Attached files
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EX-32.1 - EXHIBIT 32.1 - NNN 2003 VALUE FUND LLC | c17272exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - NNN 2003 VALUE FUND LLC | c17272exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - NNN 2003 VALUE FUND LLC | c17272exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - NNN 2003 VALUE FUND LLC | c17272exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-51295
NNN 2003 Value Fund, LLC
(Exact name of registrant as specified in its charter)
Delaware | 20-0122092 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1551 N. Tustin Avenue, Suite 300, Santa Ana, California | 92705 | |
(Address of principal executive offices) | (Zip Code) |
(714) 667-8252
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). o Yes þ No
As of May 13, 2011, there were 9,970 units of NNN 2003 Value Fund, LLC outstanding.
NNN 2003 VALUE FUND, LLC
(A Delaware limited liability company)
TABLE OF CONTENTS
(A Delaware limited liability company)
TABLE OF CONTENTS
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
1
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements. |
NNN 2003 VALUE FUND, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Real estate investments: |
||||||||
Properties held for non-sale disposition, net |
$ | | $ | 27,218,000 | ||||
Investments in unconsolidated real estate |
18,000 | 24,000 | ||||||
18,000 | 27,242,000 | |||||||
Cash and cash equivalents |
1,577,000 | 2,031,000 | ||||||
Accounts receivable, net |
30,000 | 79,000 | ||||||
Restricted cash |
217,000 | 646,000 | ||||||
Intangible assets related to properties held for non-sale disposition, net |
| 1,951,000 | ||||||
Other assets related to properties held for non-sale disposition, net |
| 738,000 | ||||||
Total assets |
$ | 1,842,000 | $ | 32,687,000 | ||||
LIABILITIES AND EQUITY (DEFICIT) |
||||||||
Mortgage loans payable secured by properties held for non-sale disposition |
$ | | $ | 43,471,000 | ||||
Accounts payable and accrued liabilities |
908,000 | 613,000 | ||||||
Accounts payable due to related parties |
21,000 | 32,000 | ||||||
Other liabilities related to properties held for non-sale disposition, net |
| 422,000 | ||||||
Other liabilities |
217,000 | 217,000 | ||||||
Total liabilities |
1,146,000 | 44,755,000 | ||||||
Commitments and contingencies (Note 11) |
||||||||
Equity (deficit): |
||||||||
NNN 2003 Value Fund, LLC unit holders equity (deficit) |
696,000 | (12,068,000 | ) | |||||
Noncontrolling interest equity |
| | ||||||
Total equity (deficit) |
696,000 | (12,068,000 | ) | |||||
Total liabilities and equity (deficit) |
$ | 1,842,000 | $ | 32,687,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
NNN 2003 VALUE FUND, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Interest and dividend income |
$ | | $ | 12,000 | ||||
Other income |
| 8,000 | ||||||
General and administrative expense |
(56,000 | ) | (98,000 | ) | ||||
Equity in losses of unconsolidated real estate |
(6,000 | ) | (407,000 | ) | ||||
Loss from continuing operations |
(62,000 | ) | (485,000 | ) | ||||
Income (loss) from discontinued operations |
13,326,000 | (958,000 | ) | |||||
Consolidated net income (loss) |
13,264,000 | (1,443,000 | ) | |||||
Loss attributable to noncontrolling interests |
| (98,000 | ) | |||||
Net income (loss) attributable to NNN 2003 Value Fund, LLC |
$ | 13,264,000 | $ | (1,345,000 | ) | |||
Comprehensive income (loss): |
||||||||
Consolidated net income (loss) |
$ | 13,264,000 | $ | (1,443,000 | ) | |||
Other comprehensive income (loss) |
| | ||||||
Comprehensive income (loss) |
13,264,000 | (1,443,000 | ) | |||||
Comprehensive loss attributable to noncontrolling interests |
| 98,000 | ||||||
Comprehensive income (loss) attributable to NNN 2003 Value
Fund, LLC |
$ | 13,264,000 | $ | (1,345,000 | ) | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
NNN 2003 VALUE FUND, LLC
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(Unaudited)
(Unaudited)
NNN 2003 Value | ||||||||||||||||
Number | Total Equity | Fund, LLC | Noncontrolling | |||||||||||||
of Units | (Deficit) | Equity (Deficit) | Interests | |||||||||||||
Deficit Balance December 31, 2010 |
9,970 | $ | (12,068,000 | ) | $ | (12,068,000 | ) | $ | | |||||||
Distributions |
| (500,000 | ) | (500,000 | ) | | ||||||||||
Net income |
| 13,264,000 | 13,264,000 | | ||||||||||||
Equity Balance March 31, 2011 |
9,970 | $ | 696,000 | $ | 696,000 | $ | | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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NNN 2003 VALUE FUND, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Consolidated net income (loss) |
$ | 13,264,000 | $ | (1,443,000 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities: |
||||||||
Gain on extinguishment of debt |
(13,634,000 | ) | | |||||
Depreciation and amortization (including deferred financing
costs, deferred rent, lease inducements and above/below market
leases) |
157,000 | 755,000 | ||||||
Equity in losses of unconsolidated real estate |
6,000 | 407,000 | ||||||
Allowance for doubtful accounts |
44,000 | 58,000 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable, including accounts and loans receivable
due from related parties |
(168,000 | ) | (99,000 | ) | ||||
Other assets |
38,000 | (198,000 | ) | |||||
Restricted cash |
(21,000 | ) | (193,000 | ) | ||||
Accounts payable and accrued liabilities, including accounts
payable to related parties |
590,000 | 449,000 | ||||||
Security deposits, prepaid rent and other liabilities |
(181,000 | ) | 72,000 | |||||
Net cash provided by (used in) operating activities |
95,000 | (192,000 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
| (221,000 | ) | |||||
Distributions from unconsolidated real estate |
| 727,000 | ||||||
Net cash provided by investing activities |
| 506,000 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Restricted cash |
| (7,000 | ) | |||||
Borrowings on mortgage loans payable |
| 68,000 | ||||||
Distributions to unit holders |
(500,000 | ) | (1,000,000 | ) | ||||
Cash transferred to lender in connection with transfer of property |
(49,000 | ) | | |||||
Net cash used in financing activities |
(549,000 | ) | (939,000 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(454,000 | ) | (625,000 | ) | ||||
CASH AND CASH EQUIVALENTS beginning of period |
2,031,000 | 2,724,000 | ||||||
CASH AND CASH EQUIVALENTS end of period |
$ | 1,577,000 | $ | 2,099,000 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
Cash paid for interest |
$ | | $ | 958,000 | ||||
NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Accrual for tenant improvements and capital expenditures |
$ | | $ | 42,000 | ||||
Transfer of real estate and other assets and liabilities in
connection with debt extinguishment |
$ | 29,788,000 | $ | | ||||
Cancellation of debt and accrued interest in connection with
transfer of real estate and other assets and liabilities |
$ | 43,471,000 | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
1. Organization and Description of Business
NNN 2003 Value Fund, LLC was formed as a Delaware limited liability company on June 19, 2003.
We were organized to acquire, own, operate and subsequently sell our ownership interests in a
number of unspecified properties believed to have higher than average potential for capital
appreciation, or value-added properties. As of December 31, 2010, we held interests in three
commercial office properties, comprised of two consolidated properties and one unconsolidated
property. Our two consolidated properties consisted of Sevens Building, located in St. Louis,
Missouri, or the Sevens Building property, and Four Resource Square, located in Charlotte, North
Carolina, or the Four Resource Square property. Our unconsolidated property consisted of an 8.5%
interest in Enterprise Technology Center, located in Scotts Valley, California, or the Enterprise
Technology Center property.
The mortgage loan for the Sevens Building property, which had an outstanding principal balance
of $21,494,000 as of December 31, 2010, matured on October 31, 2010 and was in default due to
non-payment of the outstanding principal balance upon maturity. The mortgage loan documents
included an option to extend the maturity date for an additional 12 months beyond October 31, 2010;
however, we determined that it was not in the best interest of our unit holders to attempt to
extend the maturity date due to the unfavorable terms of the extension option, including additional
cash outlays for an extension fee and partial principal prepayment, which we did not expect would
be recovered through property operations over the subsequent 12 months. Further, the estimated
value of the Sevens Building property was significantly less than the outstanding principal balance
of the mortgage loan, and we did not expect that the value of the property would exceed the
principal balance by the end of the potential extension term. On March 7, 2011, we received a
letter from the Sevens Building lender indicating that it had initiated a foreclosure action on the
Sevens Building property pursuant to our default on the mortgage loan for the Sevens Building
property. On March 25, 2011, the successor trustee appointed by the Sevens Building lender
conducted a public auction and sold the Sevens Building property to General Electric Credit
Equities, an entity affiliated with the Sevens Building lender, or the buyer, for a sale price of
$17,400,000. As a result of the sale, our 100% ownership interest in the Sevens Building property
was sold and conveyed to the buyer and a trustees deed was recorded on the Sevens Building
property in favor of the buyer. We did not receive any cash proceeds from the sale of the property.
