Attached files
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EX-32.1 - EXHIBIT 32.1 - NNN 2002 VALUE FUND LLC | c21386exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - NNN 2002 VALUE FUND LLC | c21386exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - NNN 2002 VALUE FUND LLC | c21386exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - NNN 2002 VALUE FUND LLC | c21386exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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: 0-51098
NNN 2002 Value Fund, LLC
(Exact name of registrant as specified in its charter)
Virginia (State or other jurisdiction of incorporation or organization) |
75-3060438 (I.R.S. Employer 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 þ 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. (Check one):
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 the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
As of August 15, 2011, there were 5,960 units of NNN 2002 Value Fund, LLC outstanding.
NNN 2002 VALUE FUND, LLC
(A Virginia limited liability company)
(A Virginia limited liability company)
TABLE OF CONTENTS
Page | ||||||||
PART I FINANCIAL INFORMATION | ||||||||
2 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
11 | ||||||||
17 | ||||||||
17 | ||||||||
PART II OTHER INFORMATION |
||||||||
18 | ||||||||
18 | ||||||||
18 | ||||||||
18 | ||||||||
19 | ||||||||
19 | ||||||||
19 | ||||||||
20 | ||||||||
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 2002 VALUE FUND, LLC
CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS
(Liquidation Basis)
As of June 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)
(Liquidation Basis)
As of June 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)
June 30, 2011 | December 31, 2010 | |||||||
ASSETS |
||||||||
Investment in unconsolidated real estate |
$ | 740,000 | $ | 804,000 | ||||
Cash and cash equivalents |
437,000 | 451,000 | ||||||
Asset for estimated receipts in excess of estimated costs during liquidation |
787,000 | 864,000 | ||||||
Total assets |
1,964,000 | 2,119,000 | ||||||
LIABILITIES |
||||||||
Commitments and contingencies (Note 8) |
||||||||
Net assets in liquidation |
$ | 1,964,000 | $ | 2,119,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
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NNN 2002 VALUE FUND, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Liquidation Basis)
For the Three and Six Months Ended June 30, 2011 (Unaudited) and 2010 (Unaudited)
(Liquidation Basis)
For the Three and Six Months Ended June 30, 2011 (Unaudited) and 2010 (Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net assets in liquidation, beginning of period |
$ | 2,109,000 | $ | 1,961,000 | $ | 2,119,000 | $ | 1,884,000 | ||||||||
Changes in net assets in liquidation: |
||||||||||||||||
Changes to asset for estimated receipts in excess of estimated
costs during liquidation: |
||||||||||||||||
Operating loss |
13,000 | 10,000 | 13,000 | 11,000 | ||||||||||||
Change in estimated receipts in excess of estimated costs
during liquidation |
(33,000 | ) | (127,000 | ) | (90,000 | ) | (95,000 | ) | ||||||||
Net decrease in asset for estimated receipts in excess of
estimated costs during liquidation |
(20,000 | ) | (117,000 | ) | (77,000 | ) | (84,000 | ) | ||||||||
Change in fair value of assets and liabilities: |
||||||||||||||||
Change in fair value of investment in unconsolidated real estate |
(112,000 | ) | 87,000 | (65,000 | ) | 132,000 | ||||||||||
Change in assets and liabilities due to activity in asset for
estimated receipts in excess of estimated costs during
liquidation |
(13,000 | ) | (10,000 | ) | (13,000 | ) | (11,000 | ) | ||||||||
Net (decrease) increase in fair value of assets and liabilities |
(125,000 | ) | 77,000 | (78,000 | ) | 121,000 | ||||||||||
Change in net assets in liquidation |
(145,000 | ) | (40,000 | ) | (155,000 | ) | 37,000 | |||||||||
Net assets in liquidation, end of period |
$ | 1,964,000 | $ | 1,921,000 | $ | 1,964,000 | $ | 1,921,000 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
NNN 2002 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The use of the words we, us or our refers to NNN 2002 Value Fund, LLC, except where the
context otherwise requires.
1. Organization and Description of Business
NNN 2002 Value Fund, LLC was formed as a Virginia limited liability company on May 15, 2002.
We were organized for the purpose of acquiring all or a portion of up to three unspecified
properties from unaffiliated sellers in accordance with our private placement memorandum dated May
15, 2002, as amended, or our Private Placement Memorandum. We expected to own and operate interests
in the properties acquired for approximately three to five years after the acquisition thereof. As
of June 30, 2011, we owned a 12.3% interest in one unconsolidated property, Congress Center,
located in Chicago, Illinois, or the Congress Center property. References herein to our property,
our one remaining unconsolidated property or our remaining asset are to our 12.3% interest in the
Congress Center property.
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. Our Manager
is primarily responsible for managing our day-to-day operations and assets. While we have no
employees, certain employees and executive officers 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 various services for our one remaining
unconsolidated property. 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 our one remaining unconsolidated property upon the
earlier of the sale of such property or 10 years from the date of acquisition, which would be
January 9, 2013. Realty may be terminated with respect to our one remaining unconsolidated property
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 for in
the Management Agreement.
Plan of Liquidation
At a special meeting of our unit holders on September 7, 2005, our unit holders approved our
plan of liquidation. Our plan of liquidation contemplates the orderly sale of all of our assets,
the payment of our liabilities and the winding up of operations and the dissolution of our company.
We engaged an independent third party to perform financial advisory services in connection with our
plan of liquidation, including rendering opinions as to whether our net real estate liquidation
value range estimate and our estimated per unit distribution range were reasonable. We continually
evaluate our interest in the Congress Center property and adjust our net real estate liquidation
value accordingly. It is our policy that when we execute a purchase and sale agreement or become
aware of market conditions or other circumstances that indicate that our current carrying value
materially differs from our expected net sales price, we will adjust our liquidation value
accordingly. Following the approval of our plan of liquidation by our unit holders, we adopted the
liquidation basis of accounting as of August 31, 2005 and for all periods subsequent to August 31,
2005.
