Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 06, 2017 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | Sterling Real Estate Trust | |
Entity Central Index Key | 1,412,502 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 8,516,368 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
ASSETS | ||
Real estate investments | $ 648,856 | $ 622,975 |
Cash and cash equivalents | 20,991 | 12,034 |
Restricted deposits and funded reserves | 7,894 | 7,213 |
Investment in unconsolidated affiliates | 2,785 | 3,653 |
Due from related party | 2 | 34 |
Receivables | 4,748 | 4,258 |
Prepaid expenses | 862 | 433 |
Notes receivable | 600 | |
Financing and lease costs, less accumulated amortization of $1,875 in 2017 and $1,720 in 2016 | 776 | 950 |
Assets held for sale | 2,482 | |
Lease intangible assets, less accumulated amortization of $12,491 in 2017 and $10,770 in 2016 | 13,863 | 15,852 |
Other assets | 5 | 29 |
Total Assets | 700,782 | 670,513 |
LIABILITIES | ||
Mortgage notes payable, net | 402,465 | 390,479 |
Special assessments payable | 1,214 | 480 |
Dividends payable | 6,404 | 5,925 |
Due to related party | 617 | 957 |
Tenant security deposits payable | 4,049 | 3,851 |
Subordinated debt | 175 | 175 |
Lease intangible liabilities, less accumulated amortization of $1,324 in 2017 and $1,122 in 2016 | 1,846 | 2,075 |
Accounts payable - trade | 474 | 438 |
Retainage payable | 420 | 288 |
Liabilities related to assets held for sale | 125 | |
Fair value of interest rate swaps | 88 | 145 |
Deferred insurance proceeds | 1,475 | 102 |
Accrued expenses and other liabilities | 8,672 | 6,818 |
Total Liabilities | 427,899 | 411,858 |
COMMITMENTS and CONTINGENCIES - Note 16 | ||
SHAREHOLDERS' EQUITY | ||
Beneficial interest | 89,023 | 84,727 |
Noncontrolling interest in operating partnership | 180,725 | 170,138 |
Noncontrolling interest in partially owned properties | 3,223 | 3,935 |
Accumulated other comprehensive loss | (88) | (145) |
Total Shareholders' Equity | 272,883 | 258,655 |
Total liabilities and shareholders' equity | $ 700,782 | $ 670,513 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
CONSOLIDATED BALANCE SHEETS | ||
Accumulated amortization on financing and lease cost | $ 1,875 | $ 1,720 |
Accumulated amortization on intangible assets | 12,491 | 10,770 |
Accumulated amortization on unfavorable leases | $ 1,324 | $ 1,122 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income from rental operations | ||||
Real estate rental income | $ 27,088 | $ 25,365 | $ 80,606 | $ 76,075 |
Tenant reimbursements | 1,567 | 1,523 | 4,592 | 4,547 |
Total income from rental operations | 28,655 | 26,888 | 85,198 | 80,622 |
Expenses from rental operations | ||||
Interest | 4,690 | 4,636 | 13,938 | 13,740 |
Depreciation and amortization | 5,427 | 5,471 | 16,170 | 16,711 |
Real estate taxes | 3,186 | 2,360 | 8,389 | 7,020 |
Property management fees | 3,137 | 2,771 | 9,163 | 8,095 |
Utilities | 1,918 | 1,709 | 6,463 | 5,715 |
Repairs and maintenance | 6,170 | 6,288 | 16,103 | 15,703 |
Insurance | 376 | 339 | 1,112 | 1,022 |
Loss on lease terminations | 25 | 146 | 299 | |
Total expenses from rental operations | 24,904 | 23,599 | 71,484 | 68,305 |
Administration of REIT | ||||
Administrative expenses | 61 | 71 | 290 | 301 |
Advisory fees | 714 | 669 | 2,114 | 1,971 |
Acquisition and disposition expenses | 299 | 1,375 | 1,526 | |
Trustee fees | 12 | 14 | 44 | 46 |
Legal and accounting | 98 | 83 | 385 | 343 |
Total Administration of REIT | 885 | 1,136 | 4,208 | 4,187 |
Total expenses | 25,789 | 24,735 | 75,692 | 72,492 |
Income from operations | 2,866 | 2,153 | 9,506 | 8,130 |
Other income (expense) | ||||
Equity in income of unconsolidated affiliates | 373 | 298 | 743 | 820 |
Other income | 20 | 24 | 73 | 62 |
Gain (Loss) on sale of real estate and non-real estate investments | (3) | 2,049 | (320) | |
Gain on change in control of real estate investments | 2,186 | |||
Gain (Loss) on involuntary conversion | 48 | 189 | (89) | |
Total other income (expense) | 390 | 370 | 5,240 | 473 |
Net income | 3,256 | 2,523 | 14,746 | 8,603 |
Net income attributable to noncontrolling interest in operating partnership | 2,264 | 1,814 | 10,147 | 6,109 |
Net (loss) attributable to noncontrolling interest in partially owned properties | (90) | (176) | (222) | (502) |
Net income attributable to Sterling Real Estate Trust | $ 1,082 | $ 885 | $ 4,821 | $ 2,996 |
Net income per common share, basic and diluted | $ 0.13 | $ 0.11 | $ 0.59 | $ 0.38 |
Comprehensive income: | ||||
Net income | $ 3,256 | $ 2,523 | $ 14,746 | $ 8,603 |
Other comprehensive gain (loss) - change in fair value of interest rate swaps | 17 | 33 | 57 | 28 |
Comprehensive income | 3,273 | 2,556 | 14,803 | 8,631 |
Comprehensive income attributable to noncontrolling interest | 2,185 | 1,661 | 9,964 | 5,626 |
Comprehensive income attributable to Sterling Real Estate Trust | $ 1,088 | $ 895 | $ 4,839 | $ 3,005 |
CONSOLIDATED STATEMENT OF SHARE
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY - 9 months ended Sep. 30, 2017 - USD ($) $ in Thousands | Common Shares | Paid-in Capital | Accumulated Distributions in Excess of Earnings | Total Beneficial Interest | Noncontrolling Interest in Operating Partnership | Noncontrolling Interest in Partially Owned Properties | Accumulated Other Comprehensive Income (Loss) | Total |
Beginning Balance at Dec. 31, 2016 | $ 106,207 | $ (21,480) | $ 84,727 | $ 170,138 | $ 3,935 | $ (145) | $ 258,655 | |
Beginning Balance (in shares) at Dec. 31, 2016 | 8,001,000 | 8,001,000 | ||||||
Shares issued pursuant to trustee compensation plan | 59 | 59 | $ 59 | |||||
Shares issued pursuant to trustee compensation plan (in shares) | 4,000 | |||||||
Contribution of assets in exchange for the issuance of noncontrolling interest shares | 14,378 | 14,378 | ||||||
Shares/units redeemed | (634) | (634) | (896) | (1,530) | ||||
Shares/units redeemed (in shares) | (41,000) | |||||||
Dividends declared | (6,111) | (6,111) | (12,909) | (19,020) | ||||
Dividends reinvested - stock dividend | 3,836 | 3,836 | $ 3,836 | |||||
Dividends reinvested - stock dividend (in shares) | 247,000 | 247,000 | ||||||
Issuance of shares under optional purchase plan | 2,192 | 2,192 | $ 2,192 | |||||
Issuance of shares under optional purchase plan (in shares) | 134,000 | |||||||
UPREIT units converted to REIT common shares | 133 | 133 | (133) | |||||
UPREIT units converted to REIT common shares (in shares) | 8,000 | |||||||
Change in fair value of interest rate swaps | 57 | 57 | ||||||
Distributions paid to consolidated real estate entity noncontrolling interests | (490) | (490) | ||||||
Net income | 4,821 | 4,821 | 10,147 | (222) | 14,746 | |||
Ending balance at Sep. 30, 2017 | $ 111,793 | $ (22,770) | $ 89,023 | $ 180,725 | $ 3,223 | $ (88) | $ 272,883 | |
Ending balance (in shares) at Sep. 30, 2017 | 8,353,000 | 8,353,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
OPERATING ACTIVITIES | ||
Net income | $ 14,746 | $ 8,603 |
Adjustments to reconcile net income to net cash from operating activities | ||
(Gain) loss on sale of real estate investments | (2,072) | 316 |
Loss on sale of non-real estate investments | 23 | 4 |
(Gain) loss on involuntary conversion | (189) | 89 |
(Gain) on change in control of real estate investment | (2,186) | |
Loss on lease terminations | 146 | 299 |
Equity in income of unconsolidated affiliates | (743) | (820) |
Distributions of earnings of unconsolidated affiliates | 80 | 816 |
Depreciation | 14,270 | 13,882 |
Amortization | 1,855 | 2,751 |
Amortization of debt issuance costs | 561 | 517 |
Effects on operating cash flows due to changes in | ||
Restricted deposits - tenant security deposits | (150) | (85) |
Restricted deposits - real estate tax and insurance escrows | 577 | 20 |
Due from related party | 32 | 60 |
Receivables | (81) | (286) |
Prepaid expenses | (430) | 66 |
Other assets | 24 | 135 |
Due to related party | (532) | (8) |
Tenant security deposits payable | 176 | 67 |
Accounts payable - trade | (96) | (561) |
Accrued expenses and other liabilities | 1,707 | 934 |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 27,718 | 26,799 |
INVESTING ACTIVITIES | ||
Purchase of real estate investment properties | (3,718) | (7,352) |
Capital expenditures and tenant improvements | (9,122) | (7,518) |
Proceeds from sale of real estate investments | 4,442 | 1,404 |
Restricted deposits - exchange escrow | (4,328) | |
Proceeds from involuntary conversion | 1,937 | 915 |
Investment in unconsolidated affiliates | (294) | (67) |
Distributions in excess of earnings received from unconsolidated affiliates | 743 | 325 |
Restricted deposits - replacement reserve escrows | (952) | (819) |
Notes receivable issued | (24) | |
Notes receivable payments received | 642 | 7 |
NET CASH USED IN INVESTING ACTIVITIES | (10,650) | (13,129) |
FINANCING ACTIVITIES | ||
Payments for financing, debt issuance and lease costs | (442) | (431) |
Principal payments on special assessments payable | (420) | (657) |
Proceeds from issuance of mortgage notes payable and subordinated debt | 23,916 | 20,271 |
Principal payments on mortgage notes payable | (16,632) | (9,857) |
Advances on lines of credit | 6,669 | |
Payments on lines of credit | (6,669) | |
Proceeds from issuance of shares under optional purchase plan | 2,192 | 1,599 |
Shares/units redeemed | (1,530) | (1,765) |
Dividends/distributions paid | (15,195) | (13,126) |
NET CASH USED IN FINANCING ACTIVITIES | (8,111) | (3,966) |
NET CHANGE IN CASH AND CASH EQUIVALENTS | 8,957 | 9,704 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 12,034 | 6,461 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 20,991 | 16,165 |
SCHEDULE OF CASH FLOW INFORMATION | ||
Cash paid during the period for interest, net of capitalized interest | 13,954 | 13,776 |
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Dividends reinvested | 3,836 | 3,543 |
Dividends declared and not paid | 2,067 | 1,893 |
UPREIT distributions declared and not paid | 4,336 | 3,912 |
UPREIT units converted to REIT common shares | 133 | 435 |
Stock issued pursuant to trustee compensation plan | 59 | 60 |
Acquisition of assets in exchange for the issuance of noncontrolling interest units in UPREIT | 14,378 | 16,940 |
Increase in land improvements due to increase in special assessments payable | 1,141 | 772 |
Unrealized gain on interest rate swaps | 57 | 28 |
Acquisition of assets with new financing | 3,264 | 2,662 |
Acquisition of assets through assumption of debt and liabilities | 1,367 | 78 |
Capitalized interest and real estate taxes related to construction in progress | 126 | 66 |
Acquisition of assets with accounts payable | 572 | $ 413 |
Acquisition of assets with 1031 exchange funds | $ 4,278 |
ORGANIZATION
ORGANIZATION | 9 Months Ended |
Sep. 30, 2017 | |
ORGANIZATION | |
ORGANIZATION | Note 1 - Organization Sterling Real Estate Trust (“Sterling”, “the Trust” or “the Company”) is a registered, but unincorporated business trust organized in North Dakota in November 2002. Sterling has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code, which requires that 75% of the assets of a REIT must consist of real estate assets and that 75% of its gross income must be derived from real estate. The net income of the REIT is allocated in accordance with the stock ownership in the same fashion as a regular corporation. Sterling previously established an operating partnership (“Sterling Properties, LLLP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units. As the general partner, Sterling has management responsibility for all activities of the operating partnership. As of September 30, 2017 and December 31, 2016, Sterling owned approximately 32.28% and 32.41%, respectively, of the operating partnership. |
PRINCIPAL ACTIVITY AND SIGNIFIC
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2017 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, which have previously been filed with the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC. The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying consolidated balance sheet as of September 30, 2017 and consolidated statements of operations and other comprehensive income, consolidated statement of shareholders’ equity, and consolidated statements of cash flows for the three and nine months ended September 30, 2017 and 2016, as applicable, have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial statements as of and for the three and nine months ended September 30, 2017. These adjustments are of a normal recurring nature. Principles of Consolidation The consolidated financial statements include the accounts of Sterling, Sterling Properties, LLLP, and wholly-owned limited liability companies. All significant intercompany transactions and balances have been eliminated in consolidation. Additionally, we evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”). In determining whether we have a requirement to consolidate the accounts of an entity, management considers factors such as our ownership interest, our authority to make decisions and contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity (“VIE”) for which we have both: a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and b) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE. Principal Business Activity Sterling currently owns directly and indirectly 164 properties. The Trust’s 115 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 49 commercial properties primarily located in North Dakota with others located in Arkansas, Colorado, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, Texas and Wisconsin. The commercial properties include retail, office, industrial, restaurant and medical properties. Presently, the Trust’s mix of properties is 71.0% residential and 29.0% commercial (based on cost) and total $648,856 in real estate investments at September 30, 2017. Effective January 1, 2016, Sterling’s acquisition strategy and focus is solely on multifamily apartment properties. We currently have no plans to dispose of our existing commercial properties. Residential Property Location No. of Properties Units North Dakota Minnesota Missouri Nebraska Commercial Property Location No. of Properties Sq. Ft North Dakota Arkansas Colorado Iowa Louisiana Michigan Minnesota Mississippi Nebraska Texas Wisconsin Concentration of Credit Risk Our cash balances are maintained in various bank deposit accounts. The bank deposit amounts in these accounts may exceed federally insured limits at various times throughout the year. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments Real estate investments are recorded at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of each acquired investment property accounted for as a business combination based upon the estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market, (vi) the value of customer relationships and (vii) goodwill, if any. Transaction costs related to acquisitions accounted for as business combinations are expensed as incurred and included within “Administration of REIT expenses” in the accompanying consolidated statements of operations and other comprehensive income. The Company elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of July 1, 2017. This new guidance clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. Refer to the “Recent Accounting Pronouncements” section within Note 2 to the consolidated financial statements. Under this new guidance, the Company expects most acquisitions of investment property will meet this screen and, thus, be accounted for as asset acquisitions. The Company allocates the purchase price of each acquired investment property that is accounted for as an asset acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market and (vi) the value of customer relationships. Asset acquisitions do not give rise to goodwill and the related transaction costs are capitalized and included with the allocated purchase price. For tangible assets acquired, including land, building and other improvements, the Company considers available comparable market and industry information in estimating acquisition date fair value. Key factors considered in the calculation of fair value of both real property and intangible assets include the current market rent values, “dark” periods (building in vacant status), direct costs estimated with obtaining a new tenant, discount rates, escalation factors, standard lease terms, and tenant improvement costs. The Company allocates a portion of the purchase price to the estimated acquired in-place lease value intangibles based on factors available in third party appraisals or cash flow estimates of the property prepared by our internal analysis. These estimates are based upon cash flow projections for the property, existing leases, lease origination costs for similar leases as well as lost rental payments during an assumed lease-up period. The Company also evaluates each acquired lease as compared to current market rates. If an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below market leases based upon the present value of the difference between the contractual lease payments and estimated market rent payments over the remaining lease term. Renewal periods are included within the lease term in the calculation of above and below market lease values if, based upon factors known at the acquisition date, market participants would consider it reasonably assured that the lessee would exercise such options. Fair value estimates used in acquisition accounting, including the discount rate used, require the Company to consider various factors, including, but not limited to, market knowledge, demographics, age and physical condition of the property, geographic location, and size and location of tenant spaces within the acquired investment property. The portion of the purchase price allocated to acquired in-place lease value intangibles is amortized on a straight-line basis over the life of the related lease as amortization expense. The Company incurred amortization expense pertaining to acquired inplace lease value intangibles of $370 and $459 for the three months ended September 30, 2017 and 2016, respectively and $1,141 and $1,567 for the nine months ended September 30, 2017 and 2016, respectively. The portion of the purchase price allocated to acquired above and below market lease intangibles is amortized on a straight-line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to above market lease intangibles of $56 and $57 for the three months ended September 30, 2017 and 2016, respectively, was recorded as a reduction to income from rental operations. Amortization pertaining to below market lease intangibles of $70 and $78 for the three months ended September 30, 2017 and 2016, respectively, was recorded as an increase to income from rental operations. Amortization pertaining to above market lease intangibles of $169 and $174 for the nine months ended September 30, 2017 and 2016, respectively, was recorded as a reduction to income from rental operations. Amortization pertaining to below market lease intangibles of $214 and $253 for the nine months ended September 30, 2017 and 2016, respectively, was recorded as an increase to income from rental operations. Furniture and fixtures are stated at cost less accumulated depreciation. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for routine maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method over the following estimated useful lives: Buildings and improvements 40 years Furniture, fixtures and equipment 5-9 years Depreciation expense for the three months ended September 30, 2017 and 2016 totaled $4,816 and $4,625, respectively. Depreciation expense for the nine months ended September 30, 2017 and 2016 totaled $14,270 and $13,882, respectively. The Company’s investment properties are reviewed for potential impairment at the end of each reporting period whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, the Company separately determines whether impairment indicators exist for each property. Examples of situations considered to be impairment indicators include, but are not limited to: · a substantial decline or continued low occupancy rate; · continued difficulty in leasing space; · significant financially troubled tenants; · a change in plan to sell a property prior to the end of its useful life or holding period; · a significant decrease in market price not in line with general market trends; and · any other quantitative or qualitative events or factors deemed significant by the Company’s management or board of trustees. If the presence of one or more impairment indicators as described above is identified at the end of the reporting period or throughout the year with respect to an investment property, the asset is tested for recoverability by comparing its carrying value to the estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair value of an impaired investment property, the Company makes complex or subjective assumptions which include, but are not limited to: · projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength, demographics, holding period and property location; · projected capital expenditures and lease origination costs; · projected cash flows from the eventual disposition of an operating property using a property specific capitalization rate; · comparable selling prices; and · property specific discount rates for fair value estimates as necessary. To the extent impairment has occurred, the Company will record an impairment charge calculated as the excess of the carrying value of the asset over its fair value for impairment of investment properties. Based on evaluation, there were no impairment losses during the nine months ended September 30, 2017 and 2016. Properties Held for Sale We account for our properties held for sale in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), which addresses financial accounting and reporting in a period in which a component or group of components of an entity either has been disposed of or is classified as held for sale. In accordance with ASC 360, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amount, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as properties held for sale in the period in which all of the following criteria are met: · management, having the authority to approve the action, commits to a plan to sell the asset; · the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; · an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated; · the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; · the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and · given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. The results of operations of a component of an entity that either has been disposed of or is classified as held-for-sale under the requirements of ASC 360 shall be reported in discontinued operations in accordance with ASC 205, Presentation of Financial Statements (“ASC 205”) if such disposal or classification represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There were no properties classified as held for sale at September 30, 2017. There was one retail property classified as held for sale at December 31, 2016. See Note 17. Construction in Progress The Company capitalizes direct and certain indirect project costs incurred during the development period such as construction, insurance, architectural, legal, interest and other financing costs, and real estate taxes. At such time as the development is considered substantially complete, the capitalization of certain indirect costs such as real estate taxes and interest and financing costs cease and all project-related costs included in construction in process are reclassified to land and building and other improvements. Cash and Cash Equivalents We classify highly liquid investments with a maturity of three months or less when purchased as cash equivalents. Investment in Unconsolidated Affiliates We account for unconsolidated affiliates using the equity method of accounting per guidance established under ASC 323, Investments – Equity Method and Joint Ventures (“ASC 323”). The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for our share of equity in the affiliates’ earnings, contributions and distributions. We evaluate the carrying amount of the investments for impairment in accordance with ASC 323. Unconsolidated affiliates are reviewed for potential impairment if the carrying amount of the investment exceeds its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until the carrying amount is fully recovered. The evaluation of an investment in an affiliate for potential impairment can require our management to exercise significant judgments. No impairment losses were recorded related to the unconsolidated affiliates for the nine months ended September 30, 2017 and 2016. We use the equity method to account for investments that qualify as variable interest entities where we are not the primary beneficiary and entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operations and financial policies of the investee. We will also use the equity method for investments that do not qualify as variable interest entities and do not meet the control requirements for consolidation, as defined in ASC 810. For a joint venture accounted for under the equity method, our share of net earnings and losses is reflected in income when earned and distributions are credited against our investment in the joint venture as received. In determining whether an investment in a limited liability company or tenant in common is a variable interest entity, we consider: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including the necessity of subordinated debt; estimates of future cash flows; our and our partner’s ability to participate in the decision making related to acquisitions, dispositions, budgeting and financing on the entity; and obligation to absorb losses and preferential returns. As of September 30, 2017, our tenant in common arrangements do not qualify as variable interest entities and do not meet the control requirements for consolidation, as defined in ASC 810. As of September 30, 2017 and December 31, 2016, the unconsolidated affiliates held total assets of $23,930 and $26,140 and mortgage notes payable of $17,561 and $20,017, respectively. The operating partnership previously owned a 40.26% interest as a tenant in common in a single asset limited liability company which owns a 144 unit residential, multifamily apartment complex in Bismarck, North Dakota. The property was encumbered by a first mortgage with a balance at December 31, 2016 of $2,190. As of May 1, 2017, there was a change in control over the real estate investment, with the operating partnership acquiring the other tenant in common’s 59.74% ownership interest in the property (see Note 18). We estimated the property had a fair value of approximately $10,080. The operating partnership assumed a loan of $1,295 and issued $4,727 of limited partnership units for a total purchase price of approximately $6,022. The company accounted for this as a business combination and recognized a gain on change in control of real estate investment of $2,186 in the second quarter of 2017 as a result of remeasuring the carrying value to fair value. The operating partnership is a 50% owner of Grand Forks Marketplace Retail Center as a tenant in common through 100% ownership in a limited liability company. Grand Forks Marketplace Retail Center has approximately 183,000 square feet of commercial space in Grand Forks, North Dakota. The property is encumbered by a non-recourse first mortgage with a balance at September 30, 2017 and December 31, 2016 of $10,743 and $10,891, respectively. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 66.67% interest as tenant in common in an office building with approximately 75,000 square feet of commercial rental space in Fargo, North Dakota. The property is encumbered by a first mortgage with a balance at September 30, 2017 and December 31, 2016 of $6,818 and $6,936, respectively. The Company is jointly and severally liable for the full mortgage balance. Receivables Receivables consist primarily of amounts due for rent. The receivables are non-interest bearing. The carrying amount of receivables is reduced by an amount that reflects management’s best estimates of the amounts that will not be collected. As of September 30, 2017 and December 31, 2016, management determined no allowance was necessary for uncollectible receivables. Financing and Lease Costs Financing costs have been capitalized and are being amortized over the life of the financing (line of credit) using the effective interest method. Unamortized financing costs are written off when debt is retired before the maturity date and included in interest expense at that time. Lease costs incurred in connection with new leases have been capitalized and are being amortized over the life of the lease using the straight-line method. We record the amortization of leasing costs in depreciation and amortization on the consolidated statements of operations and comprehensive income. If an applicable lease terminates prior to the expiration of its initial lease term, we write off the carrying amount of the costs to amortization expense. Debt Issuance Costs We amortize external debt issuance costs using the effective interest rate method, over the estimated life of the related debt. We record debt issuance costs related to notes and mortgage notes, net of amortization, on our consolidated balance sheets as an offset to their related debt. We record debt issuance costs related to revolving lines of credit on our consolidated balance sheets as financing fees, regardless of whether a balance on the line of credit is outstanding. We record the amortization of all debt issuance costs as interest expense. Lease Intangible Assets Lease intangibles are a purchase price allocation recorded on property acquisition. The lease intangibles represent the estimated value of in-place leases, tenant relationships and the value of leases with above or below market lease terms. Lease intangibles are amortized over the term of the related lease. The carrying amount of intangible assets is regularly reviewed for indicators of impairments in value. Impairment is recognized only if the carrying amount of the intangible asset is considered to be unrecoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the estimated fair value of the asset. Based on the review, management determined no impairment charges were necessary at September 30, 2017 and December 31, 2016. Noncontrolling Interest A noncontrolling interest in a subsidiary (minority interest) is in most cases an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company’s equity. In addition, consolidated net income is required to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and the amount of consolidated net income attributable to the parent and the noncontrolling interest are required to be disclosed on the face of the consolidated statements of operations and comprehensive income. Operating Partnership: Interests in the operating partnership held by limited partners are represented by operating partnership units. The operating partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the operating partnership agreement. Partially Owned Properties: The Company reflects noncontrolling interests in partially owned properties on the balance sheet for the portion of properties consolidated by the Company that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statement of operations and comprehensive income. Syndication Costs Syndication costs consist of costs paid to attorneys, accountants, and selling agents, related to the raising of capital. Syndication costs are recorded as a reduction to beneficial and noncontrolling interest. Federal Income Taxes We have elected to be taxed as a REIT under the Internal Revenue Code, as amended. A REIT calculates taxable income similar to other domestic corporations, with the major difference being a REIT is entitled to a deduction for dividends paid. A REIT is generally required to distribute each year at least 90% of its taxable income. If it chooses to retain the remaining 10% of taxable income, it may do so, but it will be subject to a corporate tax on such income. REIT shareholders are taxed on REIT distributions of ordinary income in the same manner as they are taxed on other corporate distributions. We intend to continue to qualify as a REIT and, provided we maintain such status, will not be taxed on the portion of the income that is distributed to shareholders. In addition, we intend to distribute all of our taxable income; therefore, no provisions or liabilities for income taxes have been recorded in the financial statements. Sterling conducts its business activity as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) through its Operating Partnership – Sterling Properties, LLLP. The Operating Partnership is organized as a limited liability limited partnership. Income or loss is allocated to the partners in accordance with the provisions of the Internal Revenue Code 704(b) and 704(c). UPREIT status allows non-recognition of gain by an owner of appreciated real estate if that owner contributes the real estate to a partnership in exchange for a partnership interest. The conversion of a partnership interest to shares of beneficial interest in the REIT will be a taxable event to the limited partner. We follow ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of September 30, 2017 and December 31, 2016 we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We are no longer subject to Federal and State tax examinations by tax authorities for years before 2013. The operating partnership has elected to record related interest and penalties, if any, as income tax expense on the consolidated statements of operations and other comprehensive income. Revenue Recognition We derive over 95% of our revenues from tenant rents and other tenant-related activities. We lease multifamily units under operating leases with terms of one year or less. Rental income and other property revenues are recorded when due from tenants and recognized monthly as earned pursuant to the terms of the underlying leases. Other property revenues consist primarily of laundry, application and other fees charged to tenants. We lease commercial space primarily under long-term lease agreements. Commercial tenant rents include base rents, expense reimbursements (such as common area maintenance, real estate taxes and utilities), and a straight-line rent adjustment. We record base rents on a straight-line basis. The monthly base rent income according to the terms of our leases is adjusted so that an average monthly rent is recorded for each tenant over the term of its lease. The straight-line rent adjustment increased revenue by $59 and $124 for the three months ended September 30, 2017 and 2016, respectively. The straight-line rent adjustment increased revenue by $186 and $391 the nine months ended September 30, 2017 and 2016, respectively. The straight-line receivable balance included in receivables on the consolidated balance sheets as of September 30, 2017 and December 31, 2016 was $3,526 and $3,362, respectively. We receive payments for expense reimbursements from substantially all our multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts, which generally are immaterial, are recognized in the subsequent year. Commercial properties are leased to tenants under terms expiring at various dates through 2034. Lease terms often include renewal options. For the nine months ended September 30, 2017 and 2016, gross revenues from commercial property rentals, including CAM income (common area maintenance) of $4,592 and $4,547, respectively, totaled $20,619 and $20,632, respectively Earnings per Common Share Basic earnings per common share is computed by dividing net income available to common shareholders (the “numerator”) by the weighted average number of common shares outstanding (the “denominator”) during the period. Sterling had no dilutive potential common shares as of September 30, 2017 and 2016, and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the three months ended September 30, 2017 and 2016, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,356,000 and 7,891,000, respectively. For the nine months ended September 30, 2017 and 2016, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,234,000 and 7,791,000, respectively. Recent Accounting Pronouncements In May 2014, the FASB and International Accounting Standards Board issued their final standard on revenue from contracts with customers, which was issued by the FASB as Accounting Standards Update 2014-09, Revenue from Contracts with Customers , or ASU 2014-09. ASU 2014-09, which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current GAAP applicable to revenue recognition and converges U.S. and international accounting standards in this area. The core principle of the new guidance is that revenue shall only be recognized when an entity has transferred control of goods or services to a customer and for an amount reflecting the consideration to which the entity expects to be entitled for such exchange. Additionally, lease contracts are specifically excluded from ASU 2014-09. In July 2015, the FASB decided to defer the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning on the original effective date of periods beginning after December 15, 2016. Upon adoption, ASU 2014-09 allows for full retrospective adoption applied to all periods presented or modified retrospective adoption with the cumulative effect of initially applying the standard recognized at the date of initial application. We have performed a review of the requirements of the new guidance and have identified which of our revenue streams will be within the scope of ASU 2014-09. We are working through an adoption plan which includes a review of transactions supporting each revenue stream to determine the impact of accounting treatment under ASU 2014-09, an evaluation of the method of adoption and assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. We will adopt this standard effective as of January 1, 2018 and will utilize the cumulative effect transition method of adoption. The adoption of this guidance will not have a material impact on our financial position or results of operations. We expect this standard will have an impact on the disclosure of certain lease and non-lease components of revenue from leases upon the adoption of the update ASU 2016-02, Leases, but will not have a material impact on “total revenues.” In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends existing accounting standards for lease accoun |
