EXECUTIVE SUMMARY
The Board of Directors (“Board”) of Silver Star Properties REIT, Inc. (“Company”) began the sale of its Legacy Assets in 2023, which provides the first step of this plan of liquidation. That plan will be completed, as discussed herein, by distributing shares (or other equity interests) of a new entity (“NewCo”) containing the remaining storage assets and certain other identified assets. The journey has been arduous, and we continue to work on meaningful reductions of the debt with the goal of ultimately getting rid of our menacing lead creditors. The Company is now prepared to move forward with a Plan of Liquidation (“Plan”) which is described below, all of which requires final approval by the Board
I. THE PATH FORWARD
The Plan will require a number of steps, but ultimately the Board intends that each shareholder will receive (i) an equity interest in NewCo, (ii) warrants to enhance the participation in NewCo, (iii) a small amount of cash, and (iv) the indirect participation in the litigation claims. When completed, the Company will shut down and complete the liquidation. The Plan is in its initial stage, primarily due to continuing issues with the Company’s lead lenders, and the details still need to be further analyzed. However, the Board decided to get this information to you now, as management is primarily focusing on this Plan. Keep in mind that the Company continues to struggle with our lenders, which has led to delays in the approval of certain asset sales, and the additional costs incurred from dealing with them. The lender has advised the Company that it does not plan to approve certain sales that are scheduled in May until the closing of another sale that is currently scheduled for June. This delay will increase costs to the Company and might result in lost or delayed sales or other penalties. In connection with the liquidation of the Company which began in 2023, the Company no longer intends to be reported as a real estate investment trust.
The Plan of Liquidation operates on distinct, aggressive tracks to deliver shareholder value:
- Sale of Other Assets. As part of the Plan, the Company will sell the remaining legacy assets (as of today The Preserve, One Technology Center and 601 Sawyer) and all of the Walgreens locations, along with other saleable assets, if any. The Company also owns and plans to sell an asset referred to as 17211 N. Freeway pad site, which is not pledged on any loan. The Company is also pursuing refunds of real property taxes previously paid. A substantial portion of the proceeds from the sale of the assets referred to above (excluding the pad site and the real property tax claims) will be immediately applied to the debt secured by such assets. It is anticipated that the proceeds from the pad site and the tax claims will be used for other existing liabilities and working capital needs.
- Refinancing of Storage Assets. Following or in conjunction with the sales in 1 above, the Company intends to refinance the debt on the 4 self-storage assets, which will require the use of some of the proceeds referred to in 1 above.
- Payment of liabilities. The sales described above should result in the complete payment of all the debt secured by Company legacy assets and Walgreens assets. The Plan will require the payment of all other payables and liabilities of the Company and the settlement of all other claims (including litigation). Management intends to attempt a workout with some form of debt-equity swap that may include a discount with as many creditors as possible. To the extent some claims continue, cash may be set aside for such matters.
- The “NewCo” Spinoff. After the foregoing and pursuant to the Plan, the Company will create a new entity, the form of which is to be determined (“NewCo”). The Company will transfer to NewCo the four (4) self-storage properties now owned by the Company, with debt fully refinanced and not in default (this may be done in connection with the refinancing described above). In addition, the Company will cause NewCo to create warrants to be distributed to the shareholders, which will have an exercise price to be determined by the Board. The Company will also transfer its rights to the Company’s ongoing litigation against Allen Hartman and others, which we anticipate will be an additional, potentially substantial source for the growth of NewCo. The Board is considering a cash payment to the shareholders upon any significant recovery with respect to the ongoing litigation. NewCo will be funded with some cash to finance such ongoing litigation, the cost of which Management will monitor and do its best to keep it as low as reasonably possible.
- Liquidating Cash Distribution: The Plan will require a liquidating cash distribution of any available cash after all of the steps provided above have been completed, the exact amount of which is yet to be determined, and which may be nominal.
II. THE ADVANTAGES OF STORAGE
The Board has previously told you about the decision to transition away from the commercial office sector and into self-storage. The Board has stated that self-storage provides the shareholders with a superior, resilient asset class that is now seen as an investment grade opportunity. Self-storage inherently offers:
- Needs-Based Demand: The demand for self-storage can be driven by fundamental life events, creating recurring and sticky revenue streams that are highly insulated from the macroeconomic shocks affecting traditional office space.
- Pricing Power and Flexibility: Short-duration, month-to-month leases allow for real-time rental rate adjustments and provide an immediate, natural hedge against inflation.
- Superior Operational Scalability: The sector boasts drastically lower ongoing capital expenditure requirements and operating costs, with exceptionally high operating margins, entirely eliminating the massive tenant improvement allowances and deferred maintenance black holes that continually drain cash from legacy office portfolios.
In connection with analyzing this plan and as support for the Board’s decisions, you should look at that mega-merger announced on March 16, 2026, between Public Storage and National Storage Affiliates. This landmark $10.5 billion transaction creates a combined behemoth with a $57 billion pro forma equity market capitalization and a $77 billion enterprise value, encompassing 327 million square feet across nearly 4,600 locations.