In addition, the mortgage loan for the Four Resource Square property, which had an outstanding
principal balance of $21,977,000 as of December 31, 2010, had an original maturity date of November
30, 2010 but was extended to January 20, 2011. The mortgage loan documents included an option to
extend the maturity date for an additional 12 months beyond November 30, 2010; however, we
determined that it was not in the best interest of our unit holders to attempt to extend the
maturity date due to the unfavorable terms of the extension option, including additional cash
outlays for an extension fee and partial principal prepayment, which we did not expect would be
recovered through property operations over the subsequent 12 months. Further, the estimated value
of the Four Resource Square property was significantly less than the outstanding principal balance
of the mortgage loan, and we did not expect that the value of the property would exceed the
principal balance by the end of the potential extension term. As such, on January 20, 2011, we sold
the Four Resource Square property to an entity affiliated with the Four Resource Square lender for
a sales price equal to the outstanding principal balance of the mortgage loan of $21,977,000. We
did not receive any cash proceeds from the sale of the property.
As of March 31, 2011, our sole remaining property interest consisted of our 8.5% interest in
the Enterprise Technology Center property. We currently intend to sell, or otherwise dispose of,
our remaining property interest, pay distributions to our unit holders from available funds, if
any, and wind up our operations, which we expect will be completed within the next six to twelve
months, at which point we will cease to be a going concern.
Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, or our manager,
manages us pursuant to the terms of an operating agreement, or the Operating Agreement. While we
have no employees, certain executive officers and employees of our manager provide services to us
pursuant to the Operating Agreement. Our manager engages affiliated entities, including Triple Net
Properties Realty, Inc., or Realty, to provide certain services to us. Realty serves as our
property manager pursuant to the terms of the Operating Agreement and a property
management agreement, or the Management Agreement. The Operating Agreement terminates upon our
dissolution. The unit holders may not vote to terminate our manager prior to the termination of the
Operating Agreement or our dissolution, except for cause. The Management Agreement terminates with
respect to each of our properties upon the earlier of the sale of each respective property or
December 31, 2013. Realty may be terminated without cause prior to the termination of the
Management Agreement or our dissolution, subject to certain conditions, including the payment by us
to Realty of a termination fee as provided in the Management Agreement.
6
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in
understanding our interim unaudited condensed consolidated financial statements. Such interim
unaudited condensed consolidated financial statements and accompanying notes thereto are the
representations of our management, who are responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the United States of
America, or GAAP, in all material respects, and have been consistently applied in preparing the
accompanying interim unaudited condensed consolidated financial statements.
Interim Financial Data
Our accompanying interim unaudited condensed consolidated financial statements have been
prepared by us in accordance with GAAP and in conjunction with the rules and regulations of the
United States Securities and Exchange Commission, or the SEC. Certain information and footnote
disclosures required for annual financial statements have been condensed or excluded pursuant to
SEC rules and regulations. Accordingly, our accompanying interim unaudited condensed consolidated
financial statements do not include all of the information and footnotes required by GAAP for
complete financial statements. Our accompanying interim unaudited condensed consolidated financial
statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and
necessary for a fair presentation of our financial position, results of operations and cash flows
for the interim periods. Interim results of operations are not necessarily indicative of the
results to be expected for the full year; such results may be less favorable.
In preparing our accompanying condensed consolidated financial statements, management has
evaluated subsequent events through the financial statement issuance date. We believe that,
although the disclosures contained herein are adequate to prevent the information presented from
being misleading, our accompanying interim unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and the notes
thereto included in our 2010 Annual Report on Form 10-K, as filed with the SEC on March 18, 2011.
Principles of Consolidation and Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements include our
accounts and those of our wholly owned subsidiaries, any majority-owned subsidiaries and any
variable interest entities, or VIEs, that we have concluded should be consolidated in accordance
with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or
Codification, Topic 810, Consolidation. All material intercompany transactions and account balances
have been eliminated in consolidation. We account for all other unconsolidated real estate
investments using the equity method of accounting. Accordingly, our share of the earnings (losses)
of these real estate investments is included in consolidated net income (loss).
Our consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. As a result of the planned disposal of our remaining property interest,
there is substantial doubt about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or to the amounts and classifications of liabilities that
may be necessary if we are unable to continue as a going concern.
We have evaluated subsequent events through the date of issuance of these financial
statements.
7
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Use of Estimates
The preparation of our interim unaudited condensed consolidated financial statements in
conformity with GAAP requires us to make estimates and judgments that affect the reported amounts
of assets and liabilities as of March 31, 2011 and December 31, 2010 and the disclosure of
contingent assets and liabilities as of the date of the interim unaudited condensed consolidated
financial statements, and the reported amounts of revenues and expenses for the three months ended
March 31, 2011 and 2010. Actual results could differ from those estimates, perhaps in material
adverse ways, and those estimates could be different under different assumptions or conditions.
Real Estate Related Impairments
We assess the impairment of a real estate asset when events or changes in circumstances
indicate that its carrying amount may not be recoverable. Indicators we consider important which
could trigger an impairment review include the following:
| a significant negative industry or economic trend; | ||
| a significant underperformance relative to historical or projected future operating results; and | ||
| a significant change in the manner in which the asset is used. |
In the event that the carrying amount of a property exceeds the sum of the undiscounted cash
flows (excluding interest) that are expected to result from the use and eventual disposition of the
property, we would recognize an impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property. The estimation of expected future net cash flows is
inherently uncertain and relies on subjective assumptions dependent upon future and current market
conditions and events that affect the ultimate value of the property. It requires us to make
assumptions related to future rental rates, tenant allowances, operating expenditures, property
taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future
sale of the property. The estimation of proceeds to be generated from the future sale of the
property requires us to also make estimates about capitalization rates and discount rates.
In accordance with FASB Codification Topic 360, Property, Plant and Equipment, during the
three months ended March 31, 2011 and 2010, we assessed the values of our consolidated properties.
We determined that no impairment charges were required related to our consolidated real estate
investments during the three months ended March 31, 2011 and 2010. Additionally, our unconsolidated
properties were also assessed for impairment and impairment charges of $18,000,000 were recorded
against their carrying values during the three months ended March 31, 2010. Our share of these
impairment charges was approximately $374,000, which is included in Equity in losses of
unconsolidated real estate in our accompanying condensed consolidated statements of operations.
Our share of the impairment recorded during the three months ended March 31, 2010 was limited to
the amount of our remaining investment in the unconsolidated property. We determined that no
impairment charges were required related to our unconsolidated real estate investments during the
three months ended March 31, 2011.
Properties Held for Non-Sale Disposition
Our properties held for non-sale disposition are stated at historical cost less accumulated
depreciation, net of real estate related impairment charges. The cost of our properties held for
non-sale disposition includes the cost of land and completed buildings and related improvements.
Expenditures that increase the service life of the property are capitalized and the cost of
maintenance and repairs is charged to expense as incurred. The cost of buildings and improvements
are depreciated on a straight-line basis over the estimated useful lives of the buildings and
improvements, ranging from six to 39 years and the shorter of the lease term or useful life,
ranging from one to six years for tenant improvements. When depreciable property is retired or
disposed of, the related costs and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in income (loss) from discontinued operations in our accompanying
condensed consolidated statements of operations.
8
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
As of December 31, 2010, our properties held for non-sale disposition consisted of the Sevens
Building and Four Resource Square properties. As discussed in Note 1, Organization and Description
of Business, both of these properties were disposed of during the three months ended March 31,
2011.
Fair Value of Financial Instruments
FASB Codification Topic 825, Financial Instruments, requires disclosure of the fair value of
financial instruments, whether or not recognized on the face of the balance sheet, for which it is
practical to estimate that value. Fair value is defined as the quoted market prices for those
instruments that are actively traded in financial markets. In cases where quoted market prices are
not available, fair values are estimated using presently available market information and judgments
about the financial instrument, such as estimates of timing and amount of expected future cash
flows. Such estimates do not reflect any premium or discount that could result from offering for
sale at one time our entire holdings of a particular financial instrument, nor do they consider the
tax impact of the realization of unrealized gains or losses. In many cases, the fair value
estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value
be realized in immediate settlement of the instrument.
