EDGAR 10-K Filing

Company CIK: 1446371
Filing Year: 2024
Filename: 1446371_10-K_2024_0001446371-24-000006.json

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ITEM 1. BUSINESS
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. 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.
From August 7, 2009 through February 7, 2013 we conducted an initial public offering pursuant to which we raised $104.7 million in gross primary offering proceeds through the sale of 10,688,940 shares of common stock and an additional $3.6 million in gross offering proceeds through the sale of 391,182 shares of common stock in our distribution reinvestment plan (“DRIP”).We have also granted 50,000 shares of restricted stock and issued 273,729 shares of common stock to pay a portion of a special distribution in November 2015. Cumulatively, through December 31, 2023, pursuant to our share redemption program that enabled our stockholders to sell their shares of common stock to us in limited circumstances, we have redeemed 878,458 shares of common stock for approximately $6.2 million.
Our board of directors adopted a share redemption program that could enable our stockholders to sell their shares of common stock to us in limited circumstances (the “SRP”), subject to the significant restrictions and limitations of the program. From January 2013 until April 2015, the SRP was suspended with respect to all redemption requests. In April 2015 the SRP was reinstated solely with respect to shares submitted for repurchase in connection with the death or “qualifying disability” (as defined in the SRP) of a stockholder. In order to preserve cash in light of the uncertainty relating to the economic impact of COVID-19 on the Company, in April 2020, the board of directors again suspended the SRP. As a result of the approval by our board of directors and our stockholders of the Plan of Liquidation, we do not expect to redeem any shares under the SRP going forward and expect that any future liquidity provided to stockholders will be in the form of liquidating distributions. We can provide no assurances as to the timing, amount, or successful implementation of the Plan of Liquidation. Cumulatively, through December 31, 2023, pursuant to the SRP, we have redeemed 878,458 shares of common stock for approximately $6.2 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 and implementing the Plan of Liquidation are employed by our advisor. 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 2024. The current term of the Advisory Agreement terminates on August 9, 2024. Effective April 1, 2021, the Advisor became an affiliate of L3 Capital, LLC, a real estate investment firm focused on institutional quality, value-add, prime urban retail and mixed-use investment within first tier U.S. metropolitan markets. In addition, an affiliate of L3 Capital, LLC acts as our property manager.
Our office address is 1 S Wacker Drive, Suite 3210, Chicago, Illinois 60606, and our main telephone number is (312) 878-4848.
Plan of Liquidation
On August 23, 2023, following board of director approval in May 2023, our stockholders approved the Plan of Liquidation. The principal purpose of the Plan of Liquidation is to maximize stockholder value by selling our assets, paying our debts and distributing the net proceeds from liquidation to our stockholders. As such we are currently marketing all of our properties for sale.
We are pursuing an orderly liquidation of our company by selling our assets, paying our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, distributing the net proceeds from liquidation to our stockholders and winding up our operations and dissolving our company.
We expect to complete our liquidation activities within 24 months from August 23, 2023. However, if we cannot sell our assets and pay our debts within 24 months from May 9, 2023, or if the board of directors determine that it is otherwise advisable to do so, pursuant to the Plan of Liquidation, we may transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our stockholders will receive beneficial interests in the liquidating trust.
We can give no assurance regarding the timing of asset dispositions in connection with the implementation of the Plan of Liquidation, the sale prices we will receive for our assets, and the amount or timing of any liquidating distributions to be
received by our stockholders. See “Special Note Regarding Forward-Looking Statements” for risks associated with our implementation of the Plan of Liquidation. For more information, see the Plan of Liquidation, which is included as an exhibit to this Annual Report on Form 10-K.
As a result of the approval of the Plan of Liquidation by our stockholders in August 2023, we adopted the liquidation basis of accounting as of July 1, 2023, as described further in Note 3,“Summary of Significant Accounting Policies - Principles of Consolidation and Basis of Presentation” to our consolidated financial statements included in this Annual Report on Form 10-K.
Business Strategy
Our sole purpose is to wind up our affairs and the liquidation of our assets with no objective to continue or to engage in the conduct of a trade or business, except as necessary for the orderly liquidation of our assets.
Investment Portfolio
As of December 31, 2023, our portfolio included six retail properties, excluding a land parcel, which we refer to as “our properties” or “our portfolio,” comprising an aggregate of approximately 27,000 square feet of multi-tenant, commercial retail space located in California, which we purchased for an aggregate purchase price of approximately $35.3 million. Additionally, our portfolio includes an improved land parcel. Refer to Item 2, “Properties” for additional information on our portfolio.
Borrowing Policies
We have used secured and unsecured debt as a means of providing 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, 2023, our aggregate outstanding indebtedness related to the SRT Loan and totaled approximately $18.0 million, or 63.6% of the liquidation value of our total assets.
We did not satisfy the financial covenants necessary to extend the SRT Loan for an additional one-year term on its January 9, 2024 maturity date and we are in maturity default with respect to the loan for failure to pay the amount outstanding and due. The SRT Loan is secured by all of our retail properties. As a result of the default we are paying increased debt service due to the default interest rate, and the lender could commence foreclosure proceedings on our properties in satisfaction of the debt. Although we are in negotiations with the lender to modify the terms of the SRT Loan and secure an extension of the maturity date, we can provide no assurances we will be successful. The maturity default and the related adverse impacts to us as discussed in additional detail under “Special Note Regarding Forward-Looking Statements” could have an adverse effect on our implementation of the Plan of Liquidation and the amount of and timing of liquidating distributions to be received by our stockholders.
Economic Dependency
We depend on our Advisor and its affiliates for certain services that are essential to us, including the disposition of real estate and management of the daily operations of our real estate and 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.
Competitive Market Factors
We face competition from various entities for prospective tenants and to retain our current tenants, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant. As a result of their greater resources, those entities may have more flexibility than we do in their ability to offer rental concessions to attract and retain tenants. This could put pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. As a result, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay liquidating distributions may be adversely affected.