Our plan of liquidation gives our Manager the power to sell any and all of our assets without
further approval by our unit holders and provides that liquidating distributions be made to our
unit holders as determined by our Manager. Based on current conditions in the real estate market,
we currently expect to sell our interest in the Congress Center property by December 31, 2012, and
anticipate completing our plan of liquidation by March 31, 2013. However, our interest in the
Congress Center property is held as a member of a limited liability company, or LLC, that holds an
undivided tenant-in-common, or TIC, interest in the property. Because of the nature of joint
ownership, we will need to agree with our co-owners on the terms of the property sale before the
sale can be affected. There can be no assurance that we will agree with our co-owners on
satisfactory sales terms for this property. If the parties are unable to agree, the matter could
ultimately be presented to a court of law, and a judicial partition could be sought. A failure to
reach an agreement with these parties regarding the sales terms of this property may significantly
delay the sale of the property, which would delay and possibly reduce liquidating
distributions to our unit holders. We may be unable to receive our expected value for this
property because we hold a minority interest in the LLC and, thus, cannot sell our property
interest held in the LLC or force the sale of the Congress Center property.
4
Table of Contents
NNN 2002 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 financial
statements and accompanying notes 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 under the liquidation basis of accounting effective
August 31, 2005, 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 notes required by GAAP for complete financial statements. Our
accompanying interim unaudited condensed consolidated financial statements reflect all adjustments
which are, in our view, of a normal recurring nature and necessary for a fair presentation of our
financial position including net assets in liquidation and changes in net assets in liquidation 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 4, 2011.
Principles of Consolidation
Our accompanying interim unaudited condensed consolidated financial statements include our
accounts and any variable interest entities, as defined in Financial Accounting Standards Board,
Accounting Standards Codification, or FASB Codification, Topic 810, Consolidation, that we have
concluded should be consolidated. All material intercompany transactions and account balances have
been eliminated in consolidation.
Liquidation Basis of Accounting
As a result of the approval of our plan of liquidation by our unit holders, we adopted the
liquidation basis of accounting as of August 31, 2005, and for all periods subsequent to August 31,
2005. Accordingly, all assets have been adjusted to their estimated fair values (on an undiscounted
basis). Liabilities, including estimated costs associated with implementing and completing our plan
of liquidation, were adjusted to their estimated settlement amounts. The valuation of our
investment in our one remaining unconsolidated property is based on current contracts, estimates
and other indications of sales value net of estimated selling costs. Estimated future cash flows
from property operations were made based on the anticipated sale dates of the asset. Due to the
uncertainty in the timing of the anticipated sale date and the cash flows therefrom, results may
differ materially from amounts estimated. These amounts are presented in the accompanying statement
of net assets. The net assets represent the estimated liquidation value of our assets available to
our unit holders upon liquidation. The actual values realized for assets and settlement of
liabilities may differ materially, perhaps in adverse ways, from the amounts estimated.
5
Table of Contents
NNN 2002 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
The Congress Center property is continually evaluated and we adjust our net real estate
liquidation value accordingly. It is our policy that when we execute a purchase and sale agreement
or become aware of market conditions or other circumstances that indicate that our current value
materially differs from our expected net sales price, we will adjust our liquidation value
accordingly.
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 an unconsolidated office
building. As such, our operations have been aggregated into one reportable segment for all periods
presented.
3. Asset for Estimated Receipts in Excess of Estimated Costs during Liquidation
Under the liquidation basis of accounting, we are required to estimate the cash flows from
operations and accrue the costs associated with executing and completing our plan of liquidation.
Our Manager has agreed to bear all costs associated with public company filings, including legal,
accounting and liquidation costs. We currently estimate that we will have operating cash inflows
from our estimated receipts in excess of the estimated costs during liquidation. These amounts can
vary significantly due to, among other things, the timing and estimates for executing and renewing
leases, along with the estimates of tenant improvements incurred and paid, the timing of the sale
of the Congress Center property, the timing and amounts associated with discharging known and
contingent liabilities and the costs associated with winding up our operations. These costs are
estimated and are expected to be paid over the remaining liquidation period.
Effective July 1, 2008, monthly distributions to the Congress Center propertys investors were
suspended, including distributions to us. As a result of this suspension of monthly distributions,
our sole source of cash flow is expected to be proceeds from the anticipated sale of our interest
in the Congress Center property. It is anticipated that funds previously used for distributions
will be applied by the Congress Center property towards future tenanting costs to lease spaces not
covered by the lender reserve and to supplement the lender reserve funding as necessary.
The change in the asset for estimated receipts in excess of estimated costs during liquidation
for the six months ended June 30, 2011 was as follows:
Cash Payments | Change in | |||||||||||||||
December 31, 2010 | and (Receipts) | Estimates | June 30, 2011 | |||||||||||||
Assets: |
||||||||||||||||
Estimated net
inflows from
unconsolidated
operating
activities |
$ | 1,368,000 | $ | | $ | (127,000 | ) | $ | 1,241,000 | |||||||
Liabilities: |
||||||||||||||||
Liquidation costs |
(504,000 | ) | 13,000 | 37,000 | (454,000 | ) | ||||||||||
Total asset for
estimated receipts
in excess of
estimated costs
during liquidation |
$ | 864,000 | $ | 13,000 | $ | (90,000 | ) | $ | 787,000 | |||||||
The change in the asset for estimated receipts in excess of estimated costs during liquidation
for the six months ended June 30, 2010 was as follows:
Cash Payments | Change in | |||||||||||||||
December 31, 2009 | and (Receipts) | Estimates | June 30, 2010 | |||||||||||||
Assets: |
||||||||||||||||
Estimated net
inflows from
unconsolidated
operating
activities |
$ | 1,270,000 | $ | | $ | (76,000 | ) | $ | 1,194,000 | |||||||
Liabilities: |
||||||||||||||||
Liquidation costs |
(421,000 | ) | 11,000 | (19,000 | ) | (429,000 | ) | |||||||||
Total asset for
estimated receipts
in excess of
estimated costs
during liquidation |
$ | 894,000 | $ | 11,000 | $ | (95,000 | ) | $ | 765,000 | |||||||
6
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NNN 2002 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
4. Net Assets in Liquidation
Net assets in liquidation decreased by $145,000, or $24.33 per unit, to $1,964,000 during the
three months ended June 30, 2011, compared to net assets in liquidation of $2,109,000 as of March
31, 2011. The decrease in our net assets was primarily due to a decrease in our estimated receipts
in excess of estimated costs during liquidation of $20,000, or $3.36 per unit, as a result of
changes in estimates of net cash flows of our one remaining unconsolidated property, and a decrease
in the liquidation value of the Congress Center property of $112,000, or $18.79 per unit, mainly
due to a decrease in the anticipated sale price.