The financial orientation of this Public Storage/National merger mirrors the exact drivers behind our own strategy. Institutional capital is aggressively consolidating to capture massive scale efficiencies, high-cash-flow yields, and targeted growth in highly lucrative demographic regions like the Sun Belt. The market is rewarding scalable, high-yield storage assets. The Public Storage and National merger quite frankly supports the Plan. NewCo will take us into the asset class that is exactly where institutional real estate capital is heavily pivoting.
III. THE DEPTH OF THE HOLE CREATED BY HARTMAN
The Board understands that many of you have heard this before, but we feel it is necessary to remind you again. To fully measure the magnitude of the Board’s execution and where we stand today, we must give you at least a glimpse of the hole created and left behind by Allen Hartman, which includes the following information for where we are today.
Under prior leadership, the Company was driven into severe distress through staggering mismanagement:
- Systemic Underinvestment: Hartman accumulated massive deferred maintenance across the legacy office assets. This chronic starving of the properties materially impaired their operational effectiveness, intrinsic value and marketability, driving a devastating portfolio markdown, which in just the last four legacy assets held by the Company was from approximately $83.5 million down to roughly $33.1 million. By the time this was discovered the debt was in default and the lender controlled Company cash.
- Misaligned Capital Structures: Hartman left the Company without liquidity, unable to control the cash flow from its assets, and burdened by excessive debt that was in default.
- Disruptive Legal Sabotage: As the Board stepped in to rescue the platform, Hartman initiated a scorched-earth campaign that included disruptive legal actions and weaponizing bad-faith lis pendens These destructive actions intentionally blocked and delayed critical property sales, exacerbated loan defaults, crippled our refinancing efforts, and exerted downward pressure on asset values.
The Board has spent immense capital and effort digging out of this trench—slashing overhead, defending the Company, and systematically moving to halt the downward spiral left by Hartman and lay the foundation for survival and recovery.
IV. POSITIONING TODAY & CONCLUSION
Today, the Board is executing on a plan that can move us away from the debt and creditors that have been choking the Company. We have substantially reduced the debt and soon should have it completely repaid. With Three Forest Plaza sold, we are actively marketing the three remaining Legacy Assets (The Preserve, 601 Sawyer, and One Technology Center) and have secured active LOIs, showing favorable early pricing signals for some of our 16 Walgreens properties. The Company is pushing to sell enough to be rid of the onerous debt within 90 days. The company has recently executed a sale agreement for The Preserve, closed the sale of a Walgreens property and executed sale agreements on additional Walgreens properties.
With the balance sheet clearing, you might want to know what cash could be distributed if all of the assets were sold by the Company. Like any issue similar to that the answer can only be an estimate. When considering this, the Board recognized that any plan would take time to sell assets and settle claims, payables and liabilities.
Based upon a sale of all of the assets of the Company and the payment of all payables and liabilities the Board estimates that the Company might net approximately 5 cents ($.05) or less per share, provided, however. the likely current cash amount that would be available for a distribution would be less than 5 cents a share in cash, and could be 2 cents to 3 cents a share as a result of potential funding requirements for the litigation and other issues. That number will depend upon resolving all claims at amounts estimated by Management, for which no assurances can be given. In addition, to continue the pursuit of the Hartman litigation, the Board believes that an ongoing new entity would be a better vehicle to maximize recoveries than a liquidating trust. Note that a reduction of 10% of the sales price of all of the assets that would be sold by the Company would result in no cash being available for distribution.
In connection with the sale of assets and the settlement of certain claims, the Company has reviewed the applicable tax issues associated with such sales. Keep in mind that the process for the sales and settlement has been substantially under the control of the Company’s lenders, since Hartman left the Company with the main debt in default and substantially all of the cash receipts of the Company controlled by the lender. The Company has taken certain tax positions and intends to attempt to neutralize substantially all of any such tax impact by use of the losses generated by the properties that were subject to the most significant deferred maintenance problems. The Internal Revenue Service may challenge one or more of the positions taken by the Company and the outcome of any such challenge, like any other matter with the IRS, is uncertain and could result in additional liability of the Company. NewCo may be required to assume or otherwise have liability for any such amounts. This issue could require the retention of all cash amounts until the matters have been resolved with the IRS.
In order to accelerate this entire process, the board created the concept of a spinoff of NewCo to further maximize the value of the liquidating distributions to stockholders. With only 4 assets remaining and no debt to form a NewCo, the Board has required the contribution of those storage assets and other select assets, including the Hartman litigation and claims against the Lender in the amount that would be contributed to NewCo.
We are highly optimistic with the opportunity before us, particularly in light of the current view of the self-storage asset class that has been demonstrated by the merger of Public Storage and National.
So, the future is ours.
Sincerely,
The Board of Directors
Silver Star Properties REIT, Inc.
Strategic and Operation Contact:
CEO and Executive Chairman, Gerald Haddock
817-885-8390
Media Contact:
Investor Relations Contact:
817-402-4130