We also face competition from many of the types of entities referenced above regarding the disposition of properties. These entities may possess properties in similar locations and/or of the same property types as ours and may be attempting to dispose of these properties at the same time we are attempting to dispose of some of our properties, providing potential purchasers with a larger number of properties from which to choose and potentially decreasing the sales price for such properties. Additionally, these entities may be willing to accept a lower return on their individual investments, which could further reduce the sales price of such properties.
This competition could decrease the sales proceeds we receive for properties that we sell, assuming we are able to sell such properties, which could adversely affect our cash flows and liquidating distribution to our stockholders.
Although we believe that we are well-positioned to compete effectively in each facet of our business, there is enormous competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.
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
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 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.
Human Capital
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 (including exhibits to our reports) 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).

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Omitted as permitted under rules applicable to smaller reporting companies.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Property Portfolio
As of December 31, 2023, our portfolio included six retail properties, excluding a residual land parcel at Topaz Marketplace, which we refer to as “our properties” or “our portfolio,” comprising an aggregate of approximately 27,000 square feet of multi-tenant, commercial retail space located in California. As of December 31, 2023, approximately 85% of our portfolio was leased (based on rentable square footage), with a weighted-average remaining lease term of approximately 5.2 years. The following table provides summary information regarding the properties in our portfolio as of December 31, 2023 (dollar amounts in thousands):
(dollars in thousands) Rentable Square
Feet Percent Leased (2)
Effective
Rent (3)
(per Sq. Foot)
Date
Acquired Original
Purchase
Price Debt
Property Name (1)
Location
400 Grove Street San Francisco, CA 2,000 100 % $ 54.00 6/14/2016 $ 2,890 $ 1,450
8 Octavia Street San Francisco, CA 3,640 27 % 65.56 6/14/2016 2,740 1,500
Fulton Shops San Francisco, CA 3,758 66 % 59.71 7/27/2016 4,595 2,200
450 Hayes San Francisco, CA 3,724 100 % 104.21 12/22/2016 7,567 3,650
388 Fulton San Francisco, CA 3,110 100 % 63.82 1/4/2017 4,195 2,300
Silver Lake Los Angeles, CA 10,876 100 % 85.31 1/11/2017 13,300 6,900
27,108 $ 35,287 $ 18,000
(1)List of properties does not include a residual parcel at Topaz Marketplace as of December 31, 2023.
(2)Percentage is based on leased rentable square feet of each property as of December 31, 2023.
(3)Effective rent per square foot is calculated by dividing the annualized December 31, 2023 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.
Lease Expirations
The following table reflects the timing of tenant lease expirations at our properties as of December 31, 2023 (dollar amounts in thousands):
Year of Expiration (1)
Number of Leases Expiring Annualized Base Rent Expiring (2)
Percent of Portfolio Annualized Base Rent Expiring Square Feet Expiring
2024 2 $ 105 5.7% 1,514
2025 1 121 6.6 1,894
2026 5 574 31.2 7,456
2027 1 28 1.5 589
2028 - - - -
2029 - - - -
2030 - - - -
2031 2 898 48.9 9,818
Thereafter 1 112 6.1 1,902
Total 12 $ 1,838 100.0% 23,173
(1)Represents the expiration date of the lease as of December 31, 2023, and does not take into account any tenant renewal options.
(2)Annualized base rent represents annualized contractual base rent as of December 31, 2023. These amounts do not include other items such as tenant concession (e.g. free rent), percentage rent and expense recoveries.
Significant Tenants
As of December 31, 2023, our real estate properties were leased to 12 retail tenants over a diverse range of industries. The following table reflects information regarding tenants which account for more than 10% of our annualized minimum rent as of December 31, 2023 (dollar amounts in thousands):
Name of Tenant Industry Property Annualized Rent % Annualized Minimum Rent % Rentable Square Feet Occupied Lease Expiration
Intent to Dine, LLC Restaurant Silver Lake $ 617 34 % 26 % November 30, 2031
450 Hayes Valley, LLC Restaurant 450 Hayes 281 15 11 November 30, 2031
La Conq, LLC Restaurant Silver Lake 208 11 9 September 5, 2026

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
None.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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. Our stockholders have approved the Plan of Liquidation and we expect to distribute the net proceeds from liquidation upon the completion of the sale of our properties.
On March 28, 2024, our board of directors approved an updated estimated liquidation value per share of our common stock of $0.47, which is equal to our net assets in liquidation, divided by the number of shares outstanding, all as of December 31, 2023, and as disclosed in this Annual Report on Form 10-K (the “March 2024 Estimated Liquidation Value Per Share”).
We adopted the liquidation basis of accounting as of and for the periods subsequent to July 1, 2023. Net assets in liquidation represents the remaining estimated liquidation value available to stockholders upon liquidation. For a description of our accounting policies and the methodologies, limitations and assumptions used in the determination of the March 2024 Estimated Liquidation Value Per Share, see the notes to our consolidated financial statements in this Annual Report on Form 10-K.
Limitations of 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 liquidation value per share, and this difference could be significant. The March 2024 Estimated Liquidation Value Per Share does not represent the fair value of our assets less the fair value of our liabilities according to GAAP. Moreover, we did not obtain updated appraisals in connection with the determination of the March 2024 Estimated Liquidation Value Per Share, and the determination was based solely on the net assets in liquidation as reported in this Annual Report on Form 10-K.
