s satisfaction of the partial release conditions in the Existing Lender loan documents, Seller is not a party to any contract or subject to any other legal restriction that would prevent fulfillment by Seller of all of the terms and conditions of this Agreement or compliance with any of the obligations under it.

B. Property Condition, Use and Compliance

1. Compliance with Laws . Except as set forth on Schedule 5 to this Agreement, to Seller’s Actual Knowledge, Seller has not received written notice that the use or operation of the Property is in violation of any applicable Laws.

Purchase and Sale Agreement

Addendum II – Seller’s Representations and Warranties

Page 1 of 4

2. No Regulatory Proceedings . Except as set forth on Schedule 5 to this Agreement, to Seller’s Actual Knowledge, Seller has not received any written notice of any condemnation, environmental, zoning or other land-use regulation proceedings that have been instituted, or are planned to be instituted, which directly identify any of the Property, nor has Seller received written notice of any special assessment proceedings affecting any of the Property. Seller shall notify Buyer promptly of any such proceedings of which any Seller becomes aware prior to Closing.

3. Environmental Matters. To the Actual Knowledge of Seller and except as set forth in the Due Diligence Materials, there are no Hazardous Materials on or under the Property in violation of Environmental Laws or which would require remediation or mitigation under Environmental Laws.

C. The Lease

1. Rent Roll . The Rent Roll attached hereto completely and accurately reflects the material terms and conditions of the Lease in all material respects as of its date. Except as disclosed on the Rent Roll, to the Actual Knowledge of Seller, there are no other tenants at the Property with Seller’s consent, and no Rent under the Lease has been collected in advance of the current month. The Rent Roll shall be updated at the Closing to reflect any changes which occur after the Effective Date.

2. Security Deposits . No security deposits are held by Seller under the Lease.

3. Lease. Except as set forth in Schedule 5 to this Agreement, to Seller’s Actual Knowledge: (i) the Lease has not been modified or amended except as set forth on the Rent Roll; (ii) Seller has provided to Buyer a complete copy of the Lease; (iii) Seller is not in default under the Lease and Tenant has delivered no written notice to Seller of a default on the part of Seller under the Lease; (iv) Tenant is not in default under any of the terms of the Lease; and (v) Tenant has not asserted in writing any defense or set-off against the payment of rent in connection with the Lease nor has Tenant contested any tax, operating cost or other escalation payments or occupancy charges payable under the Lease. To the extent Seller has delivered and Buyer has accepted a Tenant Estoppel for the Lease, such Tenant Estoppel shall supersede and replace this Section C and the representations of Seller in this Section C shall not apply to such Lease or Tenant.

D. Other Matters

1. No Litigation . Except as set forth on Schedule 5 to this Agreement there is no litigation pending or, to Seller’s Actual Knowledge, threatened: (i) against Seller that arises out of the ownership of the Property or that might materially and detrimentally affect the value or the use or operation of any of the Property for its intended purpose or the ability of such Seller to perform its obligations under this Agreement; or (ii) by Seller against Tenant. Seller shall notify Buyer promptly of any such litigation of which Seller becomes aware before Closing.

Purchase and Sale Agreement

Addendum II – Seller’s Representations and Warranties

Page 2 of 4

2. No Contracts for Improvements; No Service Contracts . Except as set forth in Schedule 5 to this Agreement, there are no outstanding written or oral contracts entered into by Seller for the provision of labor or materials with respect to the Property which have not been fully paid or which Buyer has not expressly agreed to assume under the terms of this Agreement.

3. Exhibits and Schedules . The Schedules attached hereto, as provided by or on behalf of Seller, to Seller’s Actual Knowledge completely and correctly present in all material respects the information required by this Agreement to be set forth therein, provided, however, that as set forth in more detail in the Agreement, Seller makes no representation or warranty as to the completeness or accuracy of any materials contained in the Schedules that have been prepared by third parties unrelated to Seller.

4. Seller Not a Foreign Person . Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code.

5. Patriot Act . Seller is not, nor is any person who owns a controlling interest in or otherwise controls Seller, (a) listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC, Department of the Treasury, and/or on any other similar list maintained by the OFAC pursuant to any OFAC Laws and Regulations; or (b) a person either (i) included within the term “designated national” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (ii) designated under any Executive Orders. Neither Seller nor any of its principals or affiliates is (x) a person or entity with which Buyer is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, or that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Orders, or (y) is directly or indirectly affiliated or associated with a person or entity listed in the preceding clause (x). To the best knowledge of Seller, neither Seller nor any of its principals or affiliates, nor any brokers or other agents acting in any capacity in connection with the transactions contemplated herein (I) directly or indirectly deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Orders, (II) directly or indirectly engages in any transaction in violation of any Laws relating to drug trafficking, money laundering or predicate crimes to money laundering or (III) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

6. Seller’s Due Diligence Materials . To the Actual Knowledge of Seller, the Due Diligence Materials delivered to Buyer pursuant to this Agreement are complete, true and correct copies of the Due Diligence Materials in Seller’s possession.