Net assets in liquidation decreased by $40,000, or $6.71 per unit, to $1,921,000 during the
three months ended June 30, 2010, compared to net assets in liquidation of $1,961,000 as of March
31, 2010. The primary reason for the decrease in our net assets was due to a decrease in our
estimated receipts in excess of estimated costs during liquidation of $117,000, or $19.63 per unit,
caused by a 6-month extension of our estimated sale date and associated changes in estimates of net
cash flows, partially offset by an increase in the liquidation value of our one remaining
unconsolidated property of $87,000, or $14.60 per unit, which is a result of an increase in the
anticipated sale price.
Net assets in liquidation decreased by $155,000, or $26.01 per unit, to $1,964,000 during the
six months ended June 30, 2011, compared to net assets in liquidation of $2,119,000 as of December
31, 2010. The decrease in our net assets was primarily due to a decrease in our estimated receipts
in excess of estimated costs during liquidation of $77,000, or $12.92 per unit, as a result of
changes in estimates of net cash flows of our one remaining unconsolidated property, and a decrease
in the liquidation value of the Congress Center property of $65,000, or $10.91 per unit, mainly due
to a decrease in the anticipated sale price.
Net assets in liquidation increased by $37,000, or $6.21 per unit, to $1,921,000 during the
six months ended June 30, 2010, compared to net assets in liquidation of $1,884,000 as of December
31, 2009. The primary reason for the increase in our net assets was an increase in the liquidation
value of our one remaining unconsolidated property of $132,000, or $22.15 per unit, which is a
result of an increase in the anticipated sale price, partially offset by a decrease of $84,000, or
$14.09 per unit, in our estimated receipts in excess of estimated costs during liquidation caused
by a 6-month extension of our estimated sale date and associated changes in estimates of net cash
flows.
The net assets in liquidation of $1,964,000 as of June 30, 2011, plus liquidating
distributions paid to our unit holders of $18,900,000 through June 30, 2011, would result in
liquidating distributions to our unit holders per unit of approximately $3,658.03 for Class A,
$3,487.12 for Class B and $3,354.30 for Class C, of which $3,171.22 per unit for each class has
been paid. These estimates for liquidating distributions per unit include projections of costs and
expenses expected to be incurred during the period required to complete our plan of liquidation.
These projections could change materially based on the timing of the sale, the real estate market
conditions, the performance of the Congress Center property and changes in the underlying
assumptions of the projected cash flows.
5. Investment in Unconsolidated Real Estate
As of June 30, 2011 and December 31, 2010, our sole real estate investment is comprised of a
12.3% interest in the Congress Center property. The Congress Center property has a gross leaseable
area, or GLA, of approximately 520,000 square feet. As of June 30, 2011, 93% of the total GLA of
the Congress Center property was leased to 13 tenants and 83% was occupied by 12 tenants.
6. Unit Holders Equity
There are three classes of units, each with different rights with respect to distributions. As
of June 30, 2011 and December 31, 2010, there were 2,000 Class A units, 2,000 Class B units and
1,960 Class C units issued and outstanding. The rights and obligations of all unit holders are
governed by the Operating Agreement.
7
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NNN 2002 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. We had no
excess cash from operations for the three and six months ended June 30, 2011 and 2010 and our
Manager did not receive any such distributions for these periods.
Cash from capital transactions, as defined in the Operating Agreement, is used as follows:
first, to satisfy our debt and liability obligations; second, to pay pro rata distributions to all
unit holders in accordance with their interests until all capital contributions are reduced to
zero; and third, to unit holders in accordance with the distributions as outlined above in the cash
from operations.
There were no distributions declared during the three or six months ended June 30, 2011 and
2010. Class A units, Class B units and Class C units have received identical per-unit distributions
in the past; however, distributions, if any, will vary among the three classes of units in the
future.
Following the payment of the monthly April 2005 distribution, the then board of managers of
our Manager decided to discontinue the payment of monthly distributions. To the extent that prior
distributions have not conformed to the distribution priorities, we intend to adjust future
distributions in order to provide overall net distributions consistent with the priority provisions
of the Operating Agreement. Such distributions may be distributions from capital transactions and
may be completed in connection with our plan of liquidation.
7. Related Party Transactions
The Operating Agreement
Pursuant to the Operating Agreement, our Manager or its affiliates are entitled to receive the
following payments and fees described below. These payments and fees were not negotiated at arms
length and may be higher than payments and fees that would have resulted from an arms length
negotiation with an unaffiliated third party.
Expenses, Costs, or Fees
We have agreed to reimburse our Manager and its affiliates for certain expenses, costs and
fees incurred by our Manager, including, without limitation, for the cash payments, certain closing
costs, escrow deposits, loan commitment fees, project studies and travel expenses related to the
analysis and dispositions of our properties. Our Manager did not incur and, therefore, was not
reimbursed for any such expenses, costs or fees for the three and six months ended June 30, 2011 and
2010.