Our expectations about the implementation of the Plan of Liquidation and the amount of any liquidating distributions that we pay to our stockholders and when we will pay them are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any liquidating distributions that we pay to our stockholders may be more or less than our estimate and the liquidating distributions may be paid later than we predict. There are many factors that may affect the amount of liquidating distributions we will ultimately pay to our stockholders. If we underestimated our existing obligations and liabilities or the amount of taxes, transaction fees and expenses relating to the liquidation and dissolution, or if unanticipated or contingent liabilities arise, including with respect to debt service or interest expense related to the SRT Loan, the amount of liquidating distributions ultimately paid to our stockholders could be less than estimated. Moreover, the liquidation value will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets, in response to the real estate and finance markets, based on the amount of net proceeds received from the disposition of our remaining assets and due to other factors. Accordingly, it is not possible to precisely predict the timing of any liquidating distributions we pay to our stockholders or the aggregate amount of liquidating distributions that we will ultimately pay to our stockholders.
No assurance can be given that any liquidating distributions we pay to our stockholders will equal or exceed the March 2024 Estimated Liquidation Value Per Share. Accordingly, with respect to the March 2024 Estimated Liquidation Value Per Share, we can give no assurance:
•of the amount or timing of liquidating distributions we will ultimately be able to pay our stockholders;
•that a stockholder would be able to resell his or her shares at the March 2024 Estimated Liquidation Value Per Share;
•that an independent third-party appraiser or third-party valuation firm would agree with the March 2024 Estimated Liquidation Value Per Share; or
•that the methodology used to determine the March 2024 Estimated Liquidation Value Per Share would be acceptable to FINRA or for compliance with ERISA reporting requirements.
Stockholder Information
As of March 25, 2024, we had 10,752,966 shares of our common stock outstanding held by a total of approximately 2,822 stockholders. The number of stockholders is based on the records of our transfer agent.
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 regularly evaluates the amount and timing of distributions based on our operational cash needs.
In accordance with the Plan of Liquidation, our objectives are to pursue an orderly liquidation of our company by selling or otherwise disposing of our remaining assets, paying or otherwise settling our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, distributing the net proceeds from liquidation to our stockholders and winding up our operations and dissolving our company. We may pay multiple, or a single, liquidating distribution(s) to our stockholders during the liquidation process. We will pay the final liquidating distribution after we sell all of our assets, pay or provide for all of our known liabilities and provide for unknown liabilities. We expect to complete these activities within 24 months of August 23, 2023, the day we received stockholder approval of the Plan of Liquidation. A final liquidating distribution to our stockholders may not be paid until all of our liabilities have been satisfied.
Our expectations about the amount of liquidating distributions that we will pay and when we will pay them are based on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of liquidating distributions we pay to our stockholders may be more or less than we estimate and the liquidating distributions may be paid later than we predict. We do not expect to pay regular monthly distributions during the liquidation process. We intend to maintain adequate cash reserves for liquidity, debt repayments and other future capital needs.
Share Redemption Program
Our board of directors has adopted a share redemption program enabled our stockholders to sell their shares of common stock to us in limited circumstances (the “SRP”), subject to the significant restrictions and limitations of the program. As a result of the approval by our board of directors and our stockholders of the Plan of Liquidation, we will not redeem any shares under the SRP going forward and expect that any future liquidity provided to stockholders will be in the form of liquidating distributions. We can provide no assurances as to the timing, amount, or successful implementation of the Plan of Liquidation.
During the quarter ended December 31, 2023, we did not redeem any shares.
Use of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity Securities
During the year ended December 31, 2023, we did not sell any equity securities that were not registered under the Securities Act of 1933.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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., 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.
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. As of December 31, 2023, our property portfolio included six retail properties, excluding a land parcel, comprising an aggregate of approximately 27,000 square feet of multi-tenant, commercial retail space located in California.
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 have operated and intend to continue to operate in such a manner. We own substantially all of our assets and conduct our operations through our operating partnership, of which we are the sole general partner. We also own a majority of the outstanding limited partner interests in the operating partnership.
Since our inception, our business has been managed by an external advisor. We do not have direct employees and all management and administrative personnel responsible for conducting our business are employed by our advisor. Currently we are externally managed and advised by SRT Advisor, LLC, a Delaware limited liability company (the “Advisor”) pursuant to an advisory agreement with the Advisor (the “Advisory Agreement”) initially executed on August 10, 2013, and subsequently renewed every year through 2023. The current term of the Advisory Agreement terminates on August 9, 2024. As of April
2021, the Advisor is an affiliate of L3 Capital, LLC, a real estate investment firm focused on institutional quality, value-add, prime urban retail and mixed-use investment within first tier U.S. metropolitan markets.
Our sole purpose is to wind up our affairs and the liquidation of our assets with no objective to continue or to engage in the conduct of a trade or business, except as necessary for the orderly liquidation of our assets.
Plan of Liquidation
On May 12, 2023, our board of directors unanimously approved the sale of all of our assets and our dissolution pursuant to the terms of the Plan of Liquidation. The principal purpose of the Plan of Liquidation is to maximize stockholder value by selling our assets, paying our debts and distributing the net proceeds from liquidation to our stockholders. On August 23, 2023 our stockholders approved the Plan of Liquidation.
In accordance with the Plan of Liquidation, our objectives are to pursue an orderly liquidation of our company by selling all of our assets, paying our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, distributing the net proceeds from liquidation to our stockholders and winding up our operations and dissolving our company. For more information, see the Plan of Liquidation, which is included as an exhibit to this Annual Report on Form 10-K.
Our expectations about the implementation of the Plan of Liquidation and the amount of any liquidating distributions that we pay to our stockholders and when we will pay them are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any liquidating distributions that we pay to our stockholders may be more or less than our estimate and the liquidating distributions may be paid later than we predict. There are many factors that may affect the amount of liquidating distributions we will ultimately pay to our stockholders. If we underestimated our existing obligations and liabilities or the amount of taxes, transaction fees and expenses relating to the liquidation and dissolution, or if unanticipated or contingent liabilities arise, including with respect to debt service or interest expense related to the SRT Loan, the amount of liquidating distributions ultimately paid to our stockholders could be less than estimated. Moreover, the liquidation value will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets, in response to the real estate and finance markets, based on the amount of net proceeds received from the disposition of our remaining assets and due to other factors. Accordingly, it is not possible to precisely predict the timing of any liquidating distributions we pay to our stockholders or the aggregate amount of liquidating distributions that we will ultimately pay to our stockholders. See “Special Note Regarding Forward-Looking Statements” for additional discussion of the risks associated with our implementation of the Plan of Liquidation.