E. Miscellaneous

1. Timeliness of Representations and Warranties . All representations and warranties set forth herein shall be deemed to be given as of the Effective Date and the Closing Date unless Seller otherwise notifies Buyer in writing prior to the Closing.

Purchase and Sale Agreement

Addendum II – Seller’s Representations and Warranties

Page 3 of 4

2. Materiality Limitation. Buyer shall not be entitled to any right or remedy for any inaccuracy in or breach of any representation, warranty or covenant under this Agreement or any conveyance document unless the amount of damages proximately caused thereby exceeds the Material Damage Floor, and in no event shall the damages for which Seller is liable hereunder for any such inaccuracies or breaches exceed in the aggregate the Material Damage Ceiling.

3. Continuation and Survival of Representations and Warranties, Etc . All representations and warranties by the respective Parties contained herein or made in writing pursuant to this Agreement are intended to and shall remain true and correct as of the time of Closing, shall be deemed to be material, and, together with all conditions, covenants and indemnities made by the respective Parties contained herein or made in writing pursuant to this Agreement (except as otherwise expressly limited or expanded by the terms of this Agreement), shall survive the execution and delivery of this Agreement and shall survive the Closing for a period of six (6) months after the Closing, or, to the extent the context requires, beyond any termination of this Agreement for a period of six (6) months. Any claim for breach of a representation and warranty given hereunder must be filed and served within such six (6) month period, or be deemed waived and released.

Purchase and Sale Agreement

Addendum II – Seller’s Representations and Warranties

Page 4 of 4

SCHEDULE 1

COCHRAN BYPASS – BI-LO

DUE DILIGENCE MATERIALS


•	ALTA Survey


o	Preliminary ALTA/ACSM Land Title Survey prepared by American National Surveying and Mapping dated June 9, 2017


•	Access Easement


o	Declaration of Access Easement dated May 19, 2006


•	CAM Recs


o	2016 CAM Recovery Schedules


•	Environmental


◦	Phase I Environmental Site Assessment prepared by K-Plus Environmental Services, dated September 29, 2008


•	Leases


o	BI-LO Store #5268


§	Lease Agreement dated April 24, 1991


§	Confirmation of Lease Term Agreement dated March 17, 1992


§	First Lease Modification Agreement dated September 29, 1999


§	Landlord’s Consent dated November 7, 2005


§	Memorandum of Lease dated November 7, 2005


§	Second Lease Modification Agreement dated January 16, 2007


§	Assignment of Lease dated October 28, 2008


§	Third Amendment to Lease dated February 2, 2017


§	First Amendment to Memorandum of Lease dated February 2, 2017


•	Operating Statements


o	Operating Statement dated December 2014


o	Operating Statement dated December 2015


o	Operating Statement dated December 2016


o	Operating Statement dated June 2017


•	Property Taxes


o	ID: 080-02-01-004-000 for 2016


o	ID: 080-02-01-004-000 for 2015


o	ID: 080-02-01-004-000 for 2014


•	Rent Roll


o	Rent Roll dated September 2017


•	Service Contracts


o	Winsboro Maintenance Company (Landscape and parking lot sweeping)


o	Community Answering Service (Answering service)

Purchase and Sale Agreement

Schedule 1 – Due Diligence Materials

Page 1 of 2


•	Tenant Sales


•	Title


o	Preliminary Title Report dated May 30, 2017

Purchase and Sale Agreement

Schedule 1 – Due Diligence Materials

Page 2 of 2

SCHEDULE 2

DESCRIPTION OF LAND

The land situated in the State of South Carolina, County of Chester, described as follows:

Purchase and Sale Agreement

Schedule 2 – Description of Land

Page 1 of 1

SCHEDULE 3

ENVIRONMENTAL REPORTS

Phase I Environmental Site Assessment prepared by K-Plus Environmental Services, dated September 29, 2008

Purchase and Sale Agreement

Schedule 3 – Environmental Reports

Page 1 of 1

SCHEDULE 4

RENT ROLL

Purchase and Sale Agreement

Schedule 4 – Rent Roll

Page 1 of 1

Purchase and Sale Agreement

Schedule 4 – Rent Roll

Page 2 of 1

SCHEDULE 5

EXCEPTIONS TO SELLER REPRESENTATIONS AND WARRANTIES

None.