SEGMENT REPORTING
SEGMENT REPORTING | 9 Months Ended |
Sep. 30, 2017 | |
SEGMENT REPORTING | |
SEGMENT REPORTING | NOTE 3 – segment reporting We report our results in two reportable segments: residential and commercial properties. Our residential properties include multifamily properties. Our commercial properties include retail, office, industrial, restaurant and medical properties. We assess and measure operating results based on net operating income (“NOI”), which we define as total real estate segment revenues less real estate expenses (which consist of real estate taxes, property management fees, utilities, repairs and maintenance, insurance and direct administrative costs). We believe NOI is an important measure of operating performance even though it should not be considered an alternative to net income or cash flow from operating activities. NOI is unaffected by financing, depreciation, amortization, legal and professional fees and certain general and administrative expenses. The accounting policies of each segment are consistent with those described in Note 2 of this report. Segment Revenues and Net Operating Income The revenues and net operating income for the reportable segments (residential and commercial) are summarized as follows for the three and nine months ended September 30, 2017 and 2016, along with reconciliations to the consolidated financial statements. Segment assets are also reconciled to Total Assets as reported in the consolidated financial statements. Three months ended September 30, 2017 Three months ended September 30, 2016 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 21,863 $ 6,792 $ 28,655 $ 20,081 $ 6,807 $ 26,888 Expenses from rental operations 12,764 2,023 14,787 11,547 1,920 13,467 Net operating income $ 9,099 $ 4,769 $ 13,868 $ 8,534 $ 4,887 $ 13,421 Interest 4,690 4,636 Depreciation and amortization 5,427 5,471 Administration of REIT 885 1,136 Loss on lease terminations — 25 Other (income)/expense (390) (370) Net income $ 3,256 $ 2,523 Nine months ended September 30, 2017 Nine months ended September 30, 2016 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 64,579 $ 20,619 $ 85,198 $ 59,990 $ 20,632 $ 80,622 Expenses from rental operations 35,630 5,600 41,230 32,353 5,202 37,555 Net operating income $ 28,949 $ 15,019 $ 43,968 $ 27,637 $ 15,430 $ 43,067 Interest 13,938 13,740 Depreciation and amortization 16,170 16,711 Administration of REIT 4,208 4,187 Loss on lease terminations 146 299 Other (income)/expense (5,240) (473) Net income $ 14,746 $ 8,603 Segment Assets and Accumulated Depreciation As of September 30, 2017 Residential Commercial Total (in thousands) Real estate investments $ 552,792 $ 202,337 $ 755,129 Accumulated depreciation (73,008) (33,265) (106,273) $ 479,784 $ 169,072 648,856 Cash and cash equivalents 20,991 Restricted deposits and funded reserves 7,894 Investment in unconsolidated affiliates 2,785 Receivables and other assets 5,617 Financing and lease costs, less accumulated amortization 776 Intangible assets, less accumulated amortization 13,863 Total Assets $ 700,782 As of December 31, 2016 Residential Commercial Total (in thousands) Real estate investments $ 514,341 $ 200,959 $ 715,300 Accumulated depreciation (63,148) (29,177) (92,325) $ 451,193 $ 171,782 622,975 Cash and cash equivalents 12,034 Restricted deposits and funded reserves 7,213 Investment in unconsolidated affiliates 3,653 Receivables and other assets 5,354 Financing and lease costs, less accumulated amortization 950 Assets held for sale 2,482 Intangible assets, less accumulated amortization 15,852 Total Assets $ 670,513 |
REAL ESTATE INVESTMENTS
REAL ESTATE INVESTMENTS | 9 Months Ended |
Sep. 30, 2017 | |
REAL ESTATE INVESTMENTS | |
REAL ESTATE INVESTMENTS | note 4 – real estate investments As of September 30, 2017 Residential Commercial Total (in thousands) Land and land improvements $ 72,673 $ 37,823 $ 110,496 Building and improvements 453,790 163,048 616,838 Furniture, fixtures and equipment 25,357 1,466 26,823 Construction in progress 972 — 972 552,792 202,337 755,129 Less accumulated depreciation (73,008) (33,265) (106,273) $ 479,784 $ 169,072 $ 648,856 As of December 31, 2016 Residential Commercial Total (in thousands) Land and land improvements $ 67,384 $ 37,769 $ 105,153 Building and improvements 419,120 161,724 580,844 Furniture, fixtures and equipment 24,852 1,466 26,318 Construction in progress 2,985 — 2,985 514,341 200,959 715,300 Less accumulated depreciation (63,148) (29,177) (92,325) $ 451,193 $ 171,782 $ 622,975 Construction in progress as of September 30, 2017 consists primarily of development and planning costs associated with phase III of a multifamily apartment community under construction in Bismarck, North Dakota. Phase III of the development is still in the planning stages and construction has not yet commenced. |
NOTES RECEIVABLE
NOTES RECEIVABLE | 9 Months Ended |
Sep. 30, 2017 | |
NOTES RECEIVABLE | |
NOTES RECEIVABLE | NOTE 5 – NOTES RECEIVABLE Notes receivable primarily consisted of a $600 note to an unaffiliated party to provide working capital and for improvements on a residential property bearing interest at a rate of 6.5%. This note was personally guaranteed by the owner. Accrued interest was due monthly beginning until the note was paid in full. The principal plus accrued interest was originally due on August 31, 2016. On the original due date, the note was extended for an additional twelve months to August 31, 2017 with the same terms. The note was paid off on August 31, 2017. |
LEASE INTANGIBLES
LEASE INTANGIBLES | 9 Months Ended |
Sep. 30, 2017 | |
LEASE INTANGIBLES | |
LEASE INTANGIBLES | NOTE 6 - Lease intangibles The following table summarizes the net value of other intangible assets and liabilities and the accumulated amortization for each class of intangible: Lease Accumulated Lease As of September 30, 2017 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,239 $ (11,413) $ 11,826 Above-market leases 3,115 (1,078) 2,037 $ 26,354 $ (12,491) $ 13,863 Lease Intangible Liabilities Below-market leases $ (3,170) $ 1,324 $ (1,846) Lease Accumulated Lease As of December 31, 2016 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,507 $ (9,860) $ 13,647 Above-market leases 3,115 (910) 2,205 $ 26,622 $ (10,770) $ 15,852 Lease Intangible Liabilities Below-market leases $ (3,197) $ 1,122 $ (2,075) The estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows: Intangible Intangible Years ending December 31, Assets Liabilities (in thousands) 2017 (October 1, 2017 to December 31, 2017) $ 600 $ 70 2018 2,237 278 2019 1,932 269 2020 1,507 218 2021 1,210 189 Thereafter 6,377 822 $ 13,863 $ 1,846 The weighted average amortization period for the intangible assets, in-place leases, above-market leases, and below-market leases acquired as of September 30, 2017 was 6.0 years. |
LINES OF CREDIT
LINES OF CREDIT | 9 Months Ended |
Sep. 30, 2017 | |
LINES OF CREDIT | |
LINES OF CREDIT | NOTE 7 – LINES OF CREDIT We have a $27,000 variable rate (1-month LIBOR plus 2.25%) line of credit agreement with Wells Fargo Bank, which expires in June 2018; and a $6,315 variable rate (prime rate less 0.5%) line of credit agreement with Bremer Bank, which expires in November 2019. The lines of credit are secured by properties in Duluth, Minnesota; Minneapolis/St. Paul, Minnesota; Austin, Texas; Mandan, North Dakota; Fargo, North Dakota; Edina, Minnesota, St. Cloud, Minnesota; Moorhead, Minnesota; and Grand Forks, North Dakota. We also have a $2,000 variable rate (prime rate less 0.5%) unsecured line of credit agreement with Bremer Bank, which expires October 2018; and a $3,000 variable rate (prime rate) unsecured line of credit agreement with Bell Bank, which expires December 2017. At September 30, 2017, there was no balance outstanding on the lines of credit, leaving $37,015 available and unused under the agreements. Certain of the variable lines of credit have limits on availability based on collateral specific critieria. On June 30, 2017, one of the retail properties that secured the Wells Fargo line of credit was sold. Wells Fargo has released the property as collateral, however, the bank is currently in process of determining the new available borrowing amount. Certain line of credit agreements include covenants that, in part, impose maintenance of certain debt service coverage and debt to net worth ratios. As of December 31, 2016, one residential property was out of compliance with Bremer’s debt service coverage ratio requirement on an individual property basis. A waiver was received from the lender. As of September 30, 2017, we were in compliance with all covenants. |
MORTGAGE NOTES PAYABLE
MORTGAGE NOTES PAYABLE | 9 Months Ended |
Sep. 30, 2017 | |
MORTGAGE NOTES PAYABLE | |
MORTGAGE NOTES PAYABLE | NOTE 8 - MORTGAGE NOTES PAYABLE The following table summarizes the Company’s mortgage notes payable. Principal Balance At September 30, December 31, 2017 2016 (in thousands) Fixed rate mortgage notes payable (a) $ 405,355 $ 393,511 Less unamortized debt issuance costs 2,890 3,032 $ 402,465 $ 390,479 (a) Includes $2,975 and $3,056 of variable rate mortgage debt that was swapped to a fixed rate at September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, we had 127 mortgage loans with effective interest rates ranging from 2.57% to 7.25% per annum and a weighted average effective interest rate of 4.25% per annum. As of December 31, 2016, we had 116 mortgage loans with effective interest rates ranging from 2.57% to 7.25% per annum, and a weighted average effective interest rate of 4.43% per annum. The majority of the Company’s mortgages payable require monthly payments of principal and interest. Certain mortgages require reserves for real estate taxes and certain other costs. Mortgages are secured by the respective properties, assignment of rents, business assets, deeds to secure debt, deeds of trust and/or cash deposits. Certain mortgage note agreements include covenants that, in part, impose maintenance of certain debt service coverage and debt to worth ratios. As of December 31, 2016, five loans on residential properties were out of compliance due to various unit renovation and parking lot repair and maintenance costs. The loans were secured by properties located in Fargo and Bismarck, North Dakota with a total outstanding balance of $8,336 at December 31, 2016. Annual waivers have been received from the lenders. As of September 30, 2017, we were in compliance with all covenants. We are required to make the following principal payments on our outstanding mortgage notes payable for each of the five succeeding fiscal years and thereafter as follows: Years ending December 31, Amount (in thousands) 2017 (October 1, 2017 to December 31, 2017) $ 5,000 2018 20,095 2019 25,322 2020 28,001 2021 45,897 Thereafter 281,040 Total payments $ 405,355 |
HEDGING ACTIVITIES
HEDGING ACTIVITIES | 9 Months Ended |
Sep. 30, 2017 | |
HEDGING ACTIVITIES | |
HEDGING ACTIVITIES | NOTE 9 – HEDGING ACTIVITIES As part of our interest rate risk management strategy, we have used derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings. To meet these objectives, we have entered into interest rate swaps in the notional amount of $1,294 and $2,450 to provide a fixed rate of 7.25% and 2.57%, respectively. The swaps mature in April 2020 and December 2017, respectively. The swaps were issued at approximate market terms and thus no fair value adjustment was recorded at inception. The carrying amount of the swaps have been adjusted to their fair values at the end of the quarter, which because of changes in forecasted levels of LIBOR, resulted in reporting a liability for the fair value of the future net payments forecasted under the swaps. The interest rate swaps are accounted for as effective hedges in accordance with ASC 815-20 whereby they are recorded at fair value and changes in fair value are recorded to accumulated comprehensive income. As of September 30, 2017 and December 31, 2016, we recorded a liability and other accumulated comprehensive loss of $88 and $145, respectively. |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | 9 Months Ended |
Sep. 30, 2017 | |
FAIR VALUE MEASUREMENT | |
FAIR VALUE MEASUREMENT | NOTE 10 - FAIR VALUE MEASUREMENT The following table presents the carrying value and estimated fair value of the Company’s financial instruments: September 30, 2017 December 31, 2016 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial liabilities: Mortgage notes payable, net $ 402,465 $ 402,866 $ 390,479 $ 402,015 Fair value of interest rate swaps $ 88 $ 88 $ 145 $ 145 The carrying values shown in the table are included in the consolidated balance sheets under the indicated captions. ASC 820-10 established a three-level valuation hierarchy for fair value measurement. Management uses these valuation techniques to establish the fair value of the assets at the measurement date. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s assumptions. These two types of inputs create the following fair value hierarchy: · Level 1 – Quoted prices for identical instruments in active markets; · Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; · Level 3 – Instruments whose significant inputs are unobservable. The guidance requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Recurring Fair Value Measurements The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table. Level 1 Level 2 Level 3 Total (in thousands) September 30, 2017 Fair value of interest rate swaps $ — $ 88 $ — $ 88 December 31, 2016 Fair value of interest rate swaps $ — $ 145 $ — $ 145 Fair value of interest rate swaps: The fair value of interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of the derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2017 and December 31, 2016 , the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its derivative valuations in their entirety are classified within Level 2 of the fair value hierarchy. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements. The Company’s derivative instruments are further described in Note 9. Fair Value Disclosures The following table presents the Company’s financial assets and liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which they fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table. Level 1 Level 2 Level 3 Total (in thousands) September 30, 2017 Mortgage notes payable, net $ — $ — $ 402,866 $ 402,866 December 31, 2016 Mortgage notes payable, net $ — $ — $ 402,015 $ 402,015 Mortgage notes payable: The Company estimates the fair value of its mortgage notes payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s lenders. Judgment is used in determining the appropriate rate for each of the Company’s individual mortgages and notes payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from 4.50% to 4.60% and from 4.00% to 4.35% at September 30, 2017 and December 31, 2016 , respectively. The fair value of the Company’s matured mortgage notes payable were determined to be equal to the carrying value of the properties because there is no market for similar debt instruments and the properties’ carrying value was determined to be the best estimate of fair value as of September 30, 2017. The Company’s mortgage notes payable are further described in Note 8. |
NONCONTROLLING INTEREST OF UNIT
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | 9 Months Ended |
Sep. 30, 2017 | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | NOTE 11 – NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP As of September 30, 2017 and December 31, 2016, outstanding limited partnership units totaled 17,520,000 and 16,688,000 respectively. As of September 30, 2017 and 2016, the operating partnership declared distributions of $4,336 and $3,912 respectively, to limited partners which were paid on October 16, 2017 and October 17, 2016, respectively. Distributions per unit were $0.7425 and $0.7200 during the nine months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017, Sterling exchanged 8,000 common shares for 8,000 limited partnership units held by limited partners, pursuant to redemption requests. The aggregate value of these transactions was $133. At the sole and absolute discretion of the limited partnership, and so long our redemption plans exists and applicable holding periods are met, Limited Partners may request the operating partnership redeem their limited partnership units. The operating partnership may choose to offer the Limited Partner: (i) cash for the redemption or, at the request of the Limited Partner, (2) offer shares in lieu of cash for the redemption on a basis of one limited partnership unit for one Sterling common share (the “Exchange Request”). The Exchange Request shall be exercised pursuant to a Notice of Exchange. If the issuance of Sterling common shares pursuant to an Exchange Request will cause the shareholder to exceed the ownership limitations, among other reasons, payment will be made to the Limited Partner in cash. No Limited Partner may exercise an Exchange Request more than twice during any calendar year, and Exchange Requests may not be made for less than 1,000 limited partnership units. If a Limited Partner owns fewer than 1,000 limited partnership units, all of the limited partnership units held by the Limited Partner must be exchanged pursuant to the Exchange Request. |
REDEMPTION PLANS
REDEMPTION PLANS | 9 Months Ended |
Sep. 30, 2017 | |
REDEMPTION PLANS | |
REDEMPTION PLANS | NOTE 12 – REDEMPTION PLANS Our Board of Trustees has approved redemption plans that enable our shareholders to sell their common shares and the partners of our operating partnership to sell their limited partnership units to us, after they have held the securities for at least one year and subject to other conditions and limitations described in the plans. Our redemption plans currently provide that the maximum amount that can be redeemed under the plan is $30,000 worth of securities. Currently, the fixed redemption price is $15.50 per share or unit under the plans, which price became effective March 29, 2017. We may redeem securities under the plans provided that the aggregate total has not been exceeded and we have sufficient funds to do so. The plans will terminate in the event the shares become listed on any national securities exchange, the subject of bona fide quotes on any inter-dealer quotation system or electronic communications network or are the subject of bona fide quotes in the pink sheets. Additionally, the Board, in its sole discretion, may terminate, amend or suspend the redemption plans, either or both of them, if it determines to do so in its sole discretion. During the nine months ended September 30, 2017, the Company redeemed 41,000 common shares valued at $634. In addition, during the nine months ended September 30, 2017, the Company redeemed 58,000 units valued at $896. |