As a result of the approval of the Plan of Liquidation by our stockholders in August 2023, we adopted the liquidation basis of accounting as of July 1, 2023, as described further in Note 3,“Summary of Significant Accounting Policies - Principles of Consolidation and Basis of Presentation.”
Market Outlook
Given the ongoing workforce shortages, global supply chain bottlenecks and shortages, recent macroeconomic trends, including inflation and rising interest rates, we continue to monitor and address risks related to the general state of the economy on our portfolio and retail tenants and the impact on our ability to implement the Plan of Liquidation.
Since early 2022, inflation in the United States accelerated and, while moderating compared to year-over-year increases in 2021 and 2022, may continue at a relatively elevated level in the near-term. Rising inflation could have an adverse impact on our variable rate debt, as well as general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. In addition, our retail tenants may experience decreased revenue as a result of rising inflation and reduced consumer spending. The Federal Reserve has raised interest rates to combat inflation and restore price stability and rates may continue to rise. As a result, such increases may result in higher debt service costs, which will adversely affect our cash flows. In addition, the rising interest rates have resulted in a lack of lending activity in the debt markets which may impact the ability of buyers for our properties to obtain favorable financing. Further, historically, during periods of increasing interest rates, real estate valuations have generally decreased due to rising capitalization rates, which tend to move directionally with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our real estate assets and the amount of liquidating distributions we pay to our stockholders. Although the extent of any prolonged periods of higher interest rates remains unknown at this time, negative impacts to our cost of capital and the cost of capital to any prospective buyers of our properties may adversely affect our ability to implement the Plan of Liquidation.
2023 Significant Events
Loans Secured by Properties
On January 18, 2023, we extended the maturity date of the SRT Loan for an additional twelve-month period under the same terms and conditions. The maturity date was January 9, 2024.
Plan of Liquidation
On May 12, 2023, our board of directors unanimously approved the sale of all of our assets and our dissolution pursuant to the terms of the Plan of Liquidation. The principal purpose of the Plan of Liquidation is to maximize stockholder value by selling our assets, paying our debts and distributing the net proceeds from liquidation to our stockholders. On August 23, 2023 our stockholders approved the Plan of Liquidation.
Review of our Policies
Our board of directors, including our independent directors, has reviewed our policies, including with respect to the Plan of Liquidation, described in this Annual Report and determined that they are in the best interest of our stockholders because the Plan of Liquidation will be more likely to maximize stockholder value at this time.
Critical Accounting Policies and Estimates
Below is a discussion of the accounting policies that management believes are or will be critical during our liquidation. We consider these policies 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 as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements.
Subsequent to the adoption of the liquidation basis of accounting, we are required to estimate all costs and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect through the disposal of our assets and the estimated costs to dispose of our assets.
Pursuant to our stockholders’ approval of the Plan of Liquidation, we adopted the liquidation basis of accounting as of and for the periods subsequent to July 1, 2023 (as approval of the Plan of Liquidation became imminent during the month of July 2023 based on the results of our solicitation of proxies from our stockholders for their approval of the Plan of Liquidation). Accordingly, on July 1, 2023, assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash or other consideration that we expect to receive through the disposal of our assets as we carry out our Plan of Liquidation. The liquidation values of our remaining real estate properties are presented on an undiscounted basis. Liabilities are carried at their contractual amounts due or estimated settlement amounts.
We accrue costs and income that we expect to incur and earn through the completion of our liquidation, including the estimated amount of cash or other consideration that we expect to receive through the disposal of our assets and the estimated costs to dispose of our assets, to the extent we have a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statement of Net Assets. Actual costs and income may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. See Note 2, “Plan of Liquidation” and Note 4, “Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation” for further discussion. Actual costs incurred but unpaid as of December 31, 2023, are included in accounts payable and accrued expenses, due to affiliate and other liabilities on the Consolidated Statement of Net Assets.
Real Estate
Liquidation Basis of Accounting
As of July 1, 2023, our investments in real estate were adjusted to their estimated net realizable value, or liquidation value, to reflect the change to the liquidation basis of accounting. The liquidation value represents the estimated amount of cash or other consideration we expect to realize through the disposal our assets, including any residual value attributable to lease intangibles, as we carries out the Plan of Liquidation. The liquidation value of investments in real estate was based on a number of factors including discounted cash flow and direct capitalization analyses, detailed analysis of current market comparables and broker opinions of value. The liquidation values of the Company’s investments in real estate are presented on an undiscounted basis and investments in real estate are no longer depreciated. Subsequent to July 1, 2023, all changes in the estimated liquidation value of the investments in real estate are reflected as a change to our net assets in liquidation.
Below is a discussion of additional accounting policies and estimates. While management determined these to be not critical, they are still considered to be significant and relevant for understanding and evaluating our reported financial results.
Going Concern Basis
Prior to the adoption of liquidation basis of accounting we applied the provisions of ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) to account for property acquisitions. ASU No. 2017-01 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.
Evaluation of business combination or asset acquisition:
We evaluated each acquisition of real estate to determine if the integrated set of assets and activities acquired met the definition of a business and needed to be accounted for as a business combination. If either of the following criteria was 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 expected that acquisitions of real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets), or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
In asset acquisitions, the purchase consideration, including acquisition costs, is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. As a result, asset acquisitions do not result in the recognition of goodwill or a bargain purchase gain.
Depreciation and amortization was 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 - 15 years
Tenant improvement costs were recorded as capital assets and depreciated over the tenant’s remaining lease term, which we determined by approximating the useful life of the improvement. Expenditures for ordinary maintenance and repairs were expensed to operations as incurred. Significant renovations and improvements that improve or extend the useful lives of assets were capitalized. Acquisition costs related to asset acquisitions were capitalized in the consolidated balance sheets prior to the adoption of the liquidation basis of accounting.