Purchase and Sale Agreement

Schedule 5 – Exceptions to Seller Representations and Warranties

Page 1 of 1

FIRST AMENDMENT TO

PURCHASE AND SALE AGREEMENT

(COCHRAN BYPASS – BI-LO STORE)

THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “ Amendment ”), dated as of October 27, 2017, is made by and between TNP SRT PORTFOLIO II, LLC , a Delaware limited liability company (“ Seller ”) and KAMIN REALTY LLC , a Delaware limited liability company (“ Buyer ”).


A.	Seller and Buyer are parties to that certain Purchase and Sale Agreement dated September 20, 2017 (the “ Purchase Agreement ”).


B.	Seller and Buyer desire to amend certain provisions of the Purchase Agreement as set forth herein.

NOW THEREFORE, in consideration of the premises, their mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:


1.	Defined Terms . Capitalized terms used in this Amendment shall have the meanings set forth in the Purchase Agreement except as otherwise defined herein.


2.	Reinstatement of Purchase Agreement . The Purchase Agreement is hereby revived and reinstated and, as amended hereby, continues in full force and effect, as binding on the parties thereto. The provisions of this Amendment shall control in the event of any conflicts with the provisions of the Purchase Agreement.


3.	Closing Date . The definition of “Closing Date” is hereby amended to mean Tuesday, October 31, 2017.

Execution of Amendment . This Amendment may be executed in counterparts, each of which shall be part of one and the same instrument, which counterparts will be transmitted to each party to the Purchase Agreement by email transmission of signature pages. This Amendment shall not be effective or binding upon either party until and unless Seller and Buyer have each delivered a signed signature page to this Amendment to the other party.

[SIGNATURES ON FOLLOWING PAGES]

IN WITNESS WHEREOF, Seller and Buyer have executed this Amendment as of the date first set forth above.

SELLER :

TNP SRT PORTFOLIO II, LLC ,

a Delaware limited liability company

By:

Name:

Title:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

BUYER:

KAMIN REALTY LLC,

a Delaware limited liability company

By:

Name:

Title:

First Amendment to

Purchase and Sale Agreement

902993.1

SECOND AMENDMENT TO

PURCHASE AND SALE AGREEMENT

(COCHRAN BYPASS – BI-LO STORE)

THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “ Amendment ”), dated as of October 30, 2017, is made by and between TNP SRT PORTFOLIO II, LLC , a Delaware limited liability company (“ Seller ”) and KAMIN REALTY LLC , a Delaware limited liability company (“ Buyer ”).


A.	Seller and Buyer are parties to that certain Purchase and Sale Agreement dated September 20, 2017, as amended by that certain First Amendment to Purchase Agreement dated October 27, 2017 (as amended, the “ Purchase Agreement ”).


B.	Seller and Buyer desire to amend certain provisions of the Purchase Agreement as set forth herein.


1.	Defined Terms . Capitalized terms used in this Amendment shall have the meanings set forth in the Purchase Agreement except as otherwise defined herein.


2.	Ratification and Affirmation of Purchase Agreement . Seller and Buyer hereby ratify and affirm the Purchase Agreement in its entirety, except as expressly amended herein. The provisions of this Amendment shall control in the event of any conflicts with the provisions of the Purchase Agreement.


3.	Payment to Paving Vendor . Seller agrees to pay, as of the Closing, through escrow and directly to PMOW, LLC, the retainage held by Seller and owing to PMOW, LLC, for its parking lot overlay work, in the amount of $10,551.48. As a result of such payment, the TI Credit under Section 7(c)(iv) of the Purchase Agreement shall be reduced to $76,405.20.


4.	Additional Seller Representation and Warranty . The following representation is hereby added to Addendum II to the Purchase Agreement as part of Seller’s Representations and Warranties under “ C. The Lease :”

“4. Tenant Improvement Work . To Seller's Actual Knowledge, (i) the tenant improvement work by Seller pursuant to the Third Amendment to Lease for the lighting update in the amount of $68,080.00 and the work for the parking lot overlay in the amount of $94,963.32 (together, the “ TI Work ”) has been completed and is acceptable to Tenant, (ii) any consents required of Tenant under paragraph 4 of the Third Amendment to Lease were obtained, and (iii) the remaining balance of the tenant improvement allowance under the Third Amendment to the Lease is $76,405.20.”