Operating Expenses
We have agreed to reimburse our Manager or its affiliates for reasonable and necessary
expenses paid or incurred by our Manager or its affiliates in connection with our operation,
including any legal and accounting costs, and the costs incurred in connection with the disposition
of our properties, including travel, surveys, environmental and other studies and interest expense
incurred on deposits or expenses. In accordance with our plan of liquidation, the then board of
managers of our Manager voted and approved that all costs associated with public company compliance
would be borne by our Manager. As such, our Manager has incurred costs associated with our public
company compliance, but will not be reimbursed for such costs. Our Manager did not incur any
non-public company compliance costs, and therefore, was not reimbursed for any such costs for the
three and six months ended June 30, 2011 and 2010.
8
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NNN 2002 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Distributions to Our Manager
Our Manager is entitled to receive from us distributions that relate to cash from operations
and from capital transactions as discussed in Note 6, Unit Holders Equity. Our Manager did not
receive any such distributions for the three and six months ended June 30, 2011 and 2010. Based on
the valuation of our one remaining unconsolidated property as of June 30, 2011 and December 31,
2010, we have reserved an estimated distribution to our Manager of $402,000 and $440,000,
respectively, which is reflected in the asset for estimated receipts in excess of estimated costs
during liquidation in our interim unaudited condensed consolidated statements of net assets.
The Management Agreement
Pursuant to the Operating Agreement and the Management Agreement, Realty is entitled to
receive payments for property management fees, lease commissions, project fees, disposition fees
and loan fees. These fee arrangements were not negotiated at arms length and may be higher than
payments and fees that would have resulted from an arms length negotiation with an unaffiliated
third party. We only incur and pay such fees on consolidated properties. For the three and six
months ended June 30, 2011 and 2010, we did not have any consolidated properties and, as a result,
no such fees were paid.
8. Commitments and Contingencies
Litigation
Neither we nor the Congress Center property are presently subject to any material litigation
nor, to our knowledge, is any material litigation threatened against us or the Congress Center
property, which if determined unfavorably to us would have a material adverse effect on our cash
flows, financial condition or results of operations.
Unconsolidated Debt
Total mortgage debt of the Congress Center property was $91,300,000 and $92,054,000 as of June
30, 2011 and December 31, 2010, respectively. Our pro rata share of the mortgage debt was
$11,212,000 and $11,304,000 as of June 30, 2011 and December 31, 2010, respectively. The Congress
Center property is required by the terms of its loan documents to meet certain financial covenants
and other requirements. As of June 30, 2011, the Congress Center property was in compliance with
all such requirements. The mortgage debt of the Congress Center property matures on October 1,
2014.
Environmental Matters
We have a policy for monitoring the Congress Center property 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 Congress
Center property that would have a material adverse effect on our cash flows, financial condition or
results of operations. 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.
Other
Our other commitments and contingencies include the usual obligations of a real estate company
in the normal course of business. In the opinion of management, these matters are not expected to
have a material adverse affect on our financial condition, results of operations or cash flows.
9
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NNN 2002 VALUE FUND, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
9. Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are
primarily cash investments and accounts receivable from tenants. We have cash in financial
institutions that is insured by the Federal Deposit
Insurance Corporation, or FDIC, up to $250,000 per depositor per insured bank. As of June 30,
2011 and December 31, 2010, we had cash accounts in excess of FDIC insured limits. We believe this
risk is not significant. Concentration of credit risk with respect to accounts receivable from
tenants is limited. We perform credit evaluations of prospective tenants and security deposits are
obtained upon lease execution.
We are also subject to a concentration of regional economic exposure affecting Illinois, as
our sole remaining asset consists of a 12.3% interest in the Congress Center property, located in
Chicago, Illinois. Regional economic downturns affecting the State of Illinois could adversely
impact our operations.
As of June 30, 2011, we had no consolidated properties, however, four tenants at the Congress
Center property accounted for 10.0% or more of the aggregate annual rental income at that property,
as follows:
Percentage of | Square | Lease | ||||||||||||||
2011 Annual | 2011 Annual | Footage | Expiration | |||||||||||||
Tenant | Base Rent (1) | Base Rent | (Approx.) | Date | ||||||||||||
U.S. Department of Homeland Security |
$ | 3,668,000 | 27.3 | % | 76,000 | Apr. 2012 | ||||||||||
North American Co. Life and Health Insurance |
$ | 2,279,000 | 17.0 | % | 92,000 | Various | (2) | |||||||||
Akzo Nobel, Inc. |
$ | 2,222,000 | 16.6 | % | 91,000 | Dec. 2019 | ||||||||||
U.S. Department of Treasury |
$ | 1,740,000 | 13.0 | % | 37,000 | Feb. 2013 |
(1) | Annualized rental income is based on contractual base rent set forth in leases in effect as of June 30, 2011. | |
(2) | The lease with respect to 50,000 square feet expires in February 2012 and the lease for 42,000 square feet expires in February 2022. |
As of June 30, 2010, we had no consolidated properties, however, five tenants at the Congress
Center property accounted for 10.0% or more of the aggregate annual rental income at that property,
as follows:
Percentage of | Square | Lease | ||||||||||||||
2010 Annual | 2010 Annual | Footage | Expiration | |||||||||||||
Tenant | Base Rent (1) | Base Rent | (Approx.) | Date | ||||||||||||
U.S. Department of Homeland Security |
$ | 3,603,000 | 28.6 | % | 76,000 | Apr. 2012 | ||||||||||
North American Co. Life and Health Insurance |
$ | 2,522,000 | 20.0 | % | 101,000 | Feb. 2012 | ||||||||||
Akzo Nobel, Inc. |
$ | 2,176,000 | 17.3 | % | 91,000 | Dec. 2019 | ||||||||||
U.S. Department of Treasury |
$ | 1,709,000 | 13.5 | % | 37,000 | Feb. 2013 | ||||||||||
National Railroad Passenger Corporation |
$ | 1,274,000 | 10.1 | % | 50,000 | Dec. 2011 |
(1) | Annualized rental income is based on contractual base rent set forth in leases in effect as of June 30, 2010. |
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The use of the words we, us or our refers to NNN 2002 Value Fund, LLC, except where the
context otherwise requires.