Impairment of Long-lived Assets - Going Concern Basis
We continually monitored 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, we assessed the recoverability by estimating whether we would 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 did not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we recorded 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 estimated in this analysis include projected rental rates, capital expenditures, property sale capitalization rates, and expected holding period of the property.
We evaluated 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.
Rents and Other Receivables
Liquidation Basis of Accounting
In accordance with the liquidation basis of accounting, as of July 1, 2023, rents and other receivables were adjusted to their net realizable value. We periodically evaluate the collectibility of amounts due from tenants. Any changes in the collectibility of the receivables are reflected as a change to our net assets in liquidation.
Going Concern Basis
We estimated the collectability of its tenant receivables related to base rents, including deferred rents receivable, expense reimbursements and other revenue or income.
We analyzed 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, we made 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 could exceed one year. When a tenant is in bankruptcy, we recorded a bad debt reserve for the tenant’s receivable balance and generally did not recognize subsequent rental revenue until cash was received or until the tenant was no longer in bankruptcy and had the ability to make rental payments.
Revenue Recognition
Liquidation Basis of Accounting
Under the liquidation basis of accounting, we accrued all income that we expect to earn through the completion of our liquidation to the extent we have a reasonable basis for estimation. Revenue from tenants is estimated based on the contractual in-place leases and projected leases through the anticipated disposition date of the property. These amounts are presented net of estimated expenses and other liquidation costs and are classified in liabilities for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statement of Net Assets.
We own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant’s sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. Contingent rental income is not contemplated under liquidation accounting unless there is a reasonable basis to estimate future receipts.
Going Concern Basis
Revenues included minimum rents, expense recoveries and percentage rental payments on our consolidated statement of operations and comprehensive income beginning January 1, 2022 until the Company’s adoption of the liquidation basis of accounting as of and for the periods subsequent to July 1, 2023. Minimum rents were recognized on an accrual basis over the terms of the related leases on a straight-line basis when collectability was reasonably assured and the tenant had taken possession or controls the physical use of the leased property. If the lease provides for tenant improvements, we determined whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we were the owner of the tenant improvements, the tenant was not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements were substantially completed. When the tenant was the owner of the tenant improvements, any tenant improvement allowance that was funded was treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership was determined based on various factors including, but not limited to:
•whether the lease stipulated how a tenant improvement allowance may be spent;
•whether the amount of a tenant improvement allowance was in excess of market rates;
•whether the tenant or landlord retained legal title to the improvements at the end of the lease term;
•whether the tenant improvements were unique to the tenant or general-purpose in nature; and
•whether the tenant improvements were expected to have any residual value at the end of the lease.
For leases with minimum scheduled rent increases, we recognized income on a straight-line basis over the lease term when collectability was reasonably assured. Recognizing rental income on a straight-line basis for leases resulted in recognized revenue amounts which differ from those that are contractually due from tenants on a cash basis. If we determined the collectability of straight-line rents was not reasonably assured, we limited future recognition to amounts contractually owed and paid, and, when appropriate, established an allowance for estimated losses.
We maintained 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 monitored the liquidity and creditworthiness of its tenants on an ongoing basis. For straight-line rent amounts, our assessment was based on amounts estimated to be recoverable over the term of the lease.
Certain leases contained provisions that required the payment of additional rents based on the respective tenants’ sales volume (contingent or percentage rent) and substantially all contained 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 was recognized only after the tenant exceeds its sales breakpoint. Revenue from tenant reimbursements of taxes, insurance and CAM was recognized in the period that the applicable costs were incurred in accordance with the lease agreement.
We elected the lessor practical expedient to not separate common area maintenance and reimbursement of real estate taxes from the associated lease for all existing and new leases as the timing and pattern of payments and associated lease payments are the same. The timing of revenue recognition remained the same for our existing leases and new leases. Revenues related to our leases continued to be reported on one line in the presentation within the statement of operations and comprehensive income beginning January 1, 2022 until our adoption of the liquidation basis of accounting as of and for the periods subsequent to July 1, 2023, as a result of electing this lessor practical expedient. We continued to capitalize its direct leasing costs. These costs were incurred as a result of obtaining new leases, and renewing leases, and were paid to our Advisor. Additionally, we were not a lessee of real estate or equipment, as it is externally managed by its Advisor.
Fair Value Measurements - Going Concern Basis
Under GAAP, we were required to measure or disclose certain financial instruments at fair value on a recurring basis. In addition, we were 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 utilized 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 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 determined the market for an asset owned by it to be illiquid or when market transactions for similar instruments do not appear orderly, we used several valuation sources (including internal valuations, discounted cash flow analysis and external appraisals) and established 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 measured fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets; or (ii) a present value technique that considers the future cash flows based on contractual obligations discounted by observed or estimated market rates of comparable liabilities. The use of contractual cash flows with regard to amount and timing significantly reduces the judgment applied in arriving at fair value.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
We considered 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 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 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 considered 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.
Accrued Liquidation Costs
In accordance with the liquidation basis of accounting, we accrue for certain estimated liquidation costs to the extent we have a reasonable basis for estimation. These consist of legal fees, dissolution costs, final audit/tax costs, insurance, and transfer agent related costs.
Deferred Financing Costs
Prior to the adoption of the liquidation basis of accounting, deferred financing costs represented commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing. These costs were amortized over the terms of the respective financing agreements using the straight-line method which approximated the effective interest method. Unamortized deferred financing costs were expensed when the associated debt was refinanced or repaid before maturity. Costs incurred in seeking financings that did not close are expensed in the period in which it is determined that the financing would not close.
We presented 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 were presented on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end.