BENEFICIAL INTEREST
BENEFICIAL INTEREST | 9 Months Ended |
Sep. 30, 2017 | |
BENEFICIAL INTEREST | |
BENEFICIAL INTEREST | NOTE 13 – BENEFICIAL INTEREST We are authorized to issue 100,000,000 common shares of beneficial interest with $0.01 par value and 50,000,000 preferred shares with $0.01 par value, which collectively represent the entire beneficial interest of Sterling. As of September 30, 2017 and December 31, 2016, there were 8,353,000 and 8,001,000 common shares outstanding, respectively. We had no preferred shares outstanding as of either date. Dividends paid to holders of common shares were $0.7425 per share and $0.7200 per share for the nine months ended September 30, 2017 and 2016, respectively. |
DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT PLAN | 9 Months Ended |
Sep. 30, 2017 | |
DIVIDEND REINVESTMENT PLAN | |
DIVIDEND REINVESTMENT PLAN | NOTE 14 – DIVIDEND REINVESTMENT PLAN Our Board of Trustees approved a dividend reinvestment plan to provide existing holders of our common shares with a method to purchase additional common shares without payment of brokerage commissions, fees or service charges. On July 20, 2012, we registered with the Securities Exchange Commission 2,000,000 common shares to be issued under the plan on Form S-3D, which automatically became effective on July 20, 2012. On July 11, 2017, we registered with the Securities Exchange Commission an additional 2,000,000 common shares to be issued under the plan on Form S-3D, which automatically became effective on July 11, 2017. Under this plan, eligible shareholders may elect to have all or a portion (but not less than 25%) of the cash dividends they receive automatically reinvested in our common shares. If an eligible shareholder elects to reinvest cash dividends under the plan, the shareholder may also make additional optional cash purchases of our common shares, not to exceed $10 per fiscal quarter without our prior approval. The purchase price per common share under the plan equals 95% of the estimated value per common share for dividend reinvestments and equals 100% of the estimated value per common share for additional optional cash purchases, as determined by our Board of Trustees. The estimated value per common share was $16.50 and $16.00 at September 30, 2017 and December 31, 2016, respectively. See discussion of determination of estimated value in Note 18. Therefore, the purchase price per common share for dividend reinvestments was $15.68 and $15.20 and for additional optional cash purchases was $16.50 and $16.00 at September 30, 2017 and December 31, 2016, respectively. The Board, in its sole discretion, may amend, suspend or terminate the plan at any time, without the consent of shareholders, upon a ten day notice to participants. In the nine months ended September 30, 2017, 247,000 shares were issued pursuant to dividend reinvestments and 134,000 shares were issued pursuant to additional optional cash purchases under the plan. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2017 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 15 – RELATED PARTY TRANSACTIONS Property Management Fees During the nine months ended September 30, 2017 and 2016, we paid property management fees to GOLDMARK Property Management in an amount equal to 5% of rents of the properties managed by GOLDMARK. GOLDMARK Property Management is owned in part by Kenneth Regan and James Wieland. For the nine months ended September 30, 2017 and 2016, we paid management fees of $8,510 and $7,411, respectively, to GOLDMARK Property Management. In addition, during the nine months ended September 30, 2017 and 2016, we paid repair and maintenance related payroll and payroll related expenses to GOLDMARK Property Management totaling $3,808 and $3,554, respectively. Board of Trustee Fees We incurred Trustee fees of $44 and $46 during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, and December 31, 2016 we owed our Trustees $12 and $26 for unpaid board of trustee fees, respectively. There is no cash retainer paid to Trustees. Instead, we pay Trustees specific amounts for meetings attended. The plan provides: Board Chairman – Board Meeting 105 shares/meeting Trustee – Board Meeting 75 shares/meeting Committee Chair – Committee Meeting 30 shares/meeting Trustee – Committee Meeting 30 shares/meeting Common shares earned in accordance with the plan are calculated on an annual basis. Shares earned pursuant to the Trustee Compensation Plan are issued on or about July 15 for Trustees’ prior year of service. Non-independent Trustees are not compensated for their service on the Board or Committees. Advisory Agreement We are an externally managed trust and as such, although we have a Board of Trustees and executive officers responsible for our management, we have no paid employees. The following is a brief description of the current fees and compensation that may be received by the Advisor under the Advisory Agreement, which must be renewed on an annual basis and approved by a majority of the independent trustees. The Advisory Agreement was approved by the Board of Trustees (including all the independent Trustees) on April 6, 2017, effective January 1, 2017. Management Fee : 0.35% of our total assets (before depreciation and amortization), annually. Total assets are our gross assets (before depreciation and amortization) as reflected on our consolidated financial statements, taken as of the end of the fiscal quarter last preceding the date of computation. The management fee will be payable monthly in cash or our common shares, at the option of the Advisor, not to exceed one-twelfth of 0.35% of the total assets as of the last day of the immediately preceding month. The management fee calculation is subject to quarterly and annual reconciliations. The management fee may be deferred at the option of the Advisor, without interest. Acquisition Fee : For its services in investigating and negotiating acquisitions of investments for us, the Advisor receives an acquisition fee of 2.5% of the purchase price of each property acquired, capped at $375 per acquisition. The total of all acquisition fees and acquisition expenses cannot exceed 6% of the purchase price of the investment, unless approved by a majority of the trustees, including a majority of the independent trustees, if they determine the transaction to be commercially competitive, fair and reasonable to us. Disposition Fee : For its services in the effort to sell any investment for us, the Advisor receives a disposition fee of 2.5% of the sales price of each property disposition, capped at $375 per disposition. Financing Fee : 0.25% of all amounts made available to us pursuant to any loan, refinance (excluding rate and/or term modifications of an existing loan with the same lender), line of credit or other credit facility. The finance fee shall be capped at $38 per loan, refinance, line of credit or other credit facility. Development Fee : Based on regressive sliding scale (starting at 5% and declining to 3%) of total project costs, excluding cost of land, for development services requested by us. Total Cost Fee Range of Fee Formula 0 – 10M % 0 –.5M 0M – 5.0% x (TC – 0M) 10M - 20M % .5 M – .95M .50M – 4.5% x (TC – 10M) 20M – 30M % .95 M – 1.35M .95M – 4.0% x (TC – 20M) 30M – 40M % 1.35 M – 1.70M 1.35M – 3.5% x (TC – 30M) 40M – 50M % 1.70 M – 2.00M 1.70M – 3.0% x (TC – 40M) TC = Total Project Cost Management Fees During the nine months ended September 30, 2017 and 2016, we incurred advisory management fees of $2,114 and $1,971 with Sterling Management, LLC, our Advisor. As of September 30, 2017 and December 31, 2016, we owed our Advisor $240 and $226, respectively, for unpaid advisory management fees. These fees cover the office facilities, equipment, supplies, and staff required to manage our day-to-day operations. During the nine months ended September 30, 2017 and 2016, we reimbursed the Advisor for operating costs totaling $11 and $3, respectively. Acquisition Fees During the nine months ended September 30, 2017 and 2016, we incurred acquisition fees of $655 and $680, respectively, with our Advisor. There were no acquisition fees owed to our Advisor as of September 30, 2017. As of December 31, 2016, we owed our Advisor $226 for unpaid acquisition fees. Financing Fees During the nine months ended September 30, 2017 and 2016, we incurred financing fees of $97 and $68 with our Advisor for loan financing and refinancing activities. There were no financing fees owed to our Advisor as of September 30, 2017. As of December 31, 2016, we owed our Advisor $23 for unpaid financing fees. Disposition Fees During the nine months ended September 30, 2017 and 2016, we incurred $110 and $35 in disposition fees with our Advisor, respectively. See Note 17. There were no disposition fees owed to our Advisor as of September 30, 2017 or December 31, 2016. Development Fees During the nine months ended September 30, 2017 and 2016, we incurred $235 and $107 in development fees incurred with our Advisor, respectively. As of September 30, 2017 and December 31, 2016, we owed our Advisor a total of $114 and $82 for unpaid development fees, of which $104 and $81 were for unpaid development fees as part of a 10% hold back, respectively. Operating Partnership Units Issued in Connection with Acquisitions During the nine months ended September 30, 2017, we issued directly or indirectly 899,000 operating partnership units. During this period, 402,000 of the operating partnership units issued were issued to entities affiliated with Messrs. Regan and Wieland, two of our trustees, and Messr. Swenson, one of our former officers, in connection with the acquisition of various properties. The aggregate value of these units was $6,425. During the nine months ended September 30, 2016, we issued directly or indirectly 1,086,000 operating partnership units. During this period, 458,000 operating partnership units issued were issued to entities affiliated with Messrs. Regan and Wieland, two of our trustees, in connection with the acquisition of various properties. The aggregate value of these units was $7,167. Commissions During the nine months ended September 30, 2017 and 2016, we incurred real estate commissions of $549 and $692, respectively, owed to GOLDMARK Commercial Real Estate Services, Inc. (f/k/a GOLDMARK SCHLOSSMAN Commercial Real Estate Services, Inc.), which is controlled by Messrs. Regan and Wieland. There were no outstanding commissions owed as of September 30, 2017 and December 31, 2016. Rental Income During the nine months ended September 30, 2017 and 2016, we received rental income of $166 and $161, respectively, under an operating lease agreement with GOLDMARK Property Management. During the nine months ended September 30, 2017 and 2016, we received rental income of $41 and $39, respectively, under an operating lease agreement with GOLDMARK Commercial Real Estate Services, Inc. During the nine months ended September 30, 2017 and 2016, we received rental income of $34 and $34, respectively, under operating lease agreements with our Advisor. Construction Costs As of September 30, 2017, since the project’s inception, we incurred total costs of $8,997 related to the construction of Phase II of the Bismarck, North Dakota development project which consists of a clubhouse and six 6-plex two-story townhomes to GOLDMARK Development, which is owned by Messers. Regan and Wieland. As of September 30, 2017, we owed GOLDMARK Development $391 for retainage and $251 for unpaid construction fees. As of December 31, 2016, since the project’s inception through its completion in 2015, we incurred total costs of $5,767 related to the construction of Phase II of the Bismarck, North Dakota development project which consists of a clubhouse and six 6-plex two-story townhomes to GOLDMARK Development, which is controlled by Messrs. Regan and Wieland. As of December 31, 2016, we owed GOLDMARK Development $288 for retainage and $398 for unpaid construction fees. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2017 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 16 - COMMITMENTS AND CONTINGENCIES Environmental Matters Federal law (and the laws of some states in which we own or may acquire properties) imposes liability on a landowner for the presence on the premises of hazardous substances or wastes (as defined by present and future federal and state laws and regulations). This liability is without regard to fault or knowledge of the presence of such substances and may be imposed jointly and severally upon all succeeding landowners. If such hazardous substance is discovered on a property acquired by us, we could incur liability for the removal of the substances and the cleanup of the property. There can be no assurance that we would have effective remedies against prior owners of the property. In addition, we may be liable to tenants and may find it difficult or impossible to sell the property either prior to or following such a cleanup. Risk of Uninsured Property Losses We maintain property damage, fire loss, and liability insurance. However, there are certain types of losses (generally of a catastrophic nature) which may be either uninsurable or not economically insurable. Such excluded risks may include war, earthquakes, tornados, certain environmental hazards, and floods. Should such events occur, (i) we might suffer a loss of capital invested, (ii) tenants may suffer losses and may be unable to pay rent for the spaces, and (iii) we may suffer a loss of profits which might be anticipated from one or more properties. Litigation The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the financial statements of the Company. |
DISPOSITIONS
DISPOSITIONS | 9 Months Ended |
Sep. 30, 2017 | |
DISPOSITIONS | |
DISPOSITIONS | NOTE 17 – DISPOSITIONS During September 2016, the Company entered into a purchase agreement to sell a retail property located in Fargo, North Dakota. This property qualified for held for sale accounting treatment upon meeting all applicable GAAP criteria on or prior to September 30, 2016, at which time depreciation and amortization ceased. As such, the assets and liabilities associated with this property were separately classified as held for sale in the consolidated balance sheet as of December 31, 2016. During the second quarter ended June 30, 2017, the operating partnership sold the Fargo, North Dakota retail property for approximately $4,400 and recognized a gain of $2,072. During the nine months ended September 30, 2016, the operating partnership sold a medical property in Eau Claire, Wisconsin for approximately $1,400 and recognized a loss of $316. The following table presents the assets and liabilities associated with the investment properties held for sale: September 30, December 31, 2017 2016 (in thousands) ASSETS Real estate investments $ — $ 2,365 Restricted deposits and funded reserves — 22 Receivables — 25 Notes receivable — 42 Financing and lease costs, less accumulated amortization of $87 in 2016 — 28 Total Assets $ — $ 2,482 LIABILITIES Special assessments payable $ — $ 103 Tenant security deposits payable — 22 Total Liabilities $ — $ 125 |
BUSINESS COMBINATIONS AND ACQUI
BUSINESS COMBINATIONS AND ACQUISITIONS | 9 Months Ended |
Sep. 30, 2017 | |
BUSINESS COMBINATIONS AND ACQUISITIONS | |
BUSINESS COMBINATIONS AND ACQUISITIONS | NOTE 18 – ACQUISITIONS The Company closed on the following acquisitions during the nine months ended September 30, 2017: Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 1/10/17 Sargent Apartments Fargo, ND Apartment complex 36 units $ 1,710 $ 1,710 1/11/17 Arrowhead Apartments Grand Forks, ND Apartment complex 82 units 5,494 5,494 1/17/17 West Oak Apartments Fargo, ND Apartment complex 18 units 777 777 1/17/17 Carr Apartments Fargo, ND Apartment complex 18 units 828 828 5/1/17 Plumtree Apartments Fargo, ND Apartment complex 18 units 907 907 5/1/17 Sunchase Apartments Fargo, ND Apartment complex 36 units 1,765 1,765 6/1/17 Essex Apartments Fargo, ND Apartment complex 18 units 858 858 6/1/17 Jadestone Apartments Fargo, ND Apartment complex 18 units 809 809 6/1/17 Park Circle Apartments Fargo, ND Apartment complex 18 units 903 903 7/3/17 East Bridge Apartments (a) Fargo, ND Apartment complex 58 units 6,060 6,060 $ 20,111 $ 20,111 (a) This property was acquired utilizing Internal Revenue Code 1031 tax-deferred exchange funds. Total consideration given for acquisitions through September 30, 2017 was completed through issuing approximately 603,000 limited partnership units of the operating partnership valued at $16.00 per unit for an aggregate consideration of approximately $9,651, 1031 tax-deferred exchange funds of $4,278, new loans of $2,392, assumed liabilities of $72 and cash of $3,718. The value of units issued in exchange for property is determined through a value established annually by our Board of Trustees, and reflects the fair value at the time of issuance. In addition, as of May 1, 2017, the operating partnership acquired the remaining 59.74% ownership interest in a 144 unit property which was previously held as tenant in common (See Note 2). We estimated the property had a fair value of approximately $10,080. The operating partnership assumed a loan of $1,295 and issued $4,727 of limited partnership units for a total purchase price of approximately $6,022. The Company accounted for this as a business combination and recognized a gain on change in control of real estate investment of $2,186 in the second quarter of 2017 as a result of remeasuring the carrying value to fair value. The total loan on this property was $2,167, thus in addition to the portion of the loan assumed from the other tenant in common, the Company also recorded an additional $872 in new financing related to this acquisition. The Company closed on the following acquisitions during the nine months ended September 30, 2016: Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 1/29/16 Titan Machinery North Platte, NE Implement dealership 16,480 sq. ft. $ 1,769 $ 1,769 2/1/16 Bristol Park Apartments Grand Forks, ND Apartment complex 80 units 5,050 5,050 2/1/16 Redpath White Bear Lake, MN Office building 25,817 sq. ft. 4,000 4,000 3/1/16 Eagle Sky I Apartments Bismarck, ND Apartment complex 20 units 1,525 1,525 3/1/16 Eagle Sky II Apartments Bismarck, ND Apartment complex 20 units 1,525 1,525 5/4/16 Garden Grove Apartments Bismarck, ND Apartment complex 95 units 7,072 7,072 5/4/16 Washington Apartments Grand Forks, ND Apartment complex 17 units 667 667 8/1/16 Roughrider Grand Forks, ND Apartment complex 12 units 582 582 8/29/16 West 80 Development Land Rochester, MN Land 18.8 acres 900 900 9/13/16 Amberwood Apartments Grand Forks, ND Apartment complex 95 units 3,942 3,942 $ 27,032 $ 27,032 Total consideration given for acquisitions through September 30, 2016 was completed