Financial instruments on our condensed consolidated balance sheets consist of cash and cash
equivalents, accounts and loans receivable, accounts payable and accrued expenses, and mortgage
loans payable. We consider the carrying values of cash and cash equivalents, accounts receivable
and accounts payable and accrued expenses to approximate fair value for those financial instruments
because of the short period of time between origination of the instruments and their expected
realization. The fair value of amounts due to related parties is not determinable due to their
related party nature. As of December 31, 2010, we estimate the fair value of our consolidated
mortgage loans payable to be approximately $30,250,000, compared to their carrying values of
$43,471,000. The fair value of the mortgage loans payable are estimated using borrowing rates for
debt instruments with similar terms and maturities. For non-recourse mortgage loans payable secured
by properties with estimated fair values of less than their respective loan balances, we estimate
the fair value of the mortgage loans to be equal to the estimated fair value of the properties.
Income Taxes
We are a pass-through entity for income tax purposes and taxable income is reported by our
unit holders on their individual tax returns. Accordingly, no provision has been made for income
taxes in the accompanying condensed consolidated statements of operations except for insignificant
amounts related to state franchise and income taxes.
We follow FASB Codification Topic 740, Income Taxes, to recognize, measure, present and
disclose in our condensed consolidated financial statements uncertain tax positions that we have
taken or expect to take on a tax return. As of March 31, 2011 and December 31, 2010, we did not
have any liabilities for uncertain tax positions that we believe should be recognized in our
condensed consolidated financial statements.
Segments
FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial
and descriptive information about an enterprises reportable segments. We have determined that we
have one reportable segment, with activities related to investing in office buildings and value-add
commercial office properties. As each of our properties has similar economic characteristics,
tenants, and products and services, our properties have been aggregated into one reportable segment
for the three months ended March 31, 2011 and 2010.
9
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
3. Real Estate Investments Properties Held for Non-Sale Disposition
Our investments in properties held for non-sale disposition consisted of the following as of
March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||
Buildings and tenant improvements |
$ | | $ | 26,813,000 | ||||
Land |
| 4,137,000 | ||||||
| 30,950,000 | |||||||
Less: accumulated depreciation |
| (3,732,000 | ) | |||||
$ | | $ | 27,218,000 | |||||
Depreciation expense was $96,000 and $297,000 for the three months ended March 31, 2011 and
2010, respectively. No real estate related impairment charges were recorded against our properties
held for non-sale disposition during the three months ended March 31, 2011.
As of December 31, 2010, our properties held for non-sale disposition consisted of the Sevens
Building and Four Resource Square properties. As discussed in Note 1, Organization and Description
of Business, both of these properties were disposed of during the three months ended March 31,
2011.
4. Real Estate Investments Unconsolidated Real Estate
Our investments in unconsolidated real estate consisted of the following as of March 31, 2011
and December 31, 2010:
Property | Location | March 31, 2011 | December 31, 2010 | |||||||
Chase Tower |
Austin, TX | $ | 5,000 | $ | 6,000 | |||||
Enterprise Technology Center |
Scotts Valley, CA | | | |||||||
Executive Center II and III |
Dallas, TX | 13,000 | 18,000 | |||||||
$ | 18,000 | $ | 24,000 | |||||||
Summarized Financial Information
Summarized condensed combined financial information about our unconsolidated real estate as of
March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010 is as
follows:
March 31, 2011 | December 31, 2010 | |||||||
Assets (primarily real estate) |
$ | 17,920,000 | $ | 18,591,000 | ||||
Mortgage loans and other debt payable |
$ | 32,562,000 | $ | 32,562,000 | ||||
Other liabilities |
5,981,000 | 5,258,000 | ||||||
(Deficit) equity |
(20,623,000 | ) | (19,229,000 | ) | ||||
Total liabilities and (deficit) equity |
$ | 17,920,000 | $ | 18,591,000 | ||||
Our share of equity |
$ | 18,000 | $ | 24,000 | ||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 256,000 | $ | 1,679,000 | ||||
Rental and other expenses |
1,661,000 | 19,702,000 | ||||||
Loss from continuing operations |
(1,405,000 | ) | (18,023,000 | ) | ||||
Loss from discontinued operations |
(18,000 | ) | (478,000 | ) | ||||
Net loss |
$ | (1,423,000 | ) | $ | (18,501,000 | ) | ||
Our equity in losses of unconsolidated real estate |
$ | (6,000 | ) | $ | (374,000 | ) | ||
Total real estate related impairment charges of $18,000,000 were recorded against land,
buildings, capital improvements and intangible assets of our unconsolidated properties during the
three months ended March 31, 2010. Our share of these real estate related impairment charges was
approximately $374,000 during the three months ended March 31, 2010, and is included in the
consolidated statements of operations in the line item entitled Equity in losses of unconsolidated
real estate. Since we have no commitment to fund our deficit capital accounts, our share of the
losses from unconsolidated real estate recorded during the three months ended March 31, 2010 was
limited to the amount of our remaining investments in the unconsolidated properties. In addition,
we recorded a $33,000
allowance against the carrying value of our note receivable from the Executive Center II and
III property during the three months ended March 31, 2010, which is also included in the line item
entitled Equity in losses of unconsolidated real estate.
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Total mortgage loans and other debt payable of our unconsolidated properties consisted of the
following as of March 31, 2011 and December 31, 2010:
Ownership | ||||||||||||
Property | Percentage | March 31, 2011 | December 31, 2010 | |||||||||
Enterprise Technology Center |
8.5 | % | $ | 32,562,000 | $ | 32,562,000 | ||||||
Executive Center II and III |
41.1 | % | | | ||||||||
Chase Tower |
14.8 | % | | | ||||||||
$ | 32,562,000 | $ | 32,562,000 | |||||||||
Enterprise Technology Center
On April 11, 2010, the Enterprise Technology Center property was unable to pay in full the
monthly interest and principal payment due on its non-recourse mortgage loan on that date or within
five days of that date, thereby triggering an event of default under the mortgage loan documents.
On May 11, 2011, the mortgage loan for the Enterprise Technology Center property, which had an
outstanding balance of $32,562,000, matured and was not repaid. Therefore, an additional event of
default has been triggered under the mortgage loan documents.
The property is continuing to be marketed for sale and several possible options in connection
with the property are currently being discussed with the Enterprise Technology Center lender,
including: (a) a sale of the property or (b) a deed-in-lieu of foreclosure of the property. We can
give no assurances that the property will be sold. Therefore, the Enterprise Technology Center
lender may elect to foreclose on the property or a deed-in-lieu of foreclosure of the property may
be provided to the lender. However, under the terms of the loan agreement, this event of default
could allow the Enterprise Technology Center lender to immediately: (i) increase the interest rate
of the loan from 6.44% per annum to the default interest rate of 11.44% per annum; (ii) impose a
late charge equal to the lesser of 5.0% of the amount of any payment not timely paid, or the
maximum amount which may be charged under applicable law; and/or (iii) foreclose on the Enterprise
Technology Center property.
Executive Center II and III
On May 24, 2010, we, through NNN Executive Center II and III 2003, LP, our indirect
subsidiary, along with NNN Executive Center, LLC, an entity also managed by our manager, and
sixteen unaffiliated third party entities sold Executive Center II and III, located in Dallas,
Texas, or the Executive Center II and III property, to Boxer F2, L.P., an unaffiliated third party,
for an aggregate sales price of $17,000,000. We owned a 41.1% interest in the Executive Center II
and III property. Our portion of the net cash proceeds was $541,000 after payment of the related
mortgage loan, closing costs and other transaction expenses. In connection with the sale of the
Executive II and III property, we also received approximately $787,000 as full repayment of a note
receivable and accrued interest due to us from the property. Our manager waived the disposition fee
it was entitled to receive in connection with the sale of the Executive Center II and III property,
therefore, a disposition fee was not paid to our manager. We also received distributions of excess
cash from the Executive Center II and III property totaling $80,000 during the year ended December
31, 2010.
Chase Tower
On January 25, 2010, we, along with NNN Chase Tower REO, LP, an entity managed by our manager,
NNN OF 8 Chase Tower REO, LP, an entity also managed by our manager, and CBD Chase Tower, LP (f/k/a
ERG Chase Tower, LP), an unaffiliated third party, sold Chase Tower, located in Austin, Texas, or
the Chase Tower property, to 221 West Sixth Street, LLC, an unaffiliated third party, for an
aggregate sales price of $73,850,000. We owned a 14.8% interest in the Chase Tower property. Our
portion of the net cash proceeds was $526,000 after payment of the related mortgage loan, closing
costs and other transaction expenses. Our manager waived the disposition fee it was entitled to
receive in connection with the sale of the Chase Tower property; therefore, a disposition fee was
not paid
to our manager. We also received distributions of excess cash from the Chase Tower property
totaling $260,000 during the year ended December 31, 2010.