Derivative Instruments and Hedging Activities
Liquidation Basis of Accounting
We measure derivative instruments at fair value and records them as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in changes in net assets in liquidation on the condensed consolidated statement of changes in net assets. The ineffective portion of a derivative’s change in fair value is recognized in liabilities for estimated costs in excess of estimated receipts during liquidation on the condensed consolidated statement of net assets.
We do not net our derivative fair values or any existing rights or obligations to cash collateral. We do not use derivatives for trading or speculative purposes. For the periods presented, our derivative, comprised of an interest rate cap, qualified and was designated as a cash flow hedge, and was not deemed ineffective.
Going Concern Basis
We measured derivative instruments at fair value and recorded them as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Derivatives that were not designated as hedges were adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative was recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value was immediately recognized in earnings.
We did not net its derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets. We did not use derivatives for trading or speculative purposes. For the period beginning January 1, 2022 until our adoption of the liquidation basis of accounting as of and for the periods subsequent to July 1, 2023, our derivative, comprised of an interest rate cap, qualified and was designated as a cash flow hedge, and was not deemed ineffective.
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, 2023, our portfolio included six retail properties, excluding a land parcel, comprising an aggregate of approximately 27,000 square feet of single- and multi-tenant, commercial retail space located in California.
As of December 31, 2023 and 2022, approximately 85% and 88% of our portfolio was leased (based on rentable square footage), respectively, with a weighted-average remaining lease term of approximately 5.2 years and 5.8 years, respectively. In 2023 there were no property dispositions and in 2022 there was one property disposition (the Wilshire Joint Venture property) and one disposition of a property in the pre-development stage (the Sunset & Gardner Joint Venture property).
Leasing Information
There were no new leases added in our retail properties during the year ended December 31, 2023. The following table provides information regarding our leasing activity for the year ended December 31, 2023 for properties we held as of December 31, 2023.
Total Vacant
Rentable
Sq. Feet at Lease Terminations
in 2023 New Leases
in 2023 Lease Renewals in 2023 Total Vacant
Rentable
Sq. Feet at Tenant Retention Rate in
December 31, 2022 (Sq. Feet) (Sq. Feet) (Sq. Feet) December 31, 2023 2023
3,205 730 - - 3,935 n/a
Results of Operations
In light of the adoption of liquidation basis accounting as of July 1, 2023 and our liquidation pursuant to the Plan of Liquidation, the results of operations for the current year period are not comparable to the prior year period. The sale of assets under the Plan of Liquidation will have a significant impact on our operations. See “- Overview - Plan of Liquidation”.
Liquidity and Capital Resources
As described above under “-Overview - Plan of Liquidation,” our board of directors and our stockholders have approved the sale of all of our assets and our dissolution pursuant to the terms of the Plan of Liquidation. We expect to sell all of our assets, pay all of our known liabilities, provide for unknown liabilities and distribute the net proceeds from liquidation to our stockholders. We expect our principal demands for funds during the short and long-term are and will be for the payment of operating expenses, interest payments on our outstanding indebtedness, general and administrative expenses, including expenses in connection with the Plan of Liquidation, and payments of distributions to stockholders pursuant to the Plan of
Liquidation. We expect to use our cash on hand and net sales proceeds from the sale of our assets as our primary source of liquidity. To the extent available, we also intend to use cash flow generated by our real estate investments; however, asset sales will further reduce cash flow from these sources.
Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from real estate investments is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectability of rent and operating recoveries from our tenants and how well we manage our expenditures, all of which may be adversely affected by the general market conditions impacting commercial real estate and our tenants as discussed above. In particular, our significant tenant, Intent to Dine, LLC, who accounted for 34% of our annualized minimum rent as of December 31, 2023 has stopped paying rent under its lease, which has adversely affected our cash flow from operations. While we intend to pursue all remedies available to us with respect to collecting amounts outstanding and owed to us under the lease and we are in discussions to secure a new tenant for the space, we can provide no assurances that we will be successful in recovering amounts owed or securing a new tenant. If we are unable to address the reduced rental revenue caused by these events, our access to capital and ability to fund our liquidity needs will be adversely affected due to our decreased cash from operations and potential inability to satisfy financial covenants established by lenders.
Due to our decreased cash flow from operations, caused in significant part by our significant tenant’s failure to pay rent owed to us, we did not satisfy the financial covenants necessary to exercise our one-year extension option for the SRT Loan on its January 9, 2024 maturity date, and we are in maturity default with respect to the loan for failure to pay the amount outstanding and due. As a result of the default we are paying increased debt service due to the default interest rate in effect of 5% above the rate that would otherwise be in effect (30-day SOFR, plus 2.8%),which we expect to adversely impact our ability to fund our short-term liquidity needs. We are in discussions with the lender to modify the terms of the SRT Loan and secure an extension of the maturity date; however, we can provide no assurances we will be successful in modifying the SRT Loan. Further, we expect that any extension of the SRT Loan would be on terms and conditions less favorable to us than previously negotiated, including a potential requirement for cash flow sweeps at our properties, and we would be required to pay various fees to the lender in connection with securing any extension of the loan. These events would adversely impact our ability to fund our short-term liquidity needs.
In addition, the SRT Loan is secured by all of our retail properties and as a result of the default, the lender could foreclose on all of our operating properties which secure the loan in satisfaction of the debt and our access to cash flows from the properties would be limited. In addition, a sale of our assets by the lender may not result in maximum proceeds to us and would adversely impact the amount of our liquidating distributions as the lender is only motivated to receive a purchase price sufficient to satisfy the amount of the debt outstanding, and we believe the value of the collateral to be in excess of the amount of the debt. The maturity default and the related adverse impacts to us could have an adverse effect on our liquidity as well s the implementation of the Plan of Liquidation and the amount of and timing of liquidating distributions to be received by our stockholders.
As of December 31, 2023, our cash and cash equivalents were approximately $1.3 million and we had $0.3 million of restricted cash (funds held by the lenders for property taxes, insurance, tenant improvements, leasing commissions, capital expenditures, rollover reserves and other financing needs).