through issuing approximately 1,086 limited partnership units of the operating partnership valued at $15.50 per unit for an aggregate consideration of approximately $16,940, new loans of $2,662, assumed liabilities of $78 and cash of $7,352. The value of units issued in exchange for property is determined through a value established annually by our Board of Trustees, and reflects the fair value at the time of issuance. The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the acquisitions discussed above: Nine Months Ended September 30, 2017 2016 Land, building, tenant improvements and FF&E $ 20,111 $ 25,822 Acquired lease intangible assets - 1,386 Acquired lease intangible liabilities - (176) Mortgages notes payable assumed - - Other liabilities (72) (78) Net assets acquired 20,039 26,954 Equity/limited partnership unit consideration (9,651) (16,940) Restricted cash proceeds related to IRC Section 1031 tax-deferred exchange (4,278) - New loans (2,392) (2,662) Net cash consideration $ 3,718 $ 7,352 The acquisitions completed after July 1, 2017 were considered asset acquisitions and, as such, transaction costs were capitalized upon closing. For acquisitions prior to July 1, 2017, which were accounted for as business combinations, the transaction costs totaled $1,131 and $1,526 for the nine months ended September 30, 2017 and 2016, respectively, are included in “Acquisition and disposition expenses” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income. Estimated Value of Units/Shares The Board of Trustees determined an estimate of fair value for the trust shares in the first nine months of 2017 and 2016. In addition, the Board of Trustees, acting as general partner for the operating partnership, determined an estimate of fair value for the limited partnership units in the first nine months of 2017 and 2016. In determining the fair value of the shares and limited partnership units, the board relied upon their experience with, and knowledge about, our real estate portfolio and debt obligations. The board typically determines the share price in March of each year. The trustees determine the price in their discretion and use data points to guide their determination which is typically based on a consensus of opinion. In addition, the board considers how the price chosen will affect existing share and unit values, redemption prices, dividend coverage ratios, yield percentages, dividend reinvestment factors, and future UPREIT transactions, among other considerations and information. Determination of price is a matter within the board’s sole discretion. The Trust does not determine price based on any rote formula or specific factors and is not based on, or intended to comply with, fair value standards under U.S. GAAP. The value may not be indicative of the price received for selling the assets in their current condition. At this time, no shares are held in street name accounts and the Trust is not subject to FINRA’s specific pricing requirements set out in Rule 2340 or otherwise. Thus, the Trust does not employ any specific valuation methodology or formula. Rather, the board looks to available data and information, which is often adjusted to comport more closely with the assets held by the Trust at the time of valuation. The principal valuation methodology utilized is the NAV calculation/direct capitalization method. The information made available to the Board is assembled by the Trust’s Advisor. Based on the results of the methodologies, the Board determined the fair value of the shares and limited partnership units to be $16.00 per share/unit effective March 23, 2016. The Board determined the fair value of the shares and limited partnership units to be $16.50 per share/unit effective March 29, 2017. As with any valuation methodology, the methodologies utilized by the Board in reaching an estimate of the value of the shares and limited partnership units are based upon a number of estimates, assumptions, judgments or opinions that may, or may not, prove to be correct. The use of different estimates, assumptions, judgments, or opinions would likely have resulted in significantly different estimates of the value of the shares and limited partnership units. In addition, the Board’s estimate of share and limited partnership unit value is not based on the fair values of our real estate, as determined by GAAP, as our book value for most real estate is based on the amortized cost of the property, subject to certain adjustments. Furthermore, in reaching an estimate of the value of the shares and limited partnership units, the Board did not include a liquidity discount in order to reflect the fact that the shares and limited partnership units are not currently traded on a national securities exchange; a discount for debt that may include a prepayment obligation or a provision precluding assumption of the debt by a third party; or the costs that are likely to be incurred in connection with an appropriate exit strategy, whether that strategy might be a listing of the limited partnership units or Sterling common shares on a national securities exchange or a merger or sale of our portfolio. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2017 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 19 - SUBSEQUENT EVENTS On October 16, 2017, we paid a dividend or distribution of $0.2475 per share on our common shares of beneficial interest or limited partnership units, respectively, to common shareholders and limited partnership unit holders of record on September 30, 2017. Pending acquisitions and dispositions are subject to numerous conditions and contingencies and there are no assurances that the transactions will be completed. We have evaluated subsequent events through the date of this filing. We are not aware of any other subsequent events which would require recognition or disclosure in the consolidated financial statements. |
PRINCIPAL ACTIVITY AND SIGNIF26
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, which have previously been filed with the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC. The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying consolidated balance sheet as of September 30, 2017 and consolidated statements of operations and other comprehensive income, consolidated statement of shareholders’ equity, and consolidated statements of cash flows for the three and nine months ended September 30, 2017 and 2016, as applicable, have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial statements as of and for the three and nine months ended September 30, 2017. These adjustments are of a normal recurring nature. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Sterling, Sterling Properties, LLLP, and wholly-owned limited liability companies. All significant intercompany transactions and balances have been eliminated in consolidation. Additionally, we evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”). In determining whether we have a requirement to consolidate the accounts of an entity, management considers factors such as our ownership interest, our authority to make decisions and contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity (“VIE”) for which we have both: a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and b) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE. |
Principal Business Activity | Principal Business Activity Sterling currently owns directly and indirectly 164 properties. The Trust’s 115 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 49 commercial properties primarily located in North Dakota with others located in Arkansas, Colorado, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, Texas and Wisconsin. The commercial properties include retail, office, industrial, restaurant and medical properties. Presently, the Trust’s mix of properties is 71.0% residential and 29.0% commercial (based on cost) and total $648,856 in real estate investments at September 30, 2017. Effective January 1, 2016, Sterling’s acquisition strategy and focus is solely on multifamily apartment properties. We currently have no plans to dispose of our existing commercial properties. Residential Property Location No. of Properties Units North Dakota Minnesota Missouri Nebraska Commercial Property Location No. of Properties Sq. Ft North Dakota Arkansas Colorado Iowa Louisiana Michigan Minnesota Mississippi Nebraska Texas Wisconsin |
Concentration of Credit Risk | Concentration of Credit Risk Our cash balances are maintained in various bank deposit accounts. The bank deposit amounts in these accounts may exceed federally insured limits at various times throughout the year. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Real Estate Investments | Real Estate Investments Real estate investments are recorded at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of each acquired investment property accounted for as a business combination based upon the estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market, (vi) the value of customer relationships and (vii) goodwill, if any. Transaction costs related to acquisitions accounted for as business combinations are expensed as incurred and included within “Administration of REIT expenses” in the accompanying consolidated statements of operations and other comprehensive income. The Company elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of July 1, 2017. This new guidance clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. Refer to the “Recent Accounting Pronouncements” section within Note 2 to the consolidated financial statements. Under this new guidance, the Company expects most acquisitions of investment property will meet this screen and, thus, be accounted for as asset acquisitions. The Company allocates the purchase price of each acquired investment property that is accounted for as an asset acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market and (vi) the value of customer relationships. Asset acquisitions do not give rise to goodwill and the related transaction costs are capitalized and included with the allocated purchase price. For tangible assets acquired, including land, building and other improvements, the Company considers available comparable market and industry information in estimating acquisition date fair value. Key factors considered in the calculation of fair value of both real property and intangible assets include the current market rent values, “dark” periods (building in vacant status), direct costs estimated with obtaining a new tenant, discount rates, escalation factors, standard lease terms, and tenant improvement costs. The Company allocates a portion of the purchase price to the estimated acquired in-place lease value intangibles based on factors available in third party appraisals or cash flow estimates of the property prepared by our internal analysis. These estimates are based upon cash flow projections for the property, existing leases, lease origination costs for similar leases as well as lost rental payments during an assumed lease-up period. The Company also evaluates each acquired lease as compared to current market rates. If an acquired lease is determined to be above or below market, the Company allocates a portion of the purchase price to such above or below market leases based upon the present value of the difference between the contractual lease payments and estimated market rent payments over the remaining lease term. Renewal periods are included within the lease term in the calculation of above and below market lease values if, based upon factors known at the acquisition date, market participants would consider it reasonably assured that the lessee would exercise such options. Fair value estimates used in acquisition accounting, including the discount rate used, require the Company to consider various factors, including, but not limited to, market knowledge, demographics, age and physical condition of the property, geographic location, and size and location of tenant spaces within the acquired investment property. The portion of the purchase price allocated to acquired in-place lease value intangibles is amortized on a straight-line basis over the life of the related lease as amortization expense. The Company incurred amortization expense pertaining to acquired inplace lease value intangibles of $370 and $459 for the three months ended September 30, 2017 and 2016, respectively and $1,141 and $1,567 for the nine months ended September 30, 2017 and 2016, respectively. The portion of the purchase price allocated to acquired above and below market lease intangibles is amortized on a straight-line basis over the life of the related lease as an adjustment to rental income. Amortization pertaining to above market lease intangibles of $56 and $57 for the three months ended September 30, 2017 and 2016, respectively, was recorded as a reduction to income from rental operations. Amortization pertaining to below market lease intangibles of $70 and $78 for the three months ended September 30, 2017 and 2016, respectively, was recorded as an increase to income from rental operations. Amortization pertaining to above market lease intangibles of $169 and $174 for the nine months ended September 30, 2017 and 2016, respectively, was recorded as a reduction to income from rental operations. Amortization pertaining to below market lease intangibles of $214 and $253 for the nine months ended September 30, 2017 and 2016, respectively, was recorded as an increase to income from rental operations. Furniture and fixtures are stated at cost less accumulated depreciation. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for routine maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method over the following estimated useful lives: Buildings and improvements 40 years Furniture, fixtures and equipment 5-9 years Depreciation expense for the three months ended September 30, 2017 and 2016 totaled $4,816 and $4,625, respectively. Depreciation expense for the nine months ended September 30, 2017 and 2016 totaled $14,270 and $13,882, respectively. The Company’s investment properties are reviewed for potential impairment at the end of each reporting period whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, the Company separately determines whether impairment indicators exist for each property. Examples of situations considered to be impairment indicators include, but are not limited to: · a substantial decline or continued low occupancy rate; · continued difficulty in leasing space; · significant financially troubled tenants; · a change in plan to sell a property prior to the end of its useful life or holding period; · a significant decrease in market price not in line with general market trends; and · any other quantitative or qualitative events or factors deemed significant by the Company’s management or board of trustees. If the presence of one or more impairment indicators as described above is identified at the end of the reporting period or throughout the year with respect to an investment property, the asset is tested for recoverability by comparing its carrying value to the estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair value of an impaired investment property, the Company makes complex or subjective assumptions which include, but are not limited to: · projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength, demographics, holding period and property location; · projected capital expenditures and lease origination costs; · projected cash flows from the eventual disposition of an operating property using a property specific capitalization rate; · comparable selling prices; and · property specific discount rates for fair value estimates as necessary. To the extent impairment has occurred, the Company will record an impairment charge calculated as the excess of the carrying value of the asset over its fair value for impairment of investment properties. Based on evaluation, there were no impairment losses during the nine months ended September 30, 2017 and 2016. |
Properties Held for Sale | Properties Held for Sale We account for our properties held for sale in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), which addresses financial accounting and reporting in a period in which a component or group of components of an entity either has been disposed of or is classified as held for sale. In accordance with ASC 360, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amount, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as properties held for sale in the period in which all of the following criteria are met: · management, having the authority to approve the action, commits to a plan to sell the asset; · the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; · an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated; · the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; · the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and · given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. The results of operations of a component of an entity that either has been disposed of or is classified as held-for-sale under the requirements of ASC 360 shall be reported in discontinued operations in accordance with ASC 205, Presentation of Financial Statements (“ASC 205”) if such disposal or classification represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There were no properties classified as held for sale at September 30, 2017. There was one retail property classified as held for sale at December 31, 2016. See Note 17. |
Construction in Progress | Construction in Progress The Company capitalizes direct and certain indirect project costs incurred during the development period such as construction, insurance, architectural, legal, interest and other financing costs, and real estate taxes. At such time as the development is considered substantially complete, the capitalization of certain indirect costs such as real estate taxes and interest and financing costs cease and all project-related costs included in construction in process are reclassified to land and building and other improvements. |
Cash and Cash Equivalents | Cash and Cash Equivalents We classify highly liquid investments with a maturity of three months or less when purchased as cash equivalents. |