The following discussion should be read in conjunction with our interim unaudited condensed
consolidated financial statements and notes accompanying this Quarterly Report on Form 10-Q. Such
financial statements and information have been prepared to reflect our net assets in liquidation as
of June 30, 2011 and December 31, 2010 (liquidation basis), together with the changes in net assets
for the three and six months ended June 30, 2011 and 2010 (liquidation basis).
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. 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 we 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 an 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;
legislative/regulatory changes; availability of capital; changes in interest rates; competition in
the real estate industry; supply and demand for operating properties in our current market areas;
changes in accounting principles generally accepted in the United States of America, or GAAP,
policies and guidelines applicable to us; predictions of the amount of liquidating distributions to
be received by unit holders; statements regarding the timing of asset dispositions and the sales
price we will receive for assets; the effect of the liquidation; our ongoing relationship with our
Manager (as defined below); litigation; and the implementation and completion of our plan of
liquidation. 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
We were formed on May 15, 2002 as a Virginia limited liability company to purchase, own,
operate and subsequently sell all or a portion of up to three properties. We expected to own our
interests in the properties for approximately three to five years from the date of acquisition of
each asset. At the time of our formation, our principal objectives were to: (i) preserve our unit
holders capital investment; (ii) realize income through the acquisition, operation and sale of the
properties; (iii) make monthly distributions to our unit holders from cash generated from
operations in an amount equal to an 8.0% annual return of our unit holders investment; however,
the distributions among the Class A unit holders, Class B unit holders and Class C unit holders
will vary; and (iv) within approximately three to five years from the respective acquisition of
each asset, subject to market conditions, realize income from the sale of the properties and
distribute the proceeds of such sales to our unit holders.
As described below, on September 7, 2005, our unit holders approved a plan of liquidation and
eventual dissolution of our company. Accordingly, we are engaged in an ongoing liquidation of our
remaining asset. As of June 30, 2011, we owned a 12.3% interest in one unconsolidated property,
Congress Center, located in Chicago, Illinois, or the Congress Center property. References herein
to our property, our one remaining unconsolidated property or our remaining asset are to our 12.3%
interest in the Congress Center property.
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Grubb & Ellis Realty Investors, LLC (formerly known as Triple Net Properties, LLC), or Grubb &
Ellis Realty Investors, or our Manager, manages us pursuant to the terms of an operating agreement,
or the Operating
Agreement. Our Manager is primarily responsible for managing our day-to-day operations and
assets. While we have no employees, certain employees and executive officers 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 various services to the
Congress Center property, of which we own a 12.3% interest. 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 the Congress
Center property upon the earlier of the sale of such property or 10 years from the date of
acquisition. Realty may be terminated with respect to the Congress Center property 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 and Plan of Liquidation
As set forth in our registration statement on Form 10, originally filed with the SEC on
December 30, 2004, as amended, we were not formed with the expectation that we would be an entity
that is required to file reports pursuant to the Exchange Act. We became subject to the
registration requirements of Section 12(g) of the Exchange Act because the aggregate value of our
assets exceeded applicable thresholds and our units were held of record by 500 or more persons at
December 31, 2003. As a result of registration of our securities with the SEC under the Exchange
Act, we became subject to the reporting requirements of the Exchange Act. In particular, we are
required to file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports
on Form 8-K and otherwise comply with the disclosure requirements of the Exchange Act applicable to
issuers filing registration statements pursuant to Section 12(g) of the Exchange Act. As a result
of (i) current market conditions and (ii) the obligation to incur costs of corporate compliance
(including, without limitation, all federal, state and local regulatory requirements applicable to
us, including the Sarbanes-Oxley Act of 2002, as amended), during the fourth quarter of 2004, our
Manager began to investigate whether liquidation would provide our unit holders with a greater
return on their investment than any other alternative. After reviewing the issues facing us, our
Manager approved a plan of liquidation on June 14, 2005, which was thereafter approved by our unit
holders at a special meeting of unit holders on September 7, 2005.
Our plan of liquidation contemplates the orderly sale of all of our assets, the payment of our
liabilities and the winding up of operations and the dissolution of our company. We engaged an
independent third party to perform financial advisory services in connection with our plan of
liquidation, including rendering opinions as to whether our net real estate liquidation value range
estimate and our estimated per unit distribution range were reasonable.
We continually evaluate our investment in the Congress Center property and adjust our net real
estate liquidation value accordingly. It is our policy that when we execute a purchase and sale
agreement for the sale of our real property asset or become aware of market conditions or other
circumstances that indicate that the current carrying value of our real property asset materially
differs from our expected net sale price, we will adjust our liquidation value accordingly.
Following the approval of our plan of liquidation by our unit holders on September 7, 2005, we
adopted the liquidation basis of accounting as of August 31, 2005 and for all periods subsequent to
August 31, 2005.
Our plan of liquidation gives our Manager the power to sell any and all of our assets without
further approval by our unit holders and provides that liquidating distributions be made to our
unit holders as determined by our Manager. Based on current conditions in the real estate market,
we currently expect to sell our interest in the Congress Center property by December 31, 2012, and
anticipate completing our plan of liquidation by March 31, 2013. However, our interest in the
Congress Center property is held as a member of a limited liability company, or LLC, that holds an
undivided tenant-in-common, or TIC, interest in the property. Because of the nature of joint
ownership, we will need to agree with our co-owners on the terms of the property sale before the
sale can be affected. There can be no assurance that we will agree with our co-owners on
satisfactory sales terms for this property. If the parties are unable to agree, the matter could
ultimately be presented to a court of law, and a judicial partition could be sought. A failure to
reach an agreement with these parties regarding the sales terms of this property may significantly
delay the sale of the property, which would delay and possibly reduce liquidating distributions to
our unit holders. We may be unable to receive our expected value for this property because we hold
a minority interest in the LLC and, thus, cannot sell our property interest held in the LLC or
force the sale of the Congress Center property.