Subject to our ability to agree to an extension with respect to the SRT Loan, we believe that our cash on hand, along with other potential sources of liquidity that we may be able to obtain, will be sufficient to fund our working capital needs and debt obligations through the completion of the Plan of Liquidation. We note, however, that with our limited amount of cash on hand, our ability to make a loan paydown, without the sale of real estate assets, is severely limited. As discussed, the lender on the SRT Loan could take control of our properties pursuant to foreclosure proceedings as a result of the maturity default on the SRT Loan. Such an event would materially impact our ability to fund our working capital needs as we would no longer have access to the cash flows from the properties.
In addition, the fixed costs associated with managing a public REIT, including the significant cost of corporate compliance with all federal, state and local regulatory requirements applicable to us with respect to our business activities, are substantial. Such costs include, without limitation, the cost of preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports, documents and filings required under the Exchange Act, or other federal or state laws for the general maintenance of our status as a REIT, under the applicable provisions of the Code, or otherwise. Given the size of our portfolio of properties, these costs constitute a significant percentage of our gross income, reducing our cash flow. Moreover, over the long term, if we are unsuccessful in implementing the Plan of Liquidation and our cash flow from operations does not increase from current levels, whether through increased occupancy or rent rates, we will have to address a liquidity deficiency as our cash flow is not sufficient to cover our current operating expenses over the long
term. These forward-looking statements are subject to a number of uncertainties, including with respect to the current economic environment and there can be no guarantee that we will be successful with our plan.
Cash Flows from Operating Activities
During the six months ended June 30, 2023, net cash used in operating activities was $817 thousand.
During the year ended December 31, 2022, net cash used in operating activities was $2.8 million.
Cash Flows from Investing Activities
Cash flows used by investing activities during the six months ended June 30, 2023, was $39 thousand and consisted of a payment of lease commission and payment of building improvements.
Cash flows provided by investing activities during the year ended December 31, 2022, primarily consisted of approximately $28.0 million in proceeds from the sales of the Wilshire Joint Venture Property and the Sunset & Gardner Joint Venture Property, partially offset by $0.8 million of additional investment in the Sunset & Gardner Joint Venture prior to sale.
Cash Flows from Financing Activities
Cash flows used by financing activities during the six months ended June 30, 2023, was $313 thousand and consisted of a payment of an interest rate cap and loans fees in connection with the extension of the maturity date of the SRT Loan for an additional twelve-month period.
Cash flows used by financing activities during the year ended December 31, 2022, primarily consisted of repayments of $12.7 million, $8.7 million, and $3.0 million related to our Wilshire Construction Loan (as defined below), Sunset & Gardner Loan (as defined below), and Unsecured Loan (as defined below), respectively. Partially offset by proceeds of $2.0 million from the draw down on the Unsecured Loan from PUR Holdings Lender, LLC, an affiliate of the Advisor.
Debt Obligations
Multi-Property Secured Financing
On December 24, 2019, we entered into a loan agreement (the “SRT Loan Agreement”) with PFP Holding Company, LLC (the “SRT Lender”) for a non-recourse secured loan (the “SRT Loan”).
The SRT Loan is secured by first deeds of trust on our five San Francisco assets (Fulton Shops, 8 Octavia, 400 Grove, 450 Hayes and 388 Fulton Street) as well as our Silverlake Collection located in Los Angeles. The SRT Loan was scheduled to mature on January 9, 2023. On January 18, 2023, pursuant to the terms of the SRT Loan Agreement, we extended the maturity date of the SRT Loan for an additional twelve-month period under the same terms and conditions. The new maturity date was January 9, 2024.
We are currently in maturity default for failure to pay the amount of the debt outstanding and due to the SRT Lender on the January 9, 2024 maturity date. Although we are in discussions with the SRT Lender to extend the term of the SRT Loan while we complete our liquidation activities, no assurances can be provided that we will successfully extend the term of the SRT Loan. As a result of the default, we are required to pay an increased debt service payment due to the default interest rate in effect of 5% above the rate that would otherwise be in effect (30-day SOFR, plus 2.8%) and will be required to pay various fees to the lender in connection with securing an extension on our debt obligation. In addition, the SRT Lender could foreclose on the properties that secure the loan in satisfaction of the debt. These events could have an adverse effect on our implementation of the Plan of Liquidation and the amount of and timing of liquidating distributions to be received by our stockholders.
Pursuant to the terms of SRT Loan, we had the right to prepay the SRT Loan in whole at any time or in part from time to time, as well as certain expenses, costs or liabilities potentially incurred by the SRT Lender as a result of the prepayment and subject to certain other conditions contained in the loan documents. Individual properties could be released from the SRT Loan collateral in connection with bona fide third-party sales, subject to compliance with certain covenants and conditions contained in the SRT Loan Agreement.
As of December 31, 2023, the SRT Loan had a principal balance of approximately $18.0 million. The SRT Loan is a floating Secured Overnight Financing Rate (“SOFR”) rate loan which bears interest at 30-day SOFR (with a floor of 1.50%) plus 2.80%. Monthly payments were interest-only with the entire principal balance and all outstanding interest due at maturity.
Pursuant to the SRT Loan, we were required to comply with certain matters contained in the loan documents including but not limited to, (i) requirements to deliver audited and unaudited financial statements, SEC filings, tax returns, pro forma budgets, and quarterly compliance certificates, and (ii) minimum limits on our liquidity and tangible net worth. The SRT Loan contains customary covenants, including, without limitation, covenants with respect to maintenance of properties and insurance,
compliance with laws and environmental matters, covenants limiting or prohibiting the creation of liens, and transactions with affiliates.
In connection with the SRT Loan, we executed customary non-recourse carveout and environmental guaranties, together with limited additional assurances with regard to the condominium structures of the San Francisco assets.