Investment in Unconsolidated Affiliates | Investment in Unconsolidated Affiliates We account for unconsolidated affiliates using the equity method of accounting per guidance established under ASC 323, Investments – Equity Method and Joint Ventures (“ASC 323”). The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for our share of equity in the affiliates’ earnings, contributions and distributions. We evaluate the carrying amount of the investments for impairment in accordance with ASC 323. Unconsolidated affiliates are reviewed for potential impairment if the carrying amount of the investment exceeds its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until the carrying amount is fully recovered. The evaluation of an investment in an affiliate for potential impairment can require our management to exercise significant judgments. No impairment losses were recorded related to the unconsolidated affiliates for the nine months ended September 30, 2017 and 2016. We use the equity method to account for investments that qualify as variable interest entities where we are not the primary beneficiary and entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operations and financial policies of the investee. We will also use the equity method for investments that do not qualify as variable interest entities and do not meet the control requirements for consolidation, as defined in ASC 810. For a joint venture accounted for under the equity method, our share of net earnings and losses is reflected in income when earned and distributions are credited against our investment in the joint venture as received. In determining whether an investment in a limited liability company or tenant in common is a variable interest entity, we consider: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including the necessity of subordinated debt; estimates of future cash flows; our and our partner’s ability to participate in the decision making related to acquisitions, dispositions, budgeting and financing on the entity; and obligation to absorb losses and preferential returns. As of September 30, 2017, our tenant in common arrangements do not qualify as variable interest entities and do not meet the control requirements for consolidation, as defined in ASC 810. As of September 30, 2017 and December 31, 2016, the unconsolidated affiliates held total assets of $23,930 and $26,140 and mortgage notes payable of $17,561 and $20,017, respectively. The operating partnership previously owned a 40.26% interest as a tenant in common in a single asset limited liability company which owns a 144 unit residential, multifamily apartment complex in Bismarck, North Dakota. The property was encumbered by a first mortgage with a balance at December 31, 2016 of $2,190. As of May 1, 2017, there was a change in control over the real estate investment, with the operating partnership acquiring the other tenant in common’s 59.74% ownership interest in the property (see Note 18). We estimated the property had a fair value of approximately $10,080. The operating partnership assumed a loan of $1,295 and issued $4,727 of limited partnership units for a total purchase price of approximately $6,022. The company accounted for this as a business combination and recognized a gain on change in control of real estate investment of $2,186 in the second quarter of 2017 as a result of remeasuring the carrying value to fair value. The operating partnership is a 50% owner of Grand Forks Marketplace Retail Center as a tenant in common through 100% ownership in a limited liability company. Grand Forks Marketplace Retail Center has approximately 183,000 square feet of commercial space in Grand Forks, North Dakota. The property is encumbered by a non-recourse first mortgage with a balance at September 30, 2017 and December 31, 2016 of $10,743 and $10,891, respectively. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 66.67% interest as tenant in common in an office building with approximately 75,000 square feet of commercial rental space in Fargo, North Dakota. The property is encumbered by a first mortgage with a balance at September 30, 2017 and December 31, 2016 of $6,818 and $6,936, respectively. The Company is jointly and severally liable for the full mortgage balance. |
Receivables | Receivables Receivables consist primarily of amounts due for rent. The receivables are non-interest bearing. The carrying amount of receivables is reduced by an amount that reflects management’s best estimates of the amounts that will not be collected. As of September 30, 2017 and December 31, 2016, management determined no allowance was necessary for uncollectible receivables. |
Financing and Lease Costs | Financing and Lease Costs Financing costs have been capitalized and are being amortized over the life of the financing (line of credit) using the effective interest method. Unamortized financing costs are written off when debt is retired before the maturity date and included in interest expense at that time. Lease costs incurred in connection with new leases have been capitalized and are being amortized over the life of the lease using the straight-line method. We record the amortization of leasing costs in depreciation and amortization on the consolidated statements of operations and comprehensive income. If an applicable lease terminates prior to the expiration of its initial lease term, we write off the carrying amount of the costs to amortization expense. |
Debt Issuance Costs | Debt Issuance Costs We amortize external debt issuance costs using the effective interest rate method, over the estimated life of the related debt. We record debt issuance costs related to notes and mortgage notes, net of amortization, on our consolidated balance sheets as an offset to their related debt. We record debt issuance costs related to revolving lines of credit on our consolidated balance sheets as financing fees, regardless of whether a balance on the line of credit is outstanding. We record the amortization of all debt issuance costs as interest expense. |
Intangible Assets | Lease Intangible Assets Lease intangibles are a purchase price allocation recorded on property acquisition. The lease intangibles represent the estimated value of in-place leases, tenant relationships and the value of leases with above or below market lease terms. Lease intangibles are amortized over the term of the related lease. The carrying amount of intangible assets is regularly reviewed for indicators of impairments in value. Impairment is recognized only if the carrying amount of the intangible asset is considered to be unrecoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the estimated fair value of the asset. Based on the review, management determined no impairment charges were necessary at September 30, 2017 and December 31, 2016. |
Noncontrolling Interest | Noncontrolling Interest A noncontrolling interest in a subsidiary (minority interest) is in most cases an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company’s equity. In addition, consolidated net income is required to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and the amount of consolidated net income attributable to the parent and the noncontrolling interest are required to be disclosed on the face of the consolidated statements of operations and comprehensive income. Operating Partnership: Interests in the operating partnership held by limited partners are represented by operating partnership units. The operating partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the operating partnership agreement. Partially Owned Properties: The Company reflects noncontrolling interests in partially owned properties on the balance sheet for the portion of properties consolidated by the Company that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statement of operations and comprehensive income. |
Syndication Costs | Syndication Costs Syndication costs consist of costs paid to attorneys, accountants, and selling agents, related to the raising of capital. Syndication costs are recorded as a reduction to beneficial and noncontrolling interest. |
Federal Income Taxes | Federal Income Taxes We have elected to be taxed as a REIT under the Internal Revenue Code, as amended. A REIT calculates taxable income similar to other domestic corporations, with the major difference being a REIT is entitled to a deduction for dividends paid. A REIT is generally required to distribute each year at least 90% of its taxable income. If it chooses to retain the remaining 10% of taxable income, it may do so, but it will be subject to a corporate tax on such income. REIT shareholders are taxed on REIT distributions of ordinary income in the same manner as they are taxed on other corporate distributions. We intend to continue to qualify as a REIT and, provided we maintain such status, will not be taxed on the portion of the income that is distributed to shareholders. In addition, we intend to distribute all of our taxable income; therefore, no provisions or liabilities for income taxes have been recorded in the financial statements. Sterling conducts its business activity as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) through its Operating Partnership – Sterling Properties, LLLP. The Operating Partnership is organized as a limited liability limited partnership. Income or loss is allocated to the partners in accordance with the provisions of the Internal Revenue Code 704(b) and 704(c). UPREIT status allows non-recognition of gain by an owner of appreciated real estate if that owner contributes the real estate to a partnership in exchange for a partnership interest. The conversion of a partnership interest to shares of beneficial interest in the REIT will be a taxable event to the limited partner. We follow ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of September 30, 2017 and December 31, 2016 we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We are no longer subject to Federal and State tax examinations by tax authorities for years before 2013. The operating partnership has elected to record related interest and penalties, if any, as income tax expense on the consolidated statements of operations and other comprehensive income. |
Revenue Recognition | Revenue Recognition We derive over 95% of our revenues from tenant rents and other tenant-related activities. We lease multifamily units under operating leases with terms of one year or less. Rental income and other property revenues are recorded when due from tenants and recognized monthly as earned pursuant to the terms of the underlying leases. Other property revenues consist primarily of laundry, application and other fees charged to tenants. We lease commercial space primarily under long-term lease agreements. Commercial tenant rents include base rents, expense reimbursements (such as common area maintenance, real estate taxes and utilities), and a straight-line rent adjustment. We record base rents on a straight-line basis. The monthly base rent income according to the terms of our leases is adjusted so that an average monthly rent is recorded for each tenant over the term of its lease. The straight-line rent adjustment increased revenue by $59 and $124 for the three months ended September 30, 2017 and 2016, respectively. The straight-line rent adjustment increased revenue by $186 and $391 the nine months ended September 30, 2017 and 2016, respectively. The straight-line receivable balance included in receivables on the consolidated balance sheets as of September 30, 2017 and December 31, 2016 was $3,526 and $3,362, respectively. We receive payments for expense reimbursements from substantially all our multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts, which generally are immaterial, are recognized in the subsequent year. Commercial properties are leased to tenants under terms expiring at various dates through 2034. Lease terms often include renewal options. For the nine months ended September 30, 2017 and 2016, gross revenues from commercial property rentals, including CAM income (common area maintenance) of $4,592 and $4,547, respectively, totaled $20,619 and $20,632, respectively |
Earnings per Common Share | Earnings per Common Share Basic earnings per common share is computed by dividing net income available to common shareholders (the “numerator”) by the weighted average number of common shares outstanding (the “denominator”) during the period. Sterling had no dilutive potential common shares as of September 30, 2017 and 2016, and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the three months ended September 30, 2017 and 2016, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,356,000 and 7,891,000, respectively. For the nine months ended September 30, 2017 and 2016, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,234,000 and 7,791,000, respectively. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the FASB and International Accounting Standards Board issued their final standard on revenue from contracts with customers, which was issued by the FASB as Accounting Standards Update 2014-09, Revenue from Contracts with Customers , or ASU 2014-09. ASU 2014-09, which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current GAAP applicable to revenue recognition and converges U.S. and international accounting standards in this area. The core principle of the new guidance is that revenue shall only be recognized when an entity has transferred control of goods or services to a customer and for an amount reflecting the consideration to which the entity expects to be entitled for such exchange. Additionally, lease contracts are specifically excluded from ASU 2014-09. In July 2015, the FASB decided to defer the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning on the original effective date of periods beginning after December 15, 2016. Upon adoption, ASU 2014-09 allows for full retrospective adoption applied to all periods presented or modified retrospective adoption with the cumulative effect of initially applying the standard recognized at the date of initial application. We have performed a review of the requirements of the new guidance and have identified which of our revenue streams will be within the scope of ASU 2014-09. We are working through an adoption plan which includes a review of transactions supporting each revenue stream to determine the impact of accounting treatment under ASU 2014-09, an evaluation of the method of adoption and assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. We will adopt this standard effective as of January 1, 2018 and will utilize the cumulative effect transition method of adoption. The adoption of this guidance will not have a material impact on our financial position or results of operations. We expect this standard will have an impact on the disclosure of certain lease and non-lease components of revenue from leases upon the adoption of the update ASU 2016-02, Leases, but will not have a material impact on “total revenues.” In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends existing accounting standards for lease accounting, including by requiring lessees to recognize most leases on the balance sheet and making certain changes to lessor accounting. The standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier application permitted. The Company is evaluating the impact of ASU No. 2016-02 on its financial position and results of operations. In January 2017, the FASB issued a new standard which clarifies the definition of a business. The standard's objective is to add additional guidance that assists companies in determining whether transactions should be accounted for as an asset acquisition or a business combination. The new standard first requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If this threshold is not met, the entity next evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Among other differences, transaction costs associated with asset acquisitions are capitalized while those associated with business combinations are expensed as incurred. In addition, purchase price in an asset acquisition is allocated on a relative fair value basis while in a business combination it is generally measured at fair value. The Company early adopted the new standard as allowed effective July 1, 2017. The Company concluded that substantially all of its transactions will now be accounted for as asset acquisitions, which means transaction costs will largely be capitalized as noted above. The adoption of this pronouncement resulted in the Company’s acquisition of investment property subsequent to July 1, 2017 to qualify as asset acquisition and as such, the related transaction costs of $158 were capitalized. In November 2016, the FASB issued ASU No. 2016-18 to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The pronouncement requires a retrospective transition method of adoption. Upon adoption, the Company will include amounts generally described as restricted cash within the beginning-of-period, change and end-of-period total amounts on the statement of cash flows rather than within an activity on the statement of cash flows. In August 2016, the FASB issued ASU No. 2016-15 to provide guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not currently anticipate that the guidance will have a material impact on its consolidated financial statements. Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements. |
Reclassifications | Reclassifications Certain amounts previously reported in our quarterly report ended September 30, 2016 have been reclassified to conform to the consolidated balance sheet, statement of operations and cash flows presentations in 2017. |
PRINCIPAL ACTIVITY AND SIGNIF27
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of Types of Real Estate Properties by Location | Residential Property Location No. of Properties Units North Dakota Minnesota Missouri Nebraska Commercial Property Location No. of Properties Sq. Ft North Dakota Arkansas Colorado Iowa Louisiana Michigan Minnesota Mississippi Nebraska Texas Wisconsin |
Summary of Estimated Useful Life | Buildings and improvements 40 years Furniture, fixtures and equipment 5-9 years |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
SEGMENT REPORTING | |
Summary of Segment Revenues and Net Operating Income | Three months ended September 30, 2017 Three months ended September 30, 2016 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 21,863 $ 6,792 $ 28,655 $ 20,081 $ 6,807 $ 26,888 Expenses from rental operations 12,764 2,023 14,787 11,547 1,920 13,467 Net operating income $ 9,099 $ 4,769 $ 13,868 $ 8,534 $ 4,887 $ 13,421 Interest 4,690 4,636 Depreciation and amortization 5,427 5,471 Administration of REIT 885 1,136 Loss on lease terminations — 25 Other (income)/expense (390) (370) Net income $ 3,256 $ 2,523 Nine months ended September 30, 2017 Nine months ended September 30, 2016 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 64,579 $ 20,619 $ 85,198 $ 59,990 $ 20,632 $ 80,622 Expenses from rental operations 35,630 5,600 41,230 32,353 5,202 37,555 Net operating income $ 28,949 $ 15,019 $ 43,968 $ 27,637 $ 15,430 $ 43,067 Interest 13,938 13,740 Depreciation and amortization 16,170 16,711 Administration of REIT 4,208 4,187 Loss on lease terminations 146 299 Other (income)/expense (5,240) (473) Net income $ 14,746 $ 8,603 |