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In accordance with our plan of liquidation, the Congress Center property is actively managed
to seek to achieve higher occupancy rates, control operating expenses and maximize income from
ancillary operations and services. Due to the adoption of our plan of liquidation, we will not
acquire any new properties and are focused on liquidating our interest in the Congress Center
property.
For a more detailed discussion of our plan of liquidation, including the risk factors and
certain other uncertainties associated therewith, please read our definitive proxy statement filed
with the SEC on August 4, 2005.
Property Dispositions
We did not have any property dispositions during the three and six months ended June 30, 2011
and 2010.
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 4, 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 under the liquidation basis of accounting effective
August 31, 2005, 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 notes required by GAAP for complete financial statements. Our
accompanying interim unaudited condensed consolidated financial statements reflect all adjustments
which are, in our view, of a normal recurring nature and necessary for a fair presentation of our
financial position including net assets in liquidation and changes in net assets in liquidation 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 4, 2011.
Factors Which May Influence Future Changes in Net Assets in Liquidation
Investment in Unconsolidated Real Estate
In calculating the estimated amount of liquidating distributions to our unit holders, we
assumed that we would be able to locate a buyer for the Congress Center property at an amount based
on our best estimate of market value for the property. However, we may have overestimated the sales
price that we will ultimately be able to obtain for this asset. If the market value of the Congress
Center property declines more than 5% from our current estimate of the market value as of June 30,
2011, our investment in unconsolidated real estate would be zero.
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Rental Income
The amount of rental income generated by the Congress Center property depends principally on
our ability to maintain the occupancy rates of currently leased space, to lease currently available
space and space available from
unscheduled lease terminations and the timing of the disposition of the property. Negative
trends in one or more of these factors could adversely affect our rental income in future periods.
Scheduled Lease Expirations
As of June 30, 2011, the Congress Center property was 93% leased to 13 tenants and 83%
occupied by 12 tenants. Leases representing approximately 10% of the gross leaseable area, or GLA,
expire during 2011. Our leasing strategy through our plan of liquidation focuses on negotiating
renewals for leases scheduled to expire and identifying new tenants or existing tenants seeking
additional space for which we are unable to negotiate such renewals.
Changes in Net Assets in Liquidation
Three and Six Months Ended June 30, 2011 and 2010
Net assets in liquidation decreased by $145,000, or $24.33 per unit, to $1,964,000 during the
three months ended June 30, 2011, compared to net assets in liquidation of $2,109,000 as of March
31, 2011. The decrease in our net assets was primarily due to a decrease in our estimated receipts
in excess of estimated costs during liquidation of $20,000, or $3.36 per unit, as a result of
changes in estimates of net cash flows of our one remaining unconsolidated property, and a decrease
in the liquidation value of the Congress Center property of $112,000, or $18.79 per unit, mainly
due to a decrease in the anticipated sale price.
Net assets in liquidation decreased by $40,000, or $6.71 per unit, to $1,921,000 during the
three months ended June 30, 2010, compared to net assets in liquidation of $1,961,000 as of March
31, 2010. The primary reason for the decrease in our net assets was due to a decrease in our
estimated receipts in excess of estimated costs during liquidation of $117,000, or $19.63 per unit,
caused by a 6-month extension of our estimated sale date and associated changes in estimates of net
cash flows, partially offset by an increase in the liquidation value of our one remaining
unconsolidated property of $87,000, or $14.60 per unit, which is a result of an increase in the
anticipated sale price.
Net assets in liquidation decreased by $155,000, or $26.01 per unit, to $1,964,000 during the
six months ended June 30, 2011, compared to net assets in liquidation of $2,119,000 as of December
31, 2010. The decrease in our net assets was primarily due to a decrease in our estimated receipts
in excess of estimated costs during liquidation of $77,000, or $12.92 per unit, as a result of
changes in estimates of net cash flows of our one remaining unconsolidated property, and a decrease
in the liquidation value of the Congress Center property of $65,000, or $10.91 per unit, mainly due
to a decrease in the anticipated sale price.
Net assets in liquidation increased by $37,000, or $6.21 per unit, to $1,921,000 during the
six months ended June 30, 2010, compared to net assets in liquidation of $1,884,000 as of December
31, 2009. The primary reason for the increase in our net assets was an increase in the liquidation
value of our one remaining unconsolidated property of $132,000, or $22.15 per unit, which is a
result of an increase in the anticipated sale price, partially offset by a decrease of $84,000, or
$14.09 per unit, in our estimated receipts in excess of estimated costs during liquidation caused
by a 6-month extension of our estimated sale date and associated changes in estimates of net cash
flows.
Liquidity and Capital Resources
As of June 30, 2011, our total assets and net assets in liquidation were $1,964,000. Our
ability to meet our obligations is contingent upon the disposition of our interest in the Congress
Center property pursuant to our plan of liquidation. Management estimates that the net proceeds
from the sale of our interest in the Congress Center property will be adequate to pay our
obligations; however, we cannot provide any assurance as to the price we will receive from the sale
of our interest in the Congress Center property or the net proceeds therefrom, if any.
Current Sources of Capital and Liquidity
We anticipate, but cannot assure, that our cash flow from the operations and sale of our
interest in the Congress Center property will be sufficient to fund our cash needs for payment of
expenses during the liquidation period.