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Loan Covenants
Our unconsolidated properties that are financed by borrowings may be required by the terms of
the applicable loan documents to meet certain financial covenants and other requirements. As
discussed above, the mortgage loan on the Enterprise Technology Center property is in default.
5. Intangible Assets Related to Properties Held for Non-Sale Disposition
Identified intangible assets related to our properties held for non-sale disposition consisted
of the following as of March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||
In-place leases and
tenant relationships, net of
accumulated amortization of
$1,881,000 as of December
31, 2010
|
$ | | $ | 1,951,000 |
Amortization expense recorded on the identified intangible assets was $19,000 and $130,000 for
the three months ended March 31, 2011 and 2010, respectively.
6. Other Assets Related to Properties Held for Non-Sale Disposition
Other assets related to our properties held for non-sale disposition consisted of the
following as of March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||
Deferred rent receivable |
$ | | $ | 277,000 | ||||
Lease commissions, net of
accumulated amortization of
$286,000 as of December 31, 2010 |
| 321,000 | ||||||
Prepaid expenses, deposits and other |
| 140,000 | ||||||
$ | | $ | 738,000 | |||||
7. Mortgage Loans Payable Secured by Properties Held for Non-Sale Disposition
We had no mortgage loans payable outstanding on our consolidated properties as of March 31,
2011. As of December 31, 2010, we had fixed and variable rate mortgage loans payable secured by our
consolidated properties held for non-sale disposition of $43,471,000. As of December 31, 2010, the
effective interest rates on mortgage loans payable ranged from 7.25% to 10.95% per annum, and the
weighted-average effective interest rate was 9.04% per annum.
The composition of our consolidated mortgage loans payable as of December 31, 2010 was as
follows:
Total Mortgage | Weighted Average | |||||||
Loans Payable | Interest Rate | |||||||
Variable rate |
$ | 22,471,000 | 7.26 | % | ||||
Fixed rate |
21,000,000 | 10.95 | % | |||||
$ | 43,471,000 | 9.04 | % | |||||
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Sevens Building Mortgage Loan
The mortgage loan for the Sevens Building property, which had an outstanding principal balance
of $21,494,000 as of December 31, 2010, matured on October 31, 2010 and was in default due to
non-payment of the outstanding principal balance upon maturity. The mortgage loan documents
included an option to extend the maturity date for an additional 12 months beyond October 31, 2010;
however, we determined that it was not in the best interest of our unit holders to attempt to
extend the maturity date due to the unfavorable terms of the extension option, including additional
cash outlays for an extension fee and partial principal prepayment, which we did not expect would
be
recovered through property operations over the subsequent 12 months. Further, the estimated
value of the Sevens Building property was significantly less than the outstanding principal balance
of the mortgage loan, and we did not expect that the value of the property would exceed the
principal balance by the end of the potential extension term. As such, we had been in discussions
with the Sevens Building lender regarding our options for transferring the Sevens Building property
to the Sevens Building lender, including foreclosure, deed-in-lieu of foreclosure, or another form
of transfer. However, on March 7, 2011, we received a letter from the Sevens Building lender
indicating that it had initiated a foreclosure action on the Sevens Building property pursuant to
our default on the mortgage loan for the Sevens Building property. On March 25, 2011, the successor
trustee appointed by the Sevens Building lender conducted a public auction and sold the Sevens
Building property to General Electric Credit Equities, an entity affiliated with the Sevens
Building lender, or the buyer, for a sale price of $17,400,000. As a result of the sale, our 100%
ownership interest in the Sevens Building property was sold and conveyed to the buyer and a
trustees deed was recorded on the Sevens Building property in favor of the buyer. This mortgage
loan was cancelled upon the transfer of the property, and we recorded a gain on extinguishment of
debt of $5,591,000.
Four Resource Square Mortgage Loan
The mortgage loan for the Four Resource Square property, which had an outstanding principal
balance of $21,977,000 as of December 31, 2010, had an original maturity date of November 30, 2010
but was extended to January 20, 2011. The mortgage loan documents included an option to extend the
maturity date for an additional 12 months beyond November 30, 2010; however, we determined that it
was not in the best interest of our unit holders to attempt to extend the maturity date due to the
unfavorable terms of the extension option, including additional cash outlays for an extension fee
and partial principal prepayment, which we did not expect would be recovered through property
operations over the subsequent 12 months. Further, the estimated value of the Four Resource Square
property was significantly less than the outstanding principal balance of the mortgage loan, and we
did not expect that the value of the property would exceed the principal balance by the end of the
potential extension term. As such, on January 20, 2011, we sold the Four Resource Square property
to an entity affiliated with the Four Resource Square lender for a sales price equal to the
outstanding principal balance of the mortgage loan of $21,977,000. This mortgage loan was cancelled
upon the transfer of the property, and we recorded a gain on extinguishment of debt of $8,043,000.
8. Noncontrolling Interests
Noncontrolling interests relate to interests in the following consolidated limited liability
companies and property with tenant-in-common, or TIC, ownership interests that are not wholly-owned
by us as of March 31, 2011 and December 31, 2010:
Entity | Date Acquired | Noncontrolling Interests | ||||||
NNN Enterprise Way, LLC |
05/07/2004 | 26.7 | % | |||||
NNN 901 Civic Center, LLC |
04/24/2006 | 3.1 | % |
NNN 901 Civic Center, LLC sold the 901 Civic Center property on July 17, 2009; however, the
legal entity still exists as of March 31, 2011 in order to settle outstanding receivables and
payables remaining from the operation of the property.
9. NNN 2003 Value Fund, LLC Unit Holders Equity (Deficit)
Pursuant to our Private Placement Memorandum, we offered for sale to the public a minimum of
1,000 and a maximum of 10,000 units at a price of $5,000 per unit. We relied on the exemptions from
registration provided by Rule 506 under Regulation D and Section 4(2) of the Securities Act.
There are three classes of membership interests, or units, each having different rights with
respect to distributions. As of March 31, 2011 and December 31, 2010, there were 4,000 Class A
units, 3,170 Class B units and 2,800 Class C units issued and outstanding. The rights and
obligations of all unit holders are governed by the Operating Agreement.
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Cash from Operations, as defined in the Operating Agreement, is first distributed to all unit
holders pro rata until all Class A unit holders, Class B unit holders and Class C unit holders have
received a 10.0%, 9.0% and 8.0% cumulative (but not compounded) annual return on their contributed
and unrecovered capital, respectively. In the event that any distribution of Cash from Operations
is not sufficient to pay the return described above, all unit holders receive identical pro rata
distributions, except that Class C unit holders do not receive more than an 8.0% return on their
Class C units, and Class B unit holders do not receive more than a 9.0% return on their Class B
units. Excess Cash from Operations is then allocated pro rata to all unit holders on a per
outstanding unit basis and further distributed to the unit holders and our manager based on
predetermined ratios providing our manager with a share of 15.0%, 20.0% and 25.0% of the
distributions available to Class A units, Class B units and Class C units, respectively, of such
excess Cash from Operations.
Cash from Capital Transactions, as defined in the Operating Agreement, is first used to
satisfy our debt and liability obligations; then distributed pro rata to all unit holders in
accordance with their membership interests until all capital contributions are reduced to zero; and
lastly, in accordance with the distributions as outlined above in the Cash from Operations.
Since the suspension of regular, monthly cash distributions to unit holders in the fourth
quarter of 2008, we make periodic distributions to unit holders from available funds, if any.
During the three months ended March 31, 2011, distributions of $50 per unit were declared,
resulting in aggregate distributions paid of approximately $500,000 during the period. To date,
Class A units, Class B units and Class C units have received identical per-unit distributions;
however, distributions may vary among the three classes of units in the future.
10. Related Party Transactions
The Management Agreement
Our manager manages us pursuant to the terms of the Operating Agreement and the Management
Agreement. While we have no employees, certain employees of our manager provide services in
connection with the Operating Agreement. In addition, Realty serves as our property manager
pursuant to the terms of the Operating Agreement and the Management Agreement.
Pursuant to the Operating Agreement and the Management Agreement, Realty is entitled to
receive the payments and fees described below. Certain fees paid to Realty during the three months
ended March 31, 2011 and 2010 were passed through to our manager or its affiliate pursuant to an
agreement between our manager and Realty, or the Realty Agreement.
Property Management Fees
We pay Realty a monthly property management fee of up to 5.0% of the gross receipts revenue of
the properties. For the three months ended March 31, 2011 and 2010, we incurred property management
fees to Realty of $47,000 and $127,000, respectively.
Real Estate Acquisition Fees
We pay Realty or its affiliate a real estate acquisition fee up to 3.0% of the gross purchase
price of a property. For the three months ended March 31, 2011 and 2010, we did not incur any real
estate acquisition fees.