Summary of Segment Assets and Accumulated Depreciation | As of September 30, 2017 Residential Commercial Total (in thousands) Real estate investments $ 552,792 $ 202,337 $ 755,129 Accumulated depreciation (73,008) (33,265) (106,273) $ 479,784 $ 169,072 648,856 Cash and cash equivalents 20,991 Restricted deposits and funded reserves 7,894 Investment in unconsolidated affiliates 2,785 Receivables and other assets 5,617 Financing and lease costs, less accumulated amortization 776 Intangible assets, less accumulated amortization 13,863 Total Assets $ 700,782 As of December 31, 2016 Residential Commercial Total (in thousands) Real estate investments $ 514,341 $ 200,959 $ 715,300 Accumulated depreciation (63,148) (29,177) (92,325) $ 451,193 $ 171,782 622,975 Cash and cash equivalents 12,034 Restricted deposits and funded reserves 7,213 Investment in unconsolidated affiliates 3,653 Receivables and other assets 5,354 Financing and lease costs, less accumulated amortization 950 Assets held for sale 2,482 Intangible assets, less accumulated amortization 15,852 Total Assets $ 670,513 |
REAL ESTATE INVESTMENTS (Tables
REAL ESTATE INVESTMENTS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
REAL ESTATE INVESTMENTS | |
Summary of Real Estate Investments | As of September 30, 2017 Residential Commercial Total (in thousands) Land and land improvements $ 72,673 $ 37,823 $ 110,496 Building and improvements 453,790 163,048 616,838 Furniture, fixtures and equipment 25,357 1,466 26,823 Construction in progress 972 — 972 552,792 202,337 755,129 Less accumulated depreciation (73,008) (33,265) (106,273) $ 479,784 $ 169,072 $ 648,856 As of December 31, 2016 Residential Commercial Total (in thousands) Land and land improvements $ 67,384 $ 37,769 $ 105,153 Building and improvements 419,120 161,724 580,844 Furniture, fixtures and equipment 24,852 1,466 26,318 Construction in progress 2,985 — 2,985 514,341 200,959 715,300 Less accumulated depreciation (63,148) (29,177) (92,325) $ 451,193 $ 171,782 $ 622,975 |
LEASE INTANGIBLES (Tables)
LEASE INTANGIBLES (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
LEASE INTANGIBLES | |
Schedule of Intangible Assets, Liabilities and Accumulated Amortization | Lease Accumulated Lease As of September 30, 2017 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,239 $ (11,413) $ 11,826 Above-market leases 3,115 (1,078) 2,037 $ 26,354 $ (12,491) $ 13,863 Lease Intangible Liabilities Below-market leases $ (3,170) $ 1,324 $ (1,846) Lease Accumulated Lease As of December 31, 2016 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,507 $ (9,860) $ 13,647 Above-market leases 3,115 (910) 2,205 $ 26,622 $ (10,770) $ 15,852 Lease Intangible Liabilities Below-market leases $ (3,197) $ 1,122 $ (2,075) |
Schedule of Estimated Aggregate Amortization Expense | Intangible Intangible Years ending December 31, Assets Liabilities (in thousands) 2017 (October 1, 2017 to December 31, 2017) $ 600 $ 70 2018 2,237 278 2019 1,932 269 2020 1,507 218 2021 1,210 189 Thereafter 6,377 822 $ 13,863 $ 1,846 |
MORTGAGE NOTES PAYABLE (Tables)
MORTGAGE NOTES PAYABLE (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
MORTGAGE NOTES PAYABLE | |
Schedule of Mortgage Notes Payable | Principal Balance At September 30, December 31, 2017 2016 (in thousands) Fixed rate mortgage notes payable (a) $ 405,355 $ 393,511 Less unamortized debt issuance costs 2,890 3,032 $ 402,465 $ 390,479 (a) Includes $2,975 and $3,056 of variable rate mortgage debt that was swapped to a fixed rate at September 30, 2017 and December 31, 2016, respectively. |
Scheduled Maturities of Mortgage Notes Payable | Years ending December 31, Amount (in thousands) 2017 (October 1, 2017 to December 31, 2017) $ 5,000 2018 20,095 2019 25,322 2020 28,001 2021 45,897 Thereafter 281,040 Total payments $ 405,355 |
FAIR VALUE MEASUREMENT (Tables)
FAIR VALUE MEASUREMENT (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
FAIR VALUE MEASUREMENT | |
Carrying Value and Estimated Fair Value of Company's Financial Instruments | September 30, 2017 December 31, 2016 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial liabilities: Mortgage notes payable, net $ 402,465 $ 402,866 $ 390,479 $ 402,015 Fair value of interest rate swaps $ 88 $ 88 $ 145 $ 145 |
Schedule of Fair Value of Liabilities on Recurring Basis | Level 1 Level 2 Level 3 Total (in thousands) September 30, 2017 Fair value of interest rate swaps $ — $ 88 $ — $ 88 December 31, 2016 Fair value of interest rate swaps $ — $ 145 $ — $ 145 |
Fair Value of Company's Financial Assets and Liabilities | Level 1 Level 2 Level 3 Total (in thousands) September 30, 2017 Mortgage notes payable, net $ — $ — $ 402,866 $ 402,866 December 31, 2016 Mortgage notes payable, net $ — $ — $ 402,015 $ 402,015 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
RELATED PARTY TRANSACTIONS | |
Summary of Compensation Plan | Board Chairman – Board Meeting 105 shares/meeting Trustee – Board Meeting 75 shares/meeting Committee Chair – Committee Meeting 30 shares/meeting Trustee – Committee Meeting 30 shares/meeting |
Summary of Total Project Cost | Total Cost Fee Range of Fee Formula 0 – 10M % 0 –.5M 0M – 5.0% x (TC – 0M) 10M - 20M % .5 M – .95M .50M – 4.5% x (TC – 10M) 20M – 30M % .95 M – 1.35M .95M – 4.0% x (TC – 20M) 30M – 40M % 1.35 M – 1.70M 1.35M – 3.5% x (TC – 30M) 40M – 50M % 1.70 M – 2.00M 1.70M – 3.0% x (TC – 40M) |
DISPOSITIONS (Tables)
DISPOSITIONS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
DISPOSITIONS | |
Schedule of assets and liabilities associated with the real estate investments held for sale | September 30, December 31, 2017 2016 (in thousands) ASSETS Real estate investments $ — $ 2,365 Restricted deposits and funded reserves — 22 Receivables — 25 Notes receivable — 42 Financing and lease costs, less accumulated amortization of $87 in 2016 — 28 Total Assets $ — $ 2,482 LIABILITIES Special assessments payable $ — $ 103 Tenant security deposits payable — 22 Total Liabilities $ — $ 125 |
BUSINESS COMBINATIONS AND ACQ35
BUSINESS COMBINATIONS AND ACQUISITIONS (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Schedule of fair value of assets acquired and liabilities assumed | Nine Months Ended September 30, 2017 2016 Land, building, tenant improvements and FF&E $ 20,111 $ 25,822 Acquired lease intangible assets - 1,386 Acquired lease intangible liabilities - (176) Mortgages notes payable assumed - - Other liabilities (72) (78) Net assets acquired 20,039 26,954 Equity/limited partnership unit consideration (9,651) (16,940) Restricted cash proceeds related to IRC Section 1031 tax-deferred exchange (4,278) - New loans (2,392) (2,662) Net cash consideration $ 3,718 $ 7,352 |
Real Estate Property Acquisitions 2017 | |
Schedule of acquisitions | Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 1/10/17 Sargent Apartments Fargo, ND Apartment complex 36 units $ 1,710 $ 1,710 1/11/17 Arrowhead Apartments Grand Forks, ND Apartment complex 82 units 5,494 5,494 1/17/17 West Oak Apartments Fargo, ND Apartment complex 18 units 777 777 1/17/17 Carr Apartments Fargo, ND Apartment complex 18 units 828 828 5/1/17 Plumtree Apartments Fargo, ND Apartment complex 18 units 907 907 5/1/17 Sunchase Apartments Fargo, ND Apartment complex 36 units 1,765 1,765 6/1/17 Essex Apartments Fargo, ND Apartment complex 18 units 858 858 6/1/17 Jadestone Apartments Fargo, ND Apartment complex 18 units 809 809 6/1/17 Park Circle Apartments Fargo, ND Apartment complex 18 units 903 903 7/3/17 East Bridge Apartments (a) Fargo, ND Apartment complex 58 units 6,060 6,060 $ 20,111 $ 20,111 (a) This property was acquired utilizing Internal Revenue Code 1031 tax-deferred exchange funds. |
Real Estate Property Acquisitions 2016 | |
Schedule of acquisitions | Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 1/29/16 Titan Machinery North Platte, NE Implement dealership 16,480 sq. ft. $ 1,769 $ 1,769 2/1/16 Bristol Park Apartments Grand Forks, ND Apartment complex 80 units 5,050 5,050 2/1/16 Redpath White Bear Lake, MN Office building 25,817 sq. ft. 4,000 4,000 3/1/16 Eagle Sky I Apartments Bismarck, ND Apartment complex 20 units 1,525 1,525 3/1/16 Eagle Sky II Apartments Bismarck, ND Apartment complex 20 units 1,525 1,525 5/4/16 Garden Grove Apartments Bismarck, ND Apartment complex 95 units 7,072 7,072 5/4/16 Washington Apartments Grand Forks, ND Apartment complex 17 units 667 667 8/1/16 Roughrider Grand Forks, ND Apartment complex 12 units 582 582 8/29/16 West 80 Development Land Rochester, MN Land 18.8 acres 900 900 9/13/16 Amberwood Apartments Grand Forks, ND Apartment complex 95 units 3,942 3,942 $ 27,032 $ 27,032 |
Organization - Additional Infor
Organization - Additional Information (Details) | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Properties | ||
Ownership in operating partnership | 32.28% | 32.41% |
Real Estate | ||
Properties | ||
Percentage of total assets that must consist of real estate assets per the Internal Revenue Code election to be treated as REIT | 75.00% | |
Percentage of total gross income that must be derived from real estate per the Internal Revenue Code election to be treated as REIT | 75.00% |
Principal Activity and Signif37
Principal Activity and Significant Accounting Policies - Principal Business Activity (Details) | Sep. 30, 2017ft²propertyitem |
Properties | |
No. of properties | 164 |
Residential Property | |
Properties | |
No. of properties | 115 |
Percentage of residential property out of the trust properties | 71.00% |
Units | item | 9,335 |
Residential Property | North Dakota | |
Properties | |
No. of properties | 96 |
Units | item | 5,828 |
Residential Property | Minnesota | |
Properties | |
No. of properties | 16 |
Units | item | 3,027 |
Residential Property | Missouri | |
Properties | |
No. of properties | 1 |
Units | item | 164 |
Residential Property | Nebraska | |
Properties | |
No. of properties | 2 |
Units | item | 316 |
Commercial Property | |
Properties | |
No. of properties | 49 |
Percentage of commercial property out of the trust properties | 29.00% |
Area of commercial property | ft² | 1,691,000 |
Commercial Property | North Dakota | |
Properties | |
No. of properties | 20 |
Area of commercial property | ft² | 805,000 |
Commercial Property | Arkansas | |
Properties | |
No. of properties | 2 |
Area of commercial property | ft² | 29,000 |
Commercial Property | Colorado | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 13,000 |
Commercial Property | Iowa | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 33,000 |
Commercial Property | Louisiana | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 15,000 |
Commercial Property | Michigan | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 12,000 |
Commercial Property | Minnesota | |
Properties | |
No. of properties | 15 |
Area of commercial property | ft² | 683,000 |
Commercial Property | Mississippi | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 15,000 |
Commercial Property | Nebraska | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 16,000 |
Commercial Property | Texas | |
Properties | |
No. of properties | 1 |
Area of commercial property | ft² | 7,000 |
Commercial Property | Wisconsin | |
Properties | |
No. of properties | 5 |
Area of commercial property | ft² | 63,000 |
Principal Activity and Signif38
Principal Activity and Significant Accounting Policies - Real Estate Investments (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Real Estate Investments | ||||
Amortization expense | $ 1,855 | $ 2,751 | ||
Amortization expense of below market lease | $ 70 | $ 78 | 214 | 253 |
Depreciation expense | 4,816 | 4,625 | 14,270 | 13,882 |
Loss on impairment of property | $ 0 | 0 | ||
Building and improvements | ||||
Real Estate Investments | ||||
Estimated useful life | 40 years | |||
Furniture and fixtures | Minimum | ||||
Real Estate Investments | ||||
Estimated useful life | 5 years | |||
Furniture and fixtures | Maximum | ||||
Real Estate Investments | ||||
Estimated useful life | 9 years | |||
In-place leases | ||||
Real Estate Investments | ||||
Amortization expense | 370 | 459 | $ 1,141 | 1,567 |
Above-market leases | ||||
Real Estate Investments | ||||
Amortization expense | $ 56 | $ 57 | $ 169 | $ 174 |
Principal Activity and Signif39
Principal Activity and Significant Accounting Policies - Held for Sale and Unconsolidated Affiliates (Details) $ in Thousands | May 01, 2017USD ($)item | Sep. 30, 2017USD ($)ft²propertyitem | Jun. 30, 2017USD ($) | Sep. 30, 2017USD ($)ft²propertyitem | Sep. 30, 2016USD ($) | Dec. 31, 2016USD ($)property |
Significant Accounting Policies | ||||||
Number of real estate properties classified as held for sale | property | 0 | 0 | 1 | |||
Impairment losses related to the unconsolidated affiliates | $ 0 | $ 0 | ||||
Total assets held by unconsolidated affiliates | $ 23,930 | 23,930 | $ 26,140 | |||
Mortgage notes held by unconsolidated affiliates | 17,561 | 17,561 | 20,017 | |||
Aggregate value of limited partnership units issued for acquisition | 9,651 | 16,940 | ||||
Acquisition price | 20,111 | $ 27,032 | ||||
Gain on change in control of real estate investments | $ 2,186 | |||||
Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||
Significant Accounting Policies | ||||||
Residential, multi-tenant apartment complex, Units | item | 144 | |||||
Percentage of interest acquired | 59.74% | |||||
Fair value of property | $ 10,080 | |||||
Assumed loans | 1,295 | |||||
Aggregate value of limited partnership units issued for acquisition | 4,727 | |||||
Acquisition price | $ 6,022 | |||||
Gain on change in control of real estate investments | $ 2,186 | $ 2,186 | ||||
Operating Partnership | Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||
Significant Accounting Policies | ||||||
Investment in unconsolidated affiliates | 40.26% | 40.26% | ||||
Operating Partnership | Grand Forks Marketplace Retail Center | ||||||
Significant Accounting Policies | ||||||
Investment in unconsolidated affiliates | 50.00% | 50.00% | ||||
Percentage of interest | 100.00% | 100.00% | ||||
Area of commercial property | ft² | 183,000 | 183,000 | ||||
Operating Partnership | Tenant in common - Office building, Fargo, North Dakota | ||||||
Significant Accounting Policies | ||||||
Investment in unconsolidated affiliates | 66.67% | 66.67% | ||||
Area of commercial property | ft² | 75,000 | 75,000 | ||||
Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||
Significant Accounting Policies | ||||||
Residential, multi-tenant apartment complex, Units | item | 144 | 144 | ||||
Mortgages | Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||
Significant Accounting Policies | ||||||
Mortgage carrying amount | 2,190 | |||||
Mortgages | Grand Forks Marketplace Retail Center | ||||||
Significant Accounting Policies | ||||||
Mortgage carrying amount | $ 10,743 | $ 10,743 | 10,891 | |||
Mortgages | Tenant in common - Office building, Fargo, North Dakota | ||||||
Significant Accounting Policies | ||||||
Mortgage carrying amount | $ 6,818 | $ 6,818 | $ 6,936 |
Principal Activity and Signif40
Principal Activity and Significant Accounting Policies - Other (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 |
Allowance for uncollectible receivables | $ 0 | $ 0 | $ 0 | $ 0 | |||
Impairment of intangible assets | $ 0 | 0 | |||||
Taxable income to be distributed | 90.00% | 90.00% | 90.00% | ||||
Retainable taxable income | 10.00% | 10.00% | 10.00% | ||||
Provisions or liabilities for income taxes | $ 0 | $ 0 | |||||
Revenue Recognition | |||||||
Revenue from tenant rents and related activities | 95.00% | ||||||
Term of lease | 1 year | ||||||
Increase in revenue due to straight - line adjustment | $ 59 | $ 124 | $ 186 | $ 391 | |||
Straight - line receivable | $ 3,526 | $ 3,526 | $ 3,526 | $ 3,362 | |||
Earnings per Common Share | |||||||
Dilutive potential common shares | 0 | 0 | |||||
Denominators for the basic and diluted earnings per common share | 8,356,000 | 7,891,000 | 8,234,000 | 7,791,000 | |||
ASU 2017-01 | Early Adoption Member | |||||||
Recent Accounting Pronouncements | |||||||
Transaction costs capitalized | $ 158 | $ 158 | $ 158 | ||||
Commercial Property | |||||||
Revenue Recognition | |||||||
CAM income (common area maintenance) | 4,592 | $ 4,547 | |||||
Gross revenue | $ 20,619 | $ 20,632 |
Segment Reporting - Additional
Segment Reporting - Additional Information (Details) | 9 Months Ended |
Sep. 30, 2017segment | |
SEGMENT REPORTING | |
Number of reportable segments | 2 |
Segment Reporting - Summary of
Segment Reporting - Summary of Segment Revenues and Net Operating Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
SEGMENT REPORTING | ||||
Income from rental operations | $ 28,655 | $ 26,888 | $ 85,198 | $ 80,622 |
Expenses from rental operations | 14,787 | 13,467 | 41,230 | 37,555 |
Net operating income | 13,868 | 13,421 | 43,968 | 43,067 |
Interest | 4,690 | 4,636 | 13,938 | 13,740 |
Depreciation and amortization | 5,427 | 5,471 | 16,170 | 16,711 |
Administration of REIT | 885 | 1,136 | 4,208 | 4,187 |
Loss on lease terminations | 25 | 146 | 299 | |
Other (income)/expense | (390) | (370) | (5,240) | (473) |
Net income | 3,256 | 2,523 | 14,746 | 8,603 |
Residential | ||||
SEGMENT REPORTING | ||||
Income from rental operations | 21,863 | 20,081 | 64,579 | 59,990 |
Expenses from rental operations | 12,764 | 11,547 | 35,630 | 32,353 |
Net operating income | 9,099 | 8,534 | 28,949 | 27,637 |
Commercial | ||||
SEGMENT REPORTING | ||||
Income from rental operations | 6,792 | 6,807 | 20,619 | 20,632 |
Expenses from rental operations | 2,023 | 1,920 | 5,600 | 5,202 |
Net operating income | $ 4,769 | $ 4,887 | $ 15,019 | $ 15,430 |
Segment Reporting - Summary o43
Segment Reporting - Summary of Segment Assets and Accumulated Depreciation (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Dec. 31, 2015 |
SEGMENT REPORTING | ||||
Real estate investments | $ 755,129 | $ 715,300 | ||
Accumulated depreciation | (106,273) | (92,325) | ||
Real estate investments, net | 648,856 | 622,975 | ||
Cash and cash equivalents | 20,991 | 12,034 | $ 16,165 | $ 6,461 |
Restricted deposits and funded reserves | 7,894 | 7,213 | ||
Investment in unconsolidated affiliates | 2,785 | 3,653 | ||
Receivables and other assets | 5,617 | 5,354 | ||
Financing and lease costs, less accumulated amortization | 776 | 950 | ||
Assets held for sale | 2,482 | |||
Intangible assets, less accumulated amortization | 13,863 | 15,852 | ||
Total Assets | 700,782 | 670,513 | ||
Residential | ||||
SEGMENT REPORTING | ||||
Real estate investments | 552,792 | 514,341 | ||
Accumulated depreciation | (73,008) | (63,148) | ||
Real estate investments, net | 479,784 | 451,193 | ||
Commercial | ||||
SEGMENT REPORTING | ||||
Real estate investments | 202,337 | 200,959 | ||
Accumulated depreciation | (33,265) | (29,177) | ||
Real estate investments, net | $ 169,072 | $ 171,782 |
Real Estate Investments - Summa
Real Estate Investments - Summary of Real Estate Investments (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Real Estate Investments | ||
Land and land improvements | $ 110,496 | $ 105,153 |
Building and improvements | 616,838 | 580,844 |
Furniture, fixtures and equipment | 26,823 | 26,318 |
Construction in progress | 972 | 2,985 |
Real estate investments | 755,129 | 715,300 |
Less accumulated depreciation | (106,273) | (92,325) |
Real estate investments, net | 648,856 | 622,975 |
Residential | ||
Real Estate Investments | ||
Land and land improvements | 72,673 | 67,384 |
Building and improvements | 453,790 | 419,120 |
Furniture, fixtures and equipment | 25,357 | 24,852 |
Construction in progress | 972 | 2,985 |
Real estate investments | 552,792 | 514,341 |
Less accumulated depreciation | (73,008) | (63,148) |