Loans Secured by Properties
On May 7, 2019, the Company refinanced and repaid its financing from Loan Oak Fund, LLC with a new construction loan from ReadyCap Commercial, LLC (the “Lender”) (the “Wilshire Construction Loan”). The Wilshire Construction Loan had funding available up to a total of approximately $13.9 million, and an interest rate of 1-month LIBOR (with a floor of 2.467%) plus an interest margin of 4.25% per annum, payable monthly. On September 14, 2022, the Company entered into the Modification and Extension Agreement with the Lender to extend the maturity date of the Wilshire Construction Loan for an additional six-month period under the same terms and conditions. The new maturity date was November 10, 2022. On October 11, 2022, the Company consummated the disposition of the Wilshire Joint Venture Property for $16.5 million in cash, before customary closing and transaction costs. In connection with the disposition of the Wilshire Joint Venture Property, the Company repaid the principal balance of the Wilshire Construction Loan in the amount of $12.7 million, which was secured by a first Deed of Trust on the Wilshire Joint Venture Property.
Loans Secured by Properties Under Development
On October 29, 2018, the Company entered into a loan agreement with Lone Oak Fund, LLC (the “Sunset & Gardner Loan”). The Sunset & Gardner Loan had a principal balance of approximately $8.7 million, and had an initial interest rate of 6.9% per annum. At each maturity date in October 2019, 2020, and 2021, in connection with an extension of the loan for an additional twelve-month period, the interest rate of the loan was changed to 6.5%, 7.3%, and 7.9%, respectively. On September 7, 2022, the Company extended the Sunset & Gardner Loan for an additional twelve-month period under the same terms, except an increase of the interest rate to 8.6% per annum. The new maturity date was October 31, 2023. The Sunset & Gardner Loan was secured by a first Deed of Trust on the Sunset & Gardner Property. In connection with the disposition of the Sunset & Gardner Joint Venture Property, we repaid the loan from Sunset & Gardner loan in the amount of $8.7 million.
Loan with Affiliate
On December 30, 2021, we obtained a $4.0 million unsecured loan (the “Unsecured Loan”) from PUR Holdings Lender, LLC, an affiliate of the Advisor. The Unsecured Loan has a term of 12 months with an interest rate of 7.0% per annum, compounding monthly with the ability to pay-off during the term of the loan. The Unsecured Loan required draw downs in increments of no less than approximately $0.3 million. The Unsecured Loan will be due and payable upon the earlier of 12 months or the termination of the Advisory Agreement by us. The Unsecured Loan is guaranteed by us. On March 15, 2022, we and PUR Holdings Lender, LLC, amended the loan agreement to allow for an extension of the maturity date of the Unsecured Loan by six months, from December 30, 2022 to June 30, 2023, if we provide PUR Holdings Lender, LLC, with notice, pay an extension fee, and no event of default has occurred. On August 2, 2022, PUR Holdings Lender, LLC agreed to an additional six month extension at the option of the Company to extend the maturity date until December 31, 2023. We declined both options to extend the maturity date of the Unsecured Loan. On December 23, 2022 the Company paid off the outstanding balance of $3.0 million.
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.
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.
Distributions
In accordance with the Plan of Liquidation, our objectives are to pursue an orderly liquidation of our company by selling or otherwise disposing of our remaining assets, paying or otherwise settling our debts and our known liabilities, providing for the payment of unknown or contingent liabilities, distributing the net proceeds from liquidation to our stockholders and winding up our operations and dissolving our company. We may pay multiple, or a single, liquidating distribution(s) to our stockholders during the liquidation process. We will pay the final liquidating distribution after we sell all of our assets, pay or provide for all of our known liabilities and provide for unknown liabilities. We expect to complete these activities within 24 months of August 23, 2023, the day we received stockholder approval of the Plan of Liquidation. A final liquidating distribution to our stockholders may not be paid until all of our liabilities have been satisfied.
Our expectations about the amount of liquidating distributions that we will pay and when we will pay them are based on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of liquidating distributions we pay to our stockholders may be more or less than we estimate and the liquidating distributions may be paid later than we predict. We do not expect to pay regular monthly distributions during the liquidation process. We intend to maintain adequate cash reserves for liquidity, debt repayments and other future capital needs.
Funds From Operations
Due to the adoption of the Liquidation Plan, we are no longer reporting funds from operations, as we no longer consider it to be a key performance measure.
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 9. “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.
Subsequent Events
On January 18, 2024, the SRT Lender notified us that we were in maturity default on the SRT Loan following our failure to pay the amount of the debt outstanding and due to the lender on the January 9, 2024 maturity date. The SRT Loan is secured by all of our operating real estate assets. Although we are in discussions with the lender to extend the term of the SRT Loan while we complete our liquidation activities, no assurances can be provided that we will successfully extend the term of the SRT Loan. As a result of the default, we are paying an increased debt service payment due to the default interest rate in effect of 5% above the rate that would otherwise be in effect (30-day SOFR, plus 2.8%). In addition, the lender could foreclose on the properties that secure the SRT Loan in satisfaction of the debt.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted as permitted under rules applicable to smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data can be found beginning on Page of this Annual Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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, 2023, 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, 2023, 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
In connection with the adoption of liquidation basis accounting, during the third quarter of 2023 (i) certain of our internal controls over financial reporting became no longer relevant primarily relating to asset impairments and (ii) we adopted additional internal controls over financial reporting primarily with respect to the calculations of our asset values for liquidation basis accounting purposes.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
As of the three months ended December 31, 2023, all items required to be disclosed under Form 8-K were reported under Form 8-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We expect to file a definitive Proxy Statement for our 2024 Annual Meeting of Stockholders (the “2024 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 2024 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 2024 Proxy Statement.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the 2024 Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 2024 Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the 2024 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the 2024 Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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 hereof.
2.Financial Statement Schedules -
a.Schedule III - Real Estate Operating Properties and Accumulated Depreciation is set forth beginning on page S-1 hereof.
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.
c.The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.