Real Estate Disposition Fees
We pay Realty or its affiliate a real estate disposition fee up to 5.0% of the gross sales
price of a property. For the three months ended March 31, 2011 and 2010, we did not incur any real
estate disposition fees.
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Leasing Commissions
We pay Realty a leasing commission for its services in leasing any of our properties equal to
6.0% of the value any lease entered into during the term of the Management Agreement and 3.0% with
respect to any renewals. For the three months ended March 31, 2011 and 2010, we incurred leasing
commissions to Realty of $0 and $199,000, respectively.
Accounting Fees
We pay our manager accounting fees for record keeping services provided to us. Beginning
January 1, 2010, all accounting fees have been waived by our manager and, as such, we did not incur
any accounting fees or the three months ended March 31, 2011 and 2010.
Construction Management Fees
We pay Realty a construction management fee for its services in supervising any construction
or repair project in or about our properties equal to 5.0% of any amount up to $25,000, 4.0% of any
amount over $25,000 but less than $50,000 and 3.0% of any amount over $50,000, which is expended in
any calendar year for construction or repair projects. For the three months ended March 31, 2011
and 2010, we did not incur any construction management fees.
Loan Fees
We pay Realty or its affiliate a loan fee of 1.0% of the principal amount of the loan for its
services in obtaining loans for our properties during the term of the Management Agreement. For the
three months ended March 31, 2011 and 2010, we did not incur any loan fees.
Related Party Accounts Payable
Related party accounts payable consist primarily of amounts due related to the Management
Agreement, as discussed above, and for operating expenses incurred by us and paid by our manager or
its affiliates. As of March 31, 2011 and December 31, 2010, the amount payable by us was $21,000
and $32,000, respectively, and is included in the accompanying condensed consolidated balance
sheets in the line item entitled Accounts payable due to related parties.
11. Commitments and Contingencies
Litigation
Neither we nor any of our properties are presently subject to any material litigation and, to
our knowledge, no material litigation is threatened against us or any of our properties that, if
determined unfavorably to us, would have a material adverse effect on our financial condition,
results of operations or cash flows.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic
substances. While there can be no assurance that a material environmental liability does not exist,
we are not currently aware of any environmental liability with respect to the properties that would
have a material adverse effect on our financial condition, results of operations or cash flows.
Further, we are not aware of any environmental liability or any unasserted claim or assessment with
respect to an environmental liability that we believe would require additional disclosure or the
recording of a loss contingency.
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NNN 2003 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
12. Discontinued Operations
In accordance with FASB Codification Topic 360, Property, Plant and Equipment, the net income
(loss) from consolidated properties sold, as well as those classified as held for sale, are
reflected in our consolidated statements of operations as discontinued operations for all periods
presented. For the three months ended March 31, 2011 and 2010, discontinued operations includes the
net income of the following property:
Property | Date Sold | |||
Tiffany Square |
May 7, 2010 | |||
Executive Center I |
June 2, 2010 | |||
Four Resource Square |
January 20, 2011 | |||
Sevens Building |
March 25, 2011 |
The following table summarizes the revenue and expense components that comprised income from
discontinued operations for the three months ended March 31, 2011 and 2010:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Rental revenue |
$ | 964,000 | $ | 2,330,000 | ||||
Rental expense (including general, administrative, depreciation and amortization) |
(727,000 | ) | (1,946,000 | ) | ||||
Interest expense |
(545,000 | ) | (1,342,000 | ) | ||||
Gain on extinguishment of debt |
13,634,000 | | ||||||
Income (loss) from discontinued operations |
13,326,000 | (958,000 | ) | |||||
Income (loss) from discontinued operations attributable to noncontrolling interests |
| | ||||||
Income (loss) from discontinued operations attributable to NNN 2003 Value Fund, LLC |
$ | 13,326,000 | $ | (958,000 | ) | |||
13. Subsequent Events
Enterprise Technology Center Loan Maturity
On May 11, 2011, the mortgage loan for the Enterprise Technology Center property, which had an
outstanding balance of $32,562,000, matured and was not repaid. Therefore, an additional event of
default has been triggered under the mortgage loan documents.
Cash Transfer to Sevens Building Lender
On April 29, 2011, we transferred $850,000 of cash to the Sevens Building lender, representing
substantially all of the remaining cash in the propertys bank account, in connection with the
foreclosure of the property. The liability associated with this cash transfer is included in the
line item entitled Accounts payable and accrued expenses in the accompanying condensed
consolidated balance sheet as of March 31, 2011.
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Item 2. | Managements Discussion and Analysis Financial Condition and Results of Operations. |
The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
The following discussion should be read in conjunction with our financial statements and notes
appearing elsewhere in this Quarterly Report on Form 10-Q. Such financial statements and
information have been prepared to reflect our financial position as of March 31, 2011 and December
31, 2010, together with our results of operations and cash flows for the three months ended March
31, 2011 and 2010.
Forward-Looking Statements
Historical results and trends should not be taken as indicative of future operations. Our
statements contained in this report that are not historical facts are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results may differ
materially from those included in the forward-looking statements. We intend those forward-looking
statements to be covered by the safe-harbor provisions for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes
of complying with those safe-harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of us, are generally
identifiable by use of the words believe, expect, intend, anticipate, estimate,
project, prospects, or similar expressions. Our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors which could have a material adverse
effect on our operations and future prospects on a consolidated basis include, but are not limited
to: changes in economic conditions generally and the real estate market specifically; sales prices,
lease renewals and new leases; legislative/regulatory changes; availability of capital; changes in
interest rates; our ability to service our debt, competition in the real estate industry; the
supply and demand for operating properties in our current and proposed market areas; changes in
accounting principles generally accepted in the United States of America, or GAAP, policies and
guidelines applicable to us; our ongoing relationship with our manager (as defined below); and
litigation. These risks and uncertainties should be considered in evaluating forward looking
statements and undue reliance should not be placed on such statements. Additional information
concerning us and our business, including additional factors that could materially affect our
financial results, is included herein and in our other filings with the United States Securities
and Exchange Commission, or the SEC.
Overview and Background
NNN 2003 Value Fund, LLC was formed as a Delaware limited liability company on June 19, 2003.
We were organized to acquire, own, operate and subsequently sell our ownership interests in a
number of unspecified properties believed to have higher than average potential for capital
appreciation, or value-added properties. As of December 31, 2010, we held interests in three
commercial office properties, comprised of two consolidated properties and one unconsolidated
property. Our two consolidated properties consisted of Sevens Building, located in St. Louis,
Missouri, or the Sevens Building property, and Four Resource Square, located in Charlotte, North
Carolina, or the Four Resource Square property. Our unconsolidated property consisted of an 8.5%
interest in Enterprise Technology Center, located in Scotts Valley, California, or the Enterprise
Technology Center property.
The mortgage loan for the Sevens Building property, which had an outstanding principal balance
of $21,494,000 as of December 31, 2010, matured on October 31, 2010 and was in default due to
non-payment of the outstanding principal balance upon maturity. The mortgage loan documents
included an option to extend the maturity date for an additional 12 months beyond October 31, 2010;
however, we determined that it was not in the best interest of our unit holders to attempt to
extend the maturity date due to the unfavorable terms of the extension option, including additional
cash outlays for an extension fee and partial principal prepayment, which we did not expect would
be recovered through property operations over the subsequent 12 months. Further, the estimated
value of the Sevens Building property was significantly less than the outstanding principal balance
of the mortgage loan, and we did not expect that the value of the property would exceed the
principal balance by the end of the potential extension term. On March 7, 2011, we received a
letter from the Sevens Building lender indicating that it had initiated a foreclosure action on the
Sevens Building property pursuant to our default on the mortgage loan for the Sevens Building
property. On March 25, 2011, the successor trustee appointed by the Sevens Building lender
conducted a public
auction and sold the Sevens Building property to General Electric Credit Equities, an entity
affiliated with the Sevens Building lender, or the buyer, for a sale price of $17,400,000. As a
result of the sale, our 100% ownership interest in the Sevens Building property was sold and
conveyed to the buyer and a trustees deed was recorded on the Sevens Building property in favor of
the buyer. We did not receive any cash proceeds from the sale of the property.