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Effective July 1, 2008, monthly distributions to the Congress Center propertys investors were
suspended, including distributions to us. As a result of this suspension of monthly distributions,
our sole source of cash flow is expected to be proceeds from the anticipated sale of the Congress
Center property. It is anticipated that funds previously used for distributions will be applied
towards future tenanting costs to lease spaces not covered by the lender reserve and to supplement
the lender reserve funding as necessary. No distributions were received in 2010 or in the three and
six months ended June 30, 2011.
Our plan of liquidation gives our Manager the power to sell our interest in the Congress
Center property without further approval by our unit holders and provides that liquidating
distributions be made to our unit holders as determined at the discretion of our Manager. Although
we can provide no assurances, we currently expect to sell our interest in the Congress Center
property by December 31, 2012 and anticipate completing our plan of liquidation by March 31, 2013.
Other Liquidity Needs
We believe that we will have sufficient capital resources to satisfy our liquidity needs
during the liquidation period. As of June 30, 2011, we estimate that we will have $454,000 of
commitments and expenditures during the remaining liquidation period, comprised mainly of $402,000
in liquidating distributions to our Manager pursuant to the Operating Agreement. However, there can
be no assurance that we will not exceed the amounts of these estimated expenditures. An adverse
change in the net cash flows from the unconsolidated operations of the Congress Center property or
net proceeds expected from the sale of the Congress Center property may affect our ability to fund
these items and may affect our ability to satisfy the financial covenants under the mortgages on
the Congress Center property. If we fail to meet our financial covenants and are unable to reach a
satisfactory resolution with the lenders, the maturity dates for the secured notes on the Congress
Center property could be accelerated. Any of these circumstances could adversely affect our ability
to fund working capital, liquidation costs and unanticipated cash needs.
During the three and six months ended June 30, 2011, we paid no liquidating distributions.
Following the payment of the April 2005 monthly distribution to our unit holders, the then board of
managers of our Manager decided to discontinue the payment of monthly distributions. In accordance
with our plan of liquidation, our Manager can make liquidating distributions from proceeds received
from the sale of assets in its sole discretion. Liquidating distributions are dependent on a number
of factors, including the amount of funds available for distribution, our financial condition, and
our capital expenditures on the Congress Center property, among other factors our Manager may deem
relevant.
The stated range of unit holder distributions disclosed in our plan of liquidation is an
estimate only and actual results may be higher or lower than estimated. The potential for variance
on either end of the range could occur for a variety of reasons, including, but not limited to: (i)
unanticipated costs could reduce net assets actually realized; (ii) if we wind up our business
significantly faster than anticipated, some of the anticipated costs may not be necessary and net
liquidation proceeds could be higher; (iii) a delay in our liquidation could result in higher than
anticipated costs and net liquidation proceeds could be lower; (iv) circumstances may change and
the actual net proceeds realized from the sale of some of the assets might be less, or
significantly less, than currently estimated, including, for among other reasons, the discovery of
new environmental issues or loss of a tenant or tenants; and (v) actual proceeds realized from the
sale of some of the assets may be higher than currently estimated if market values increase.
Subject to our Managers actions and in accordance with our plan of liquidation, we expect to
meet our liquidity requirements through the completion of the liquidation through retained cash
flow, disposition of assets, and unsecured borrowings. We do not intend to reserve funds to retire
existing debt upon maturity. We will, instead, seek to refinance such debt at maturity or retire
such debt through the disposition of the Congress Center property.
If we experience lower occupancy levels and reduced rental rates at the Congress Center
property, reduced revenues as a result of the sale of the Congress Center property, or increased
capital expenditures and leasing costs at the Congress Center property compared to historical
levels due to competitive market conditions for new and renewal leases, the effect would be a
reduction of our net assets in liquidation. This estimate is based on various assumptions which are
difficult to predict, including the levels of leasing activity and related leasing costs. Any
changes in these assumptions could adversely impact our financial results, our ability to pay
current liabilities as they come due and our other unanticipated cash needs.
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Capital Resources
Prior to the adoption of our plan of liquidation, our primary sources of capital were our real
estate operations, our ability to leverage any increased market value in the real estate assets we
owned and our ability to obtain debt financing from third parties, including, our Manager or its
affiliates. Prior to July 1, 2008, our primary source of capital was distributions from the
Congress Center property. However, effective July 1, 2008, monthly distributions to the Congress
Center propertys investors were suspended, including distributions to us. As a result of this
suspension of monthly distributions, our sole source of cash flow is expected to be proceeds from
the anticipated sale of the Congress Center property. It is anticipated that funds previously used
for distributions will be applied towards future tenanting costs to lease spaces not covered by the
lender reserve and to supplement the lender reserve funding as necessary. No distributions were
received in 2010 or in the three and six months ended June 30, 2011.
The primary uses of cash are to fund liquidating distributions to our unit holders and
operating expenses. We may also regularly require capital to invest in the Congress Center property
in connection with routine capital improvements and leasing activities, including funding tenant
improvements, allowances and leasing commissions. The amounts of the leasing-related expenditures
can vary significantly depending on negotiations with tenants and the willingness of tenants to pay
higher base rents over the life of their leases.
In accordance with our plan of liquidation, we anticipate our source for the payment of our
liquidating distributions to our unit holders to be primarily from the net proceeds from the sale
of our interest in the Congress Center property.
We believe that our cash balance of $437,000 as of June 30, 2011 should provide sufficient
liquidity to meet our cash needs during the next 12 months from June 30, 2011. While we anticipate
that our existing cash balance will be sufficient to fund our cash needs for corporate related
expenses for the next 12 months, we can provide no assurance that this will be the case.