[SIGNATURES ON FOLLOWING PAGES]

IN WITNESS WHEREOF, Seller and Buyer have executed this Amendment as of the date first set forth above.

SELLER :

TNP SRT PORTFOLIO II, LLC ,

a Delaware limited liability company

By:

Name:

Title:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

BUYER:

KAMIN REALTY LLC,

a Delaware limited liability company

By:

Name:

Title:

Second Amendment to

Purchase and Sale Agreement

903841.2

PROMISSORY NOTE

US$2,500.000.00 September 27, 2017

FOR VALUE RECEIVED, Strategic Realty Operating Partnership, L.P., a Delaware limited partnership ("Borrower"), promises to pay to the order of Glenborough Property Partners, LLC, a Delaware limited liability company (together with its successors and assigns, “Lender”), in lawful money of the United States the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000.00), together with interest at the adjustable rate equal to the KeyBank prime rate, as such rate changes from time to time (or if for whatever reason such rate ceases to be available, the Bank of America prime rate) which is currently four and one quarter percent (4.25%) per annum, based on a 365 day year and the actual number of days elapsed.

Interest shall be payable in arrears on each monthly anniversary of this Note, and upon any prepayment. The principal and all accrued but unpaid interest shall be payable on March 31, 2018. If the date for any payment due hereunder would otherwise fall on a non-business day at Borrower’s principal place of business, such payment date shall be extended to the next following business day with interest payable at the interest rate specified herein during such extension.

This Note may be prepaid in whole or in part, at any time from time to time, without penalty or premium. All payments and prepayments received by Lender shall be applied first to accrued but unpaid interest, then to other charges due with respect to this Note and then to the unpaid principal balance.

Borrower waives presentment, demand for performance, protest, notice of protest, notice of dishonor or non-payment, bringing of suit and diligence in taking any action to collect any sums owing hereunder.

Borrower’s obligation to make payment under this Note is absolute and unconditional, and shall not be subject to any right of setoff, counterclaim or other defense that Borrower may have against Lender or any other person or entity under applicable law or otherwise, including any claims, actions or rights arising under any other agreement or document.

If the indebtedness represented by this Note or any part thereof is collected at law or in equity or in bankruptcy, receivership, or other judicial proceedings, or if this Note is placed in the hands of attorneys for collection after default, Borrower agrees to pay, in addition to the principal and interest payable hereon, reasonable attorneys’ fees and costs incurred by Lender.

Lender may at any time without Borrower’s consent assign all or any part of Lender’s rights under this Note to a third party.

This Note may be modified only by a written agreement executed by Borrower and Lender.

This Note shall be construed in accordance with and governed by the laws of the State of California.

Any provision of this Note that is illegal, invalid or unenforceable, shall be ineffective to the extent of such illegality, invalidity or unenforceability without rendering illegal, invalid or unenforceable the remaining provisions of this Note.

If this Note is destroyed, lost or stolen, Borrower will deliver a new note to Lender on the same terms and conditions as this Note with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Lender shall furnish to Borrower reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Borrower in connection with the replacement of this Note.

IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year first above written.

Strategic Realty Operating Partnership, L.P.

A Delaware limited partnership


By:	Strategic Realty Trust, Inc.,

A Maryland corporation

Its General Partner

By:

Name:

Title:

EXHIBIT 21

Subsidiaries of the Company

SRT LA Retail, LLC

SRT SECURED HOLDINGS, LLC

SRT SECURED TOPAZ, LLC

SRT SF RETAIL I, LLC

SRT SGO MN, LLC

SRT SGO, LLC

SRT TRS, LLC

SRTCC SG, LLC

SRTCC WILSHIRE, LLC

STRATEGIC REALTY OPERATING PARTNERSHIP, L.P.

TNP SRT LAHAINA GATEWAY HOLDINGS, LLC

TNP SRT LAHAINA GATEWAY, LLC

TNP SRT PORTFOLIO II HOLDINGS, LLC

TNP SRT PORTFOLIO II, LLC

TNP SRT WAIANAE MALL, LLC

2/8/2017

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew Batinovich, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Strategic Realty Trust, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2018



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

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Terri Garnick, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Strategic Realty Trust, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2018



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

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Strategic Realty Trust, Inc. (the “Company”) for the period ended December 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer of the Company, certifies, to his knowledge, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 23, 2018



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

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of Strategic Realty Trust, Inc. (the “Company”) for the period ended December 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer of the Company, certifies, to her knowledge, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 23, 2018



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