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In addition, the mortgage loan for the Four Resource Square property, which had an outstanding
principal balance of $21,977,000 as of December 31, 2010, had an original maturity date of November
30, 2010 but was extended to January 20, 2011. The mortgage loan documents included an option to
extend the maturity date for an additional 12 months beyond November 30, 2010; however, we
determined that it was not in the best interest of our unit holders to attempt to extend the
maturity date due to the unfavorable terms of the extension option, including additional cash
outlays for an extension fee and partial principal prepayment, which we did not expect would be
recovered through property operations over the subsequent 12 months. Further, the estimated value
of the Four Resource Square property was significantly less than the outstanding principal balance
of the mortgage loan, and we did not expect that the value of the property would exceed the
principal balance by the end of the potential extension term. As such, on January 20, 2011, we sold
the Four Resource Square property to an entity affiliated with the Four Resource Square lender for
a sales price equal to the outstanding principal balance of the mortgage loan of $21,977,000. We
did not receive any cash proceeds from the sale of the property.
As of March 31, 2011, our sole remaining property interest consisted of our 8.5% interest in
the Enterprise Technology Center property. We currently intend to sell, or otherwise dispose of,
our remaining property interest, pay distributions to our unit holders from available funds, if
any, and wind up our operations, which we expect will be completed within the next six to twelve
months, at which point we will cease to be a going concern.
Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, or our manager,
manages us pursuant to the terms of an operating agreement, or the Operating Agreement. While we
have no employees, certain executive officers and employees of our manager provide services to us
pursuant to the Operating Agreement. Our manager engages affiliated entities, including Triple Net
Properties Realty, Inc., or Realty, to provide certain services to us. Realty serves as our
property manager pursuant to the terms of the Operating Agreement and a property management
agreement, or the Management Agreement. The Operating Agreement terminates upon our dissolution.
The unit holders may not vote to terminate our manager prior to the termination of the Operating
Agreement or our dissolution, except for cause. The Management Agreement terminates with respect to
each of our properties upon the earlier of the sale of each respective property or December 31,
2013. Realty may be terminated without cause prior to the termination of the Management Agreement
or our dissolution, subject to certain conditions, including the payment by us to Realty of a
termination fee as provided in the Management Agreement.
Business Strategy
Our primary business strategy was to acquire, own, operate and subsequently sell our ownership
interests in a number of unspecified properties believed to have higher than average potential for
capital appreciation, or value-added properties. Our principal objectives initially were to: (i)
have the potential within approximately one to five years, subject to market conditions, to realize
income on the sale of our properties; (ii) realize income through the acquisition, operation,
development and sale of our properties or our interests in our properties; and (iii) make periodic
distributions to our unit holders from cash generated from operations and capital transactions. We
currently intend to sell, or otherwise dispose of, our remaining property interest and pay
distributions to our unit holders from available funds, if any. We do not anticipate acquiring any
additional real estate properties.
Acquisitions and Dispositions
We did not acquire any consolidated properties during the three months ended March 31, 2011
and 2010.
On January 20, 2011, we sold the Four Resource Square property to Four Resource Square, LLC,
an entity affiliated with the Four Resource Square lender, for a sales price of $21,977,000, which
was equal to the outstanding principal balance of the loan.
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On March 25, 2011, the successor trustee appointed by the Sevens Building lender conducted a
public auction and sold the Sevens Building property to General Electric Credit Equities, an entity
affiliated with the Sevens Building lender, or the buyer, for a sale price of $17,400,000. As a
result of the sale, our ownership interest in the Sevens Building property was sold and conveyed to
the buyer and a trustees deed was recorded on the Sevens Building property in favor of the buyer.
Critical Accounting Policies
The complete listing of our critical accounting policies was previously disclosed in our 2010
Annual Report on Form 10-K, as filed with the SEC on March 18, 2011, and there have been no
material changes to our Critical Accounting Policies disclosed therein.
Interim Financial Data
Our accompanying interim unaudited condensed consolidated financial statements have been
prepared by us in accordance with GAAP and in conjunction with the rules and regulations of the
SEC. Certain information and footnote disclosures required for annual financial statements have
been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying
interim unaudited condensed consolidated financial statements do not include all of the information
and footnotes required by GAAP for complete financial statements. Our accompanying interim
unaudited condensed consolidated financial statements reflect all adjustments, which are, in our
opinion, of a normal recurring nature and necessary for a fair presentation of our financial
position, results of operations and cash flows for the interim periods. Interim results of
operations are not necessarily indicative of the results to be expected for the full year; such
results may be less favorable.
In preparing our accompanying condensed consolidated financial statements, management has
evaluated subsequent events through the financial statement issuance date. We believe that,
although the disclosures contained herein are adequate to prevent the information presented from
being misleading, our accompanying interim unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and the notes
thereto included in our 2010 Annual Report on Form 10-K, as filed with the SEC on March 18, 2011.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national economic
conditions affecting real estate generally, the financial impact of the downturn of the credit
markets, and the risk factors listed in Part II, Item 1A. Risk Factors of this report and those
risk factors previously disclosed in our 2010 Annual Report on Form 10-K filed with the SEC on
March 18, 2011, that may reasonably be expected to have a material impact, favorable or
unfavorable, on revenues or income from the acquisition, management and operation or disposition of
our properties.
Rental Revenue
The amount of rental revenue generated by our unconsolidated property depends principally on
our ability to maintain the occupancy rates of currently leased space and to lease currently
available space and space available from unscheduled lease terminations at the existing rental
rates. Negative trends in one or more of these factors could adversely affect our rental income in
future periods.
Scheduled Lease Expirations
Our leasing strategy for the remainder of 2011 focuses on negotiating leases for new tenants
and renewals for existing tenants with leases scheduled to expire during the year for our one
remaining property interest. If we are unable to negotiate such renewals, we will try to identify
new tenants or collaborate with existing tenants who are seeking additional space to occupy. If the
aggregate lease non-renewal factor at a property exceeds the factor we projected when we acquired
the property, we write off a portion of the tenant relationship intangible asset to reflect our
higher non-renewal experience.
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Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002, as amended, and related laws, regulations and standards
relating to corporate governance and disclosure requirements applicable to public companies, have
increased the costs of compliance with corporate governance, reporting and disclosure practices
which are now required of us. These costs were unanticipated at the time of our formation and may
have a material impact on our results of operations. Furthermore, we expect that these costs will
increase in the future due to our continuing implementation of compliance programs mandated by
these requirements. Any increased costs may already affect our liquidity or capital resources
and/or future distribution of funds, if any, to our unit holders. As part of our compliance with
the Sarbanes-Oxley Act, we provided managements assessment of our internal control over our
financial reporting as of December 31, 2010 and continue to comply with such regulations.
In addition, these laws, rules and regulations create new legal bases for potential
administrative enforcement, civil and criminal proceedings against us in case of non-compliance,
thereby increasing the risks of liability and potential sanctions against us. We expect that our
efforts to comply with these laws and regulations will continue to involve significant, and
potentially increasing costs and, our failure to comply, could result in fees, fines, penalties or
administrative remedies against us.
Results of Operations
Our operating results were primarily comprised of income derived from our portfolio of
properties, as described below. Because our primary business strategy historically was acquiring
properties with greater than average appreciation potential, enhancing value and realizing gains
upon disposition of these properties, our operations historically have reflected significant
property acquisitions and dispositions from period to period. As a result, the comparability of our
financial data is generally very limited and varies significantly from period to period.
We have made reclassifications for all properties sold or designated as held for sale as of
March 31, 2011 from Loss from continuing operations to Income (loss) from discontinued
operations for all periods presented to conform with the current year financial statement
presentation.
Comparison of the Three Months Ended March 31, 2011 and 2010
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
Interest and dividend income |
$ | | $ | 12,000 | $ | (12,000 | ) | (100.0 | )% | |||||||
Other income |
| 8,000 | (8,000 | ) | (100.0 | )% | ||||||||||
General and administrative expense |
(56,000 | ) | (98,000 | ) | 42,000 | (42.9 | )% | |||||||||
Equity in losses of unconsolidated real estate |
(6,000 | ) | (407,000 | ) | 401,000 | (98.5 | )% | |||||||||
Loss from continuing operations |
(62,000 | ) | (485,000 | ) | 423,000 | (87.2 | )% | |||||||||
Income (loss) from discontinued operations |
13,326,000 | (958,000 | ) | 14,284,000 | 1,491.0 | % | ||||||||||
Consolidated net income (loss) |
$ | 13,264,000 | $ | (1,443,000 | ) | $ | 14,707,000 | 1,019.2 | % | |||||||
Interest and Dividend Income
Interest and dividend income was $0 and $12,000 during the three months ended March 31, 2011
and 2010, respectively. The decrease is due to all cash being held in non-interest bearing accounts
during the three months ended March 31, 2011.
Other Income
Other income was $0 and $8,000 during the three months ended March 31, 2011 and 2010,
respectively.
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General and Administrative Expense
General and administrative expense decreased $42,000, or 42.9%, to $56,000, during the three
months ended March 31, 2011, compared to general and administrative expense of $98,000 for the
three months ended March 31, 2010. The decrease was primarily due to lower external audit fees.