Unconsolidated Debt
Total mortgage debt of the Congress Center property was $91,300,000 and $92,054,000 as of June
30, 2011 and December 31, 2010, respectively. Our pro rata share of the mortgage debt was
$11,212,000 and $11,304,000 as of June 30, 2011 and December 31, 2010, respectively. The Congress
Center property is required by the terms of its loan documents to meet certain financial covenants
and other requirements. As of June 30, 2011, the Congress Center property was in compliance with
all such requirements. The mortgage debt of the Congress Center property matures on October 1,
2014.
Commitments and Contingencies
Insurance Coverage
The insurance coverage provided through third party insurance carriers is subject to coverage
limitations. Should an uninsured or underinsured loss occur, we could lose all or a portion of our
investment in, and anticipated cash flows from, the Congress Center property. In addition, there
can be no assurance that third party insurance carriers will be able to maintain reinsurance
sufficient to cover any losses that may be incurred.
Debt Service Obligations
As of June 30, 2011, all consolidated debt service obligations have been repaid in full.
Contractual Obligations
As of June 30, 2011, all consolidated contractual obligations have been repaid in full.
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Off-Balance Sheet Arrangements
There are no off-balance sheet transactions, arrangements or obligations (including contingent
obligations) that have, or are reasonably likely to have a current or future material effect on our
financial condition, results of operations or cash flows.
Inflation
We are exposed to inflation risk as income from long-term leases is expected to be the primary
source of cash flows from operations. We expect that there will be provisions in the majority of
our tenant leases that would provide some protection from the impact of inflation. These provisions
include rent steps, reimbursement billings for operating expense pass-through charges, real estate
tax and insurance reimbursements on a per square foot allowance. However, due to the long-term
nature of the leases, the leases may not reset frequently enough to cover inflation.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Market risks include 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. We believe that the primary market risk to which we would be exposed would
be an interest rate risk. As of June 30, 2011, we had no outstanding consolidated debt, therefore,
we believe we have no interest rate or market risk. Additionally, the unconsolidated debt related
to our interest in the Congress Center property is at a fixed interest rate.
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 June 30,
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 June 30, 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 June 30, 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 2002 Value Fund, LLC, except where the
context otherwise requires.
Item 1. | Legal Proceedings. |
Litigation
Neither we nor Congress Center, located in Chicago, Illinois, or the Congress Center property,
are presently subject to any material litigation nor, to our knowledge, is any material litigation
threatened against us or the Congress Center property which, if determined unfavorably to us, would
have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. | Risk Factors. |
There were no material changes from the risk factors previously disclosed in our 2010 Annual
Report on Form 10-K, as filed with the Unites States Securities and Exchange Commission on March 4,
2011, except as noted below.
Our success is dependent on the performance of our manager, which could be adversely
impacted by the recent sale of its parent company, Daymark Realty Advisors, Inc., to an unrelated
third party.
On February 10, 2011, Grubb & Ellis Company announced the creation of Daymark Realty Advisors,
Inc., or Daymark, a wholly owned and separately managed subsidiary of Grubb & Ellis and parent
company of NNN Realty Advisors, Inc., or NNNRA, which is the parent company of our manager.
Subsequent thereto Grubb & Ellis announced that it had retained FBR Capital Markets & Co to explore
strategic alternatives with respect to Daymark and its portfolio. On August 10, 2011, Grubb & Ellis
Company entered into a Stock Purchase Agreement, or the Purchase Agreement, with IUC-SOV, LLC, an
entity affiliated with Sovereign Capital Management and Infinity Real Estate. Pursuant to the
Purchase Agreement, Grubb & Ellis sold to IUC-SOV, LLC all of the shares of Daymark, whereby
IUC-SOV, LLC acquired all the assets and liabilities of Daymark and its subsidiaries, subject to
the terms and conditions of the Purchase Agreement. The closing of the transactions contemplated by
the Purchase Agreement were completed on August 10, 2011. Our ability to achieve our investment
objectives and to conduct our operations is dependent upon the performance of our manager and its
parent company, and their respective executive officers and employees. If our manager suffers
operational problems in connection with the sale of Daymark to IUC-SOV, LLC, which could affect our
managers ability to allocate time and/or resources to our operations, our results of operations
would be adversely impacted. Furthermore, the effect that the sale will have on our
operations 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.
In addition, 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.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | Defaults Upon Senior Securities. |
None.
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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, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
NNN 2002 Value Fund, LLC
|
||||
By: Grubb & Ellis Realty Investors, LLC, its Manager | ||||
August 15, 2011 Date |
/s/ Steven M. Shipp
Executive Vice President, Portfolio Management Grubb & Ellis Realty Investors, LLC, the Manager of NNN 2002 Value Fund, LLC (principal executive officer) |
|||
August 15, 2011
|
/s/ Paul E. Henderson | |||
Date
|
Paul E. Henderson Chief Accounting Officer Grubb & Ellis Realty Investors, LLC, the Manager of NNN 2002 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 June 30, 2011 (and are numbered in accordance with Item 601 of
Regulation S-K).
2.1 | NNN 2002 Value Fund, LLC Plan of Liquidation and Dissolution,
as approved by unit holders on September 7, 2005 and as
currently in effect (included as Exhibit A to our Definitive
Proxy Statement filed on August 4, 2005 and incorporated herein
by reference) |
|||
3.1 | Articles of Organization of NNN 2002 Value Fund, LLC, dated May
1, 2002 (included as Exhibit 3.1 to our Amendment No. 1 to Form
10 Registration Statement filed on February 28, 2005 and
incorporated herein by reference) |
|||
10.1 | Operating Agreement of NNN 2002 Value Fund, LLC, (included as
Exhibit 10.1 to our Amendment No. 1 to Form 10 Registration
Statement filed on February 28, 2005 and incorporated herein by
reference) |
|||
10.2 | Management Agreement between NNN 2002 Value Fund, LLC and
Triple Net Properties Realty, Inc. (included as Exhibit 10.2 to
our Amendment No. 1 to Form 10 Registration Statement filed on
February 28, 2005 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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