Equity in Losses of Unconsolidated Real Estate
Equity in losses of unconsolidated real estate decreased $401,000, or 98.5%, to $6,000 during
the three months ended March 31, 2011, compared to equity in losses of unconsolidated real estate
of $407,000 during the three months ended March 31, 2010. During the three months ended March 31,
2010, real estate related impairment charges of $18,000,000 were recorded at our unconsolidated
properties. Our share of these impairment charges was approximately $374,000 during the three
months ended March 31, 2010, which was the primary component of the equity in losses of
unconsolidated real estate during the period. No impairment charges were recorded at our
unconsolidated properties during the three months ended March 31, 2011.
Income (Loss) from Discontinued Operations
Income from discontinued operations was $13,326,000 during the three months ended March 31,
2011, compared to a loss from discontinued operations of $958,000 for the three months ended March
31, 2010. The income from discontinued operations during the three months ended March 31, 2011
resulted primarily from the gains recognized on the extinguishment of debt in connection with the
dispositions of the Four Resource Square and Sevens Building properties, which totaled $13,634,000.
The loss from discontinued operations during the three months ended March 31, 2010 related to the
operating losses of the Tiffany Square, Executive Center I, Four Resource and Sevens Building
properties.
Consolidated Net Income (Loss)
As a result of the above, consolidated net income was $13,264,000 for the three months ended
March 31, 2011, compared to consolidated net loss of $1,443,000 for the three months ended March
31, 2010.
Liquidity and Capital Resources
Sources of Capital and Liquidity
Our primary sources of capital historically have been derived from: (i) proceeds from the sale
of properties; (ii) our ability to obtain debt financing from third parties and related parties
including, without limitation, our manager and its affiliates; and (iii) our real estate
operations. Our sources of capital are currently extremely limited due to the fact that we do not
expect to receive any cash proceeds from the ultimate disposition of our remaining unconsolidated
property interest. Currently, our only source of capital and liquidity is our existing cash
balance, net of future cash obligations.
Our primary uses of cash historically have been: (i) the payment of principal and interest on
indebtedness; (ii) capital investments in our portfolio of properties; (iii) administrative costs;
and (iv) distributions to our unit holders. Currently, we expect our future uses of cash to
primarily be related to administrative costs and other costs required to dispose of our remaining
property interest and dissolve our entities. Any remaining cash will be distributed to unit
holders.
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Debt Financing
One of our principal liquidity needs is related to the payment of principal and interest on
outstanding indebtedness, which includes a mortgage loan payable. As of March 31, 2011, we have no
consolidated debt. Information related to the outstanding mortgage loan on our unconsolidated
property interest as of March 31, 2011 was as follows:
Weighted- | ||||||||||||||||
Average | Variable | |||||||||||||||
Principal | Interest | or Fixed | ||||||||||||||
Outstanding | Maturity Date | Rate | Interest Rate | |||||||||||||
Enterprise Technology Center |
$ | 32,562,000 | 05/11/2011 | 11.44 | % | Fixed |
On April 11, 2010, the Enterprise Technology Center property was unable to pay in full the
monthly interest and principal payment due on its non-recourse mortgage loan on that date or within
five days of that date, thereby triggering an event of default under the mortgage loan documents.
On May 11, 2011, the mortgage loan for the Enterprise Technology Center property matured and was
not repaid. Therefore, an additional event of default has been triggered under the mortgage loan
documents.
Cash Flows
Net cash provided by operating activities was $95,000 for the three months ended March 31,
2011, compared to cash used in operating activities of $192,000 for the three months ended March
31, 2010. The improvement in operating cash flows between the periods was due primarily to changes
in operating assets and liabilities and improved cash operating results after non-cash reconciling
items.
There were no cash flows from investing activities for the three months ended March 31, 2011,
compared to cash provided by investing activities of $506,000 for the three months ended March 31,
2010. The cash flows from investing activities for the three months ended March 31, 2010 was
primarily due to the sale of the Chase Tower property during the period, which resulted in
distributions from unconsolidated real estate of $727,000.
Cash flows used in financing activities was $549,000 for the three months ended March 31,
2011, compared to cash used in financing activities of $939,000 for the three months ended March
31, 2010. The cash used in financing activities during the three months ended March 31, 2011 was
primarily due to the $500,000 distribution to our unit holders during the period, The cash used in
financing activities during the three months ended March 31, 2010 was primarily due to the
$1,000,000 distribution to our unit holders during the period.
Other Liquidity Needs
We have a restricted cash balance of $217,000 as of March 31, 2011, which represents an escrow
account that was funded from the proceeds of the sale of Southwood Tower, located in Houston,
Texas, or the Southwood Tower property, to pay a rent guaranty to the buyer for a period of five
years, which ended in December 2010. The buyer of the Southwood Tower property receives payments
from this escrow account as the vacant space is leased. We are currently finalizing the allocation
of the remaining funds in the escrow account, which we expect will be completed in the second
quarter of 2011.
Contractual Obligations
As of March 31, 2011, we have no material contractual obligations.
Off-Balance Sheet Arrangements
As of March 31, 2011, we had no off-balance sheet transactions nor do we currently have any
such arrangements or obligations.
Inflation
As of March 31, 2011, we have no significant exposure to inflation.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Market risk includes risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that affect market
sensitive instruments. In pursuing our business plan, the primary market risk to which we were
exposed is interest rate risk. However, we currently have no significant interest rate risk, as we
have no consolidated debt.
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Item 4. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms, and that such
information is accumulated and communicated to us, including our managers executive vice
president, portfolio management, and chief accounting officer, as appropriate, to allow timely
decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March
31, 2011 was conducted under the supervision and with the participation of our manager, including
our managers executive vice president, portfolio management, and chief accounting officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Based on this evaluation, our managers executive vice
president, portfolio management, and chief accounting officer concluded that our disclosure
controls and procedures, as of March 31, 2011, were effective.
(b) Changes in Internal Control Over Financial Reporting. There were no changes in our
internal control over financial reporting that occurred during the quarter ended March 31, 2011
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
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PART II OTHER INFORMATION
The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
Item 1. | Legal Proceedings. |
Neither we nor any of our properties are presently subject to any material litigation and, to
our knowledge, no material litigation is threatened against us or any of our properties that, if
determined unfavorably to us, would have a material adverse effect on our financial condition,
results of operations or cash flows.
Item 1A. | Risk Factors. |
There were no material changes from risk factors previously disclosed in our 2010 Annual
Report on Form 10-K, as filed with the SEC on March 18, 2011, except as noted below.
We currently intend to sell, or otherwise dispose of, our remaining property interest, pay
distributions to our unit holders from available funds, if any, and wind up our operations, which
we expect will be completed within the next six to twelve months. As a result of the planned
disposal of our remaining property interest, there is substantial doubt about our ability to
continue as a going concern.
As of March 31, 2011, our sole remaining property interest consisted of our 8.5% interest in
Enterprise Technology Center, located in Scotts Valley, California, or the Enterprise Technology
Center property. On April 11, 2010, the Enterprise Technology Center property was unable to pay in
full the monthly interest and principal payment due on its non-recourse mortgage loan on that date
or within five days of that date, thereby triggering an event of default under the mortgage loan
documents. On May 11, 2011, the mortgage loan for the Enterprise Technology Center property, which
had an outstanding balance of $32,562,000, matured and was not repaid. Therefore, an additional
event of default has been triggered under the mortgage loan documents. The property is continuing
to be marketed for sale and several possible options in connection with the property are currently
being discussed with the Enterprise Technology Center lender, including: (a) a sale of the property
or (b) a deed-in-lieu of foreclosure of the property. We can give no assurances that the property
will be sold. Therefore, the Enterprise Technology Center lender may elect to foreclose on the
property or a deed-in-lieu of foreclosure of the property may be provided to the lender. However,
under the terms of the loan agreement, this event of default could allow the Enterprise Technology
Center lender to immediately: (i) increase the interest rate of the loan from 6.44% per annum to
the default interest rate of 11.44% per annum; (ii) impose a late charge equal to the lesser of
5.0% of the amount of any payment not timely paid, or the maximum amount which may be charged under
applicable law; and/or (iii) foreclose on the Enterprise Technology Center property.
We currently intend to sell, or otherwise dispose of, our remaining property interest, pay
distributions to our unit holders from available funds, if any, and wind up our operations, which
we expect will be completed within the next six to twelve months. As a result of the planned
disposal of our remaining property interest, there is substantial doubt about our ability to
continue as a going concern.
We rely on the disposition of our properties to generate cash to fund our operations and pay
distributions to our unit holders, however, our remaining property interest consists of an 8.5%
interest in one unconsolidated property, which greatly limits our ability to generate cash to
fund our operations and/or pay future distributions to our unit holder.
During the quarter ended March 31, 2011, we disposed of our two remaining consolidated
properties, the Sevens Building and Four Resource Square properties. We did not receive any cash
proceeds from the dispositions of these properties.
As of March 31, 2011, our sole remaining property interest consisted of our 8.5% interest in
the Enterprise Technology Center property. We currently intend to sell, or otherwise dispose of,
our remaining property interest and we do not expect to receive any cash proceeds from the
disposition of the property.
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As a result of the dispositions of the Sevens Building and Four Resource Square properties for
no cash proceeds, as well as the expected sale, foreclosure or other disposition of our ownership
interest in the Enterprise Technology Center property, which is also expected to result in no cash
proceeds to us, our ability to generate cash to fund our operations and/or pay future distributions
to our unit holders is significantly limited.
Our success is dependent on the performance of our manager, which could be adversely
impacted by the performance of its parent company.
Our manager is a wholly owned direct subsidiary of NNN Realty Advisors, Inc., or NNNRA, which
is a wholly owned indirect subsidiary of Grubb & Ellis Company, or Grubb & Ellis. Our ability to
achieve our investment objectives and to conduct our operations is dependent upon the performance
of our manager, its executive officers and its employees. If our manager suffers or is distracted
by adverse financial or operational problems in connection with NNNRA or Grubb & Ellis, our
managers ability to allocate time and/or resources to our operations may be adversely affected. If
our manager is unable to allocate sufficient resources to oversee and perform our operations for
any reason, our results of operations would be adversely impacted.
NNNRA is a guarantor on the mortgage loans of several TIC programs that it has sponsored.
Under the guaranty agreements, NNNRA is required to maintain a specified level of minimum net
worth. As of December 31, 2010, NNNRAs net worth was below the contractually specified levels with
respect to approximately 30 percent of its managed TIC programs. While this circumstance does not,
in and of itself, create any direct recourse liability for NNNRA, failure to meet the minimum net
worth on these programs could result in the imposition of an event of default under these TIC loan
agreements and NNNRA potentially becoming liable for up to $6.0 million, in the aggregate, of
certain partial-recourse guarantee obligations of the underlying mortgage debt for certain of these
TIC programs. To date, no events of default have been declared.
In addition, Grubb & Ellis business is sensitive to trends in the general economy, as well as
the commercial real estate and credit markets. The current macroeconomic environment and
accompanying credit crisis has negatively impacted the value of commercial real estate assets,
contributing to a general slowdown in Grubb & Ellis industry, which Grubb & Ellis anticipates will
continue through 2011. A prolonged and pronounced recession could continue or accelerate the
reduction in overall transaction volume and size of sales and leasing activities that Grubb & Ellis
has already experienced, and could continue to put downward pressure on Grubb & Ellis revenues and
operating results. To the extent that any decline in Grubb & Ellis revenues and operating results
impacts the performance of NNNRA or our manager, our financial condition and results of operations
could also suffer.
Furthermore, Grubb & Ellis has announced, among other things, that it has retained JMP
Securities LLC as an advisor to explore strategic alternatives for Grubb & Ellis, including a
potential merger or sale transaction. Grubb & Ellis disclosed in its Form 10-K for the year ended
December 31, 2010 that it entered into a commitment letter and exclusivity agreement with Colony
Capital Acquisitions, LLC, pursuant to which (i) Colony Capital Acquisitions, LLC and one or more
of its affiliates, or collectively, Colony, agreed to provide an $18,000,000 senior secured term
loan credit facility, or the Senior Secured Credit Facility, and (ii) Colony obtained the exclusive
right for 60 days, commencing on March 30, 2011, to negotiate a strategic transaction with Grubb &
Ellis. On April 18, 2011, Grubb & Ellis announced that it had closed the $18,000,000 Senior Secured
Credit Facility and had drawn the initial $9,000,000 tranche under such facility. There can be no
assurance, however, that any strategic transaction with Colony, or with any other strategic
partner, will be completed. If Grubb & Ellis does not complete a strategic transaction with Colony,
or with any other strategic partner, such result could have a material adverse effect on Grubb &
Ellis revenues, which could negatively impact the performance of our manager and could cause our
results of operations and financial condition to suffer. Similarly, if Grubb & Ellis enters into a
merger or sale transaction, the effect of such a transaction is unknown, but could have a material
adverse effect on the performance of our manager, which could cause our results of operations and
financial condition to suffer.
Additionally, on February 10, 2011, Grubb & Ellis announced the creation of Daymark Realty
Advisors, Inc., or Daymark, a wholly owned and separately managed subsidiary of Grubb & Ellis and
parent company of NNNRA, that is responsible for the management of Grubb & Ellis tenant-in-common
portfolio. Subsequent thereto Grubb & Ellis announced that it had retained FBR Capital Markets & Co
to explore strategic alternatives with respect to Daymark and its portfolio, which includes over
8,700 multi-family units and 33.3 million square feet of commercial office properties. Daymark will
provide specialized services to its TIC portfolio, which require unique expertise and
client focus, especially as the commercial real estate industry begins to recover from the
significant downturn of the past few years. Daymark will provide strategic asset management,
property management, structured finance, accounting and loan advisory services to our existing
portfolio. If Daymark enters into a merger or sale transaction, the effect of such a transaction is
unknown, but could have a material adverse effect on the performance of our manager, which could
cause our results of operations and financial condition to suffer.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. | [Removed and Reserved.] |
Item 5. | Other Information. |
None.
Item 6. | Exhibits. |
The exhibits listed on the Exhibit Index (following the signatures section of this report) are
included, or incorporated by reference, in this quarterly report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NNN 2003 Value Fund, LLC (Registrant) |
||||
May 13, 2011 | /s/ Steven M. Shipp | |||
Date | Steven M. Shipp | |||
Executive Vice President, Portfolio
Management Grubb & Ellis Realty Investors, LLC, The Manager of NNN 2003 Value Fund, LLC (principal executive officer) |
||||
May 13, 2011 | /s/ Paul E. Henderson | |||
Date | Paul E. Henderson | |||
Chief Accounting Officer Grubb & Ellis Realty Investors, LLC, the Manager of NNN 2003 Value Fund, LLC (principal financial officer) |
||||
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EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit index immediately precedes the
exhibits.
The following exhibits are included, or incorporated by reference, in this Quarterly Report on
Form 10-Q for the period ended March 31, 2011 (and are numbered in accordance with Item 601 of
Regulation S-K).
Exhibit | ||||
Number | Description | |||
3.1 | Articles of Organization of NNN 2003 Value Fund, LLC, dated
March 19, 2003 (included in Exhibit 3.1 to our Form 10 filed
on May 2, 2005 and incorporated herein by reference). |
|||
10.1 | Purchase and Sale Agreement entered into by NNN VF Four
Resource Square, LLC and Four Resource Square, LLC, dated
January 10, 2011 (included as Exhibit 10.1 to our Current
Report on Form 8-K filed January 14, 2011 and incorporated
herein by reference). |
|||
10.2 | Loan Assumption and Substitution Agreement and Amendment to
Deed of Trust, Security Agreement and Fixture Filing by and
among Four Resource Square, LLC, NNN VF Four Resource Square,
LLC, and NNN 2003 Value Fund, LLC in favor of RAIT
Partnership, L.P., dated January 20, 2011 (included as Exhibit
10.1 to our Current Report on Form 8-K filed January 26, 2011
and incorporated herein by reference). |
|||
10.3 | General Warranty Deed by and between NNN VF Four Resource
Square, LLC and Four Resource Square, LLC, dated January 20,
2011 (included as Exhibit 10.2 to our Current Report on Form
8-K filed January 26, 2011 and incorporated herein by
reference). |
|||
10.4 | Bill of Sale by NNN VF Four Resource Square, LLC in favor of
Four Resource Square, LLC, dated January 18, 2011 and
effective as of January 20, 2011 (included as Exhibit 10.3 to
our Current Report on Form 8-K filed January 26, 2011 and
incorporated herein by reference). |
|||
10.5 | Assignment of Leases, Service Contracts and Intangibles,
Transfer of Deposits and Assumption Agreement by and between
NNN VF Four Resource Square, LLC and Four Resource Square,
LLC, dated January 20, 2011 (included as Exhibit 10.4 to our
Current Report on Form 8-K filed January 26, 2011 and
incorporated herein by reference). |
|||
31.1 | * | Certification of Principal Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
31.2 | * | Certification of Principal Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
32.1 | ** | Certification of Principal Executive Officer, pursuant to 18
U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002. |
||
32.2 | ** | Certification of Principal Financial Officer, pursuant to 18
U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002. |
* | Filed herewith. | |
** | Furnished herewith. |
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