Real estate investments, net | 479,784 | 451,193 |
Commercial | ||
Real Estate Investments | ||
Land and land improvements | 37,823 | 37,769 |
Building and improvements | 163,048 | 161,724 |
Furniture, fixtures and equipment | 1,466 | 1,466 |
Real estate investments | 202,337 | 200,959 |
Less accumulated depreciation | (33,265) | (29,177) |
Real estate investments, net | $ 169,072 | $ 171,782 |
Notes Receivable (Details)
Notes Receivable (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2017USD ($) | |
NOTES RECEIVABLE | |
Note receivable, face amount | $ 600 |
Interest rate (as a percent) | 6.50% |
Notes receivable extended upon maturity | 12 months |
Lease Intangibles - Schedule of
Lease Intangibles - Schedule of Intangible Assets and Liabilities and Accumulated Amortization (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Intangible Assets | ||
Lease Intangibles | $ 26,354 | $ 26,622 |
Accumulated Amortization | (12,491) | (10,770) |
Total | 13,863 | 15,852 |
Intangible Liabilities | ||
Below-market lease | (3,170) | (3,197) |
Below-market lease, accumulated amortization | 1,324 | 1,122 |
Below-market lease, net | (1,846) | (2,075) |
In-place leases | ||
Intangible Assets | ||
Lease Intangibles | 23,239 | 23,507 |
Accumulated Amortization | (11,413) | (9,860) |
Total | 11,826 | 13,647 |
Above-market leases | ||
Intangible Assets | ||
Lease Intangibles | 3,115 | 3,115 |
Accumulated Amortization | (1,078) | (910) |
Total | $ 2,037 | $ 2,205 |
Lease Intangibles - Schedule 47
Lease Intangibles - Schedule of Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Intangible Assets | ||
2017 (October 1, 2017 to December 31, 2017) | $ 600 | |
2,018 | 2,237 | |
2,019 | 1,932 | |
2,020 | 1,507 | |
2,021 | 1,210 | |
Thereafter | 6,377 | |
Total | 13,863 | $ 15,852 |
Intangible Liabilities | ||
2017 (October 1, 2017 to December 31, 2017) | 70 | |
2,018 | 278 | |
2,019 | 269 | |
2,020 | 218 | |
2,021 | 189 | |
Thereafter | 822 | |
Total | $ 1,846 | $ 2,075 |
Amortization period | 6 years |
Lines of Credit - Additional In
Lines of Credit - Additional Information (Details) $ in Thousands | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2017USD ($) | Dec. 31, 2016property | Jun. 30, 2017property | |
Lines of Credit | |||
Line of credit outstanding | $ 0 | ||
Unused line of credit | 37,015 | ||
Number of properties out of compliance with debt service coverage ratio | property | 1 | ||
Wells Fargo Bank | |||
Lines of Credit | |||
Agreed line of credit | $ 27,000 | ||
Expiration date | Jun. 1, 2018 | ||
Number of properties sold and released as collateral for line of credit | property | 1 | ||
Wells Fargo Bank | LIBOR | |||
Lines of Credit | |||
Variable interest rate of line of credit | 2.25% | ||
Bremer Bank Agreement One | |||
Lines of Credit | |||
Agreed line of credit | $ 6,315 | ||
Expiration date | Nov. 1, 2019 | ||
Bremer Bank Agreement One | Prime Rate | |||
Lines of Credit | |||
Basis reduction on variable rate (as a percent) | 0.50% | ||
Bremer Bank Agreement Two | |||
Lines of Credit | |||
Agreed line of credit | $ 2,000 | ||
Basis reduction on variable rate (as a percent) | 0.50% | ||
Expiration date | Oct. 1, 2018 | ||
Bell State Bank & Trust Agreement Two | |||
Lines of Credit | |||
Agreed line of credit | $ 3,000 | ||
Expiration date | Dec. 1, 2017 |
Mortgage Notes Payable - Summar
Mortgage Notes Payable - Summary (Details) $ in Thousands | 9 Months Ended | 12 Months Ended |
Sep. 30, 2017USD ($)item | Dec. 31, 2016USD ($)item | |
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | $ 405,355 | |
Fixed rate mortgage notes payable | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | 405,355 | $ 393,511 |
Less unamortized debt issuance costs | 2,890 | 3,032 |
Long-term debt, net | 402,465 | $ 390,479 |
Residential Property | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Number of mortgage loans out of compliance | item | 5 | |
Outstanding balance of loans out of compliance, in aggregate | $ 8,336 | |
Fixed rate mortgage notes payable | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Debt swapped from variable to fixed rate | $ 2,975 | $ 3,056 |
Number of mortgage loans | item | 127 | 116 |
Fixed rate mortgage notes payable | Mortgage Notes Payable | Minimum | ||
MORTGAGE NOTES PAYABLE | ||
Effective interest rate (as a percent) | 2.57% | 2.57% |
Fixed rate mortgage notes payable | Mortgage Notes Payable | Maximum | ||
MORTGAGE NOTES PAYABLE | ||
Effective interest rate (as a percent) | 7.25% | 7.25% |
Fixed rate mortgage notes payable | Mortgage Notes Payable | Weighted Average | ||
MORTGAGE NOTES PAYABLE | ||
Effective interest rate (as a percent) | 4.25% | 4.43% |
Mortgage Notes Payable - Schedu
Mortgage Notes Payable - Scheduled Maturities of Mortgage Notes Payable (Details) $ in Thousands | Sep. 30, 2017USD ($) |
MORTGAGE NOTES PAYABLE | |
2017 (October 1, 2017 to December 31, 2017) | $ 5,000 |
2,018 | 20,095 |
2,019 | 25,322 |
2,020 | 28,001 |
2,021 | 45,897 |
Thereafter | 281,040 |
Total payments | $ 405,355 |
Hedging Activities - Additional
Hedging Activities - Additional Information (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Hedging Activities | ||
Liability and other comprehensive loss | $ 88 | $ 145 |
Interest Rate Swap, April 2020 | ||
Hedging Activities | ||
Interest rate swaps value | $ 1,294 | |
Interest rate swaps percentage | 7.25% | |
Derivative maturity dates | Apr. 1, 2020 | |
Interest Rate Swap, December 2017 | ||
Hedging Activities | ||
Interest rate swaps value | $ 2,450 | |
Interest rate swaps percentage | 2.57% | |
Derivative maturity dates | Dec. 1, 2017 |
Fair Value Measurement - Carryi
Fair Value Measurement - Carrying Value and Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Financial liabilities: | ||
Fair value of interest rate swaps | $ 88 | $ 145 |
Carrying Value | ||
Financial liabilities: | ||
Mortgage notes payable | 402,465 | 390,479 |
Fair value of interest rate swaps | 88 | 145 |
Fair Value | ||
Financial liabilities: | ||
Mortgage notes payable | 402,866 | 402,015 |
Fair value of interest rate swaps | $ 88 | $ 145 |
Fair Value Measurement - Schedu
Fair Value Measurement - Schedule of Fair Value of Assets on Recurring Basis (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Fair Value Measurements | ||
Fair value of interest rate swaps | $ 88 | $ 145 |
Recurring | ||
Fair Value Measurements | ||
Fair value of interest rate swaps | 88 | 145 |
Recurring | Level 2 | ||
Fair Value Measurements | ||
Fair value of interest rate swaps | $ 88 | $ 145 |
Fair Value Measurement - Fair V
Fair Value Measurement - Fair Value of Company's Financial Assets and Liabilities (Details) - Fair Value - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Fair Value Measurements | ||
Fair value of mortgage notes payable | $ 402,866 | $ 402,015 |
Level 3 | ||
Fair Value Measurements | ||
Fair value of mortgage notes payable | $ 402,866 | $ 402,015 |
Fair Value Measurement - Additi
Fair Value Measurement - Additional Information (Details) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2017 | Dec. 31, 2016 | |
Minimum | ||
Fair Value Inputs, Liabilities, Quantitative Information | ||
Discount rates used to estimate fair value of mortgages and notes payable | 4.50% | 4.00% |
Maximum | ||
Fair Value Inputs, Liabilities, Quantitative Information | ||
Discount rates used to estimate fair value of mortgages and notes payable | 4.60% | 4.35% |
Noncontrolling Interest of Un56
Noncontrolling Interest of Unitholders in Operating Partnership - Additional Information (Details) $ / shares in Units, $ in Thousands | Sep. 30, 2017USD ($)shares | Sep. 30, 2016USD ($) | Sep. 30, 2017USD ($)item$ / sharesshares | Sep. 30, 2016$ / shares | Dec. 31, 2016shares |
Noncontrolling Interest | |||||
Distributions per unit | $ / shares | $ 0.7425 | $ 0.7200 | |||
Maximum | |||||
Noncontrolling Interest | |||||
Number of permitted exchange requests in a calendar year | item | 2 | ||||
Limited Partnership | |||||
Noncontrolling Interest | |||||
Total units | 17,520,000 | 17,520,000 | 16,688,000 | ||
Units converted by limited partners into common shares | 8,000 | ||||
Common shares value | $ | $ 133 | ||||
Total units | 8,000 | ||||
Limited Partnership | Minimum | |||||
Noncontrolling Interest | |||||
Number of units which can be redeemed in single redemption | 1,000 | ||||
Operating Partnership | |||||
Noncontrolling Interest | |||||
Declared distributions | $ | $ 4,336 | $ 3,912 |
Redemption Plans - Additional I
Redemption Plans - Additional Information (Details) $ / shares in Units, $ in Thousands | 9 Months Ended |
Sep. 30, 2017USD ($)$ / sharesshares | |
Redemption plans | |
Redemption price of securities | $ / shares | $ 15.50 |
Redemption of shares, value | $ 1,530 |
Redemption Plans | |
Redemption plans | |
Amount of securities redemption | $ 30,000 |
Redemption of shares | shares | 41,000 |
Redemption of shares, value | $ 634 |
Additional redemption of units | shares | 58,000 |
Additional redemption of units, value | $ 896 |
Beneficial Interest - Additiona
Beneficial Interest - Additional Information (Details) - $ / shares | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Beneficial Interest | |||
Common shares, outstanding | 8,353,000 | 8,001,000 | |
Preferred shares, outstanding | 0 | 0 | |
Dividends paid | $ 0.7425 | $ 0.7200 | |
Total Beneficial Interest | |||
Beneficial Interest | |||
Common shares, authorized | 100,000,000 | ||
Common shares, par value | $ 0.01 | ||
Preferred shares, authorized | 50,000,000 | ||
Preferred shares, par value | $ 0.01 |
Dividend Reinvestment Plan - Ad
Dividend Reinvestment Plan - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | 9 Months Ended | |||
Sep. 30, 2017 | Jul. 11, 2017 | Dec. 31, 2016 | Jul. 20, 2012 | |
DIVIDEND REINVESTMENT PLAN | ||||
Common shares to be issued | 2,000,000 | 2,000,000 | ||
Minimum percentage of cash dividends | 25.00% | |||
Maximum additional cash purchase of common shares per fiscal quarter | $ 10 | |||
Percentage estimated value for dividend reinvestments | 95.00% | |||
Percentage estimated value for additional optional cash purchases | 100.00% | |||
Estimated value per common share | $ 16.50 | $ 16 | ||
Purchase price per common share for dividend reinvestments | 15.68 | 15.200 | ||
Purchase price per common share additional optional cash purchases | $ 16.50 | $ 16 | ||
Notice period to participants | 10 days | |||
Shares issued pursuant to dividend reinvestments | 247,000 | |||
Shares were issued pursuant to additional optional cash purchases under the plan | 134,000 |
Related Party Transactions - Pr
Related Party Transactions - Property Management and Board of Trustee Fees (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Related Party Transactions | |||||
Trustee fees | $ 12 | $ 14 | $ 44 | $ 46 | |
Unpaid board of trustee fees | $ 12 | $ 12 | $ 26 | ||
GOLDMARK Property Management | |||||
Related Party Transactions | |||||
Property management fee, percent fee | 5.00% | 5.00% | |||
Management fee, amount paid | $ 8,510 | $ 7,411 | |||
Repair and maintenance related payroll and payroll related expenses | $ 3,808 | $ 3,554 | |||
Board Chairman - Board Meeting | |||||
Related Party Transactions | |||||
Shares received by board members per meeting | 105 | ||||
Trustee - Board Meeting | |||||
Related Party Transactions | |||||
Shares received by board members per meeting | 75 | ||||
Committee Chair – Committee Meeting | |||||
Related Party Transactions | |||||
Shares received by board members per meeting | 30 | ||||
Trustee – Committee Meeting | |||||
Related Party Transactions | |||||
Shares received by board members per meeting | 30 |
Related Party Transactions - Ad
Related Party Transactions - Advisory Agreement and Other (Details) $ / item in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2017USD ($)item | Sep. 30, 2016USD ($) | Sep. 30, 2017USD ($)employeeitem$ / itemshares | Sep. 30, 2016USD ($)shares | Dec. 31, 2016USD ($)item | |
Related Party Transactions | |||||
Number of paid employees | employee | 0 | ||||
Management fee percentage of total assets | 0.35% | ||||
Maximum management fee payable in cash or common shares | not to exceed one-twelfth of 0.35% of the total assets | ||||
Advisory management fees | $ 714 | $ 669 | $ 2,114 | $ 1,971 | |
Acquisition fees | $ 1,131 | $ 1,526 | |||
Number of operating partnership (OP) units issued in connection with the acquisition of various properties | shares | 899,000 | 1,086,000 | |||
Rental Income | 27,088 | $ 25,365 | $ 80,606 | $ 76,075 | |
Advisory Agreement | |||||
Related Party Transactions | |||||
Business acquisition purchase price allocation acquisition fees percentage | 2.50% | ||||
Advisory disposition fee for sale of investments | 2.50% | ||||
Advisory disposition fee sale of cap amount | $ / item | 375 | ||||
Financing fee percentage | 0.25% | ||||
Finance fee capped per loan | $ 38 | ||||
Advisory Agreement | Minimum | |||||
Related Party Transactions | |||||
Development fee percentage | 3.00% | ||||
Advisory Agreement | Maximum | |||||
Related Party Transactions | |||||
Criteria acquisition fees | $ / item | 375 | ||||
Acquisition fees and expenses net percentage | 6.00% | ||||
Development fee percentage | 5.00% | ||||
Advisory Agreement | 0 – 10M | |||||
Related Party Transactions | |||||
Development fee percentage | 5.00% | ||||
Formula | 0M – 5.0% x (TC – 0M) | ||||
Advisory Agreement | 0 – 10M | Minimum | |||||
Related Party Transactions | |||||
Total Cost | $ 0 | ||||
Range of Fee | 0 | ||||
Advisory Agreement | 0 – 10M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 10,000 | ||||
Range of Fee | $ 500 | ||||
Advisory Agreement | 10M - 20M | |||||
Related Party Transactions | |||||
Development fee percentage | 4.50% | ||||
Formula | .50M – 4.5% x (TC – 10M) | ||||
Advisory Agreement | 10M - 20M | Minimum | |||||
Related Party Transactions | |||||
Total Cost | $ 10,000 | ||||
Range of Fee | 500 | ||||
Advisory Agreement | 10M - 20M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 20,000 | ||||
Range of Fee | $ 950 | ||||
Advisory Agreement | 20M – 30M | |||||
Related Party Transactions | |||||
Development fee percentage | 4.00% | ||||
Formula | .95M – 4.0% x (TC – 20M) | ||||
Advisory Agreement | 20M – 30M | Minimum | |||||
Related Party Transactions | |||||
Total Cost | $ 20,000 | ||||
Range of Fee | 950 | ||||
Advisory Agreement | 20M – 30M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 30,000 | ||||
Range of Fee | $ 1,350 | ||||
Advisory Agreement | 30M – 40M | |||||
Related Party Transactions | |||||
Development fee percentage | 3.50% | ||||
Formula | 1.35M – 3.5% x (TC – 30M) | ||||
Advisory Agreement | 30M – 40M | Minimum | |||||
Related Party Transactions | |||||
Total Cost | $ 30,000 | ||||
Range of Fee | 1,350 | ||||
Advisory Agreement | 30M – 40M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 40,000 | ||||
Range of Fee | $ 1,700 | ||||
Advisory Agreement | 40M – 50M | |||||
Related Party Transactions | |||||
Development fee percentage | 3.00% | ||||
Formula | 1.70M – 3.0% x (TC – 40M) | ||||
Advisory Agreement | 40M – 50M | Minimum | |||||
Related Party Transactions | |||||
Total Cost | $ 40,000 | ||||
Range of Fee | 1,700 | ||||
Advisory Agreement | 40M – 50M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 50,000 | ||||
Range of Fee | 2,000 | ||||
Sterling Management, LLC | |||||
Related Party Transactions | |||||
Advisory management fees | 2,114 | 1,971 | |||
Advisory management fees outstanding | 240 | 240 | $ 226 | ||
Advisory management fees for operating costs | 11 | 3 | |||
Acquisition fees | 655 | 680 | |||
Acquisition fees outstanding | 0 | 0 | 226 | ||
Financing fees for loan financing and refinancing activities | 97 | 68 | |||
Financing fees for loan financing and refinancing outstanding | 0 | 0 | 23 | ||
Disposition fees | 110 | 35 | |||
Disposition fees outstanding | 0 | ||||
Development fee | 235 | 107 | |||
Development fees Outstanding | $ 114 | 114 | 82 | ||
Development fees hold back outstanding | $ 104 | 81 | |||
Percentage of development fees hold back | 10.00% | 10.00% | |||
Rental Income | $ 34 | 34 | |||
GOLDMARK Property Management | |||||
Related Party Transactions | |||||
Rental Income | 166 | 161 | |||
GOLDMARK SCHLOSSMAN Commercial Real Estate Services | |||||
Related Party Transactions | |||||
Real estate commissions | 549 | 692 | |||
Real estate commissions outstanding | $ 0 | 0 | 0 | ||
Rental Income | $ 41 | $ 39 | |||
Entity Affiliated With Messrs Regan and Wieland | |||||
Related Party Transactions | |||||
Number of operating partnership (OP) units issued in connection with the acquisition of various properties | shares | 402,000 | 458,000 | |||
Value of operating partnership (OP) units issued in connection with the acquisition of various properties | $ 6,425 | $ 7,167 | |||
Bismarck, North Dakota | Apartment Community Phase II | Goldmark Development | |||||
Related Party Transactions | |||||
Construction costs incurred to date | $ 8,997 | $ 8,997 | $ 5,767 | ||
Number of two-story townhomes under construction | item | 6 | 6 | 6 | ||
Retainage owed | $ 391 | $ 391 | $ 288 | ||
Unpaid construction fees | $ 251 | $ 251 | $ 398 |
Dispositions - Additional Infor
Dispositions - Additional Information (Details) - USD ($) $ in Thousands | 6 Months Ended | 9 Months Ended | ||
Jun. 30, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Dispositions | ||||
Property sold | $ 4,442 | $ 1,404 | ||
Gain (loss) on sale of real estate | $ 2,072 | (316) | ||
ASSETS | ||||
Total Assets | $ 2,482 | |||
Accumulated amortization of financing and lease costs | 87 | |||
LIABILITIES | ||||
Total Liabilities | 125 | |||
Assets Held for Sale | ||||
ASSETS | ||||
Real estate investments | 2,365 | |||
Restricted deposits and funded reserves | 22 | |||
Receivables | 25 | |||
Notes receivable | 42 | |||
Financing and lease costs, less accumulated amortization of $87 in 2016 | 28 | |||
Total Assets | 2,482 | |||
LIABILITIES | ||||
Special assessments payable | 103 | |||
Tenant security deposits payable | 22 | |||
Total Liabilities | $ 125 | |||
Retail Property, Fargo, ND | Disposed of by Sale | ||||
Dispositions | ||||
Property sold | $ 4,400 | |||
Gain (loss) on sale of real estate | $ 2,072 | |||
Medical Property, Eau Claire, Wisconsin | Disposed of by Sale | ||||
Dispositions | ||||
Property sold | 1,400 | |||
Gain (loss) on sale of real estate | $ (316) |
Business Combinations and Acq63
Business Combinations and Acquisitions - Purchases, Current Year (Details) $ / shares in Units, $ in Thousands | Jul. 03, 2017USD ($)item | Jun. 01, 2017USD ($)item | May 01, 2017USD ($)item | Jan. 17, 2017USD ($)item | Jan. 11, 2017USD ($)item | Jan. 10, 2017USD ($)item | Sep. 30, 2017USD ($)$ / shares | Jun. 30, 2017USD ($) | Sep. 30, 2017USD ($)$ / sharesshares | Sep. 30, 2016USD ($)$ / sharesshares | Mar. 29, 2017$ / shares | Mar. 23, 2016$ / shares |
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Acquisition price | $ 20,111 | $ 27,032 | ||||||||||
Prorata Acquisition Price | $ 20,111 | $ 27,032 | ||||||||||
Aggregate number of limited partnership units issued for acquisition | shares | 603,000 | 1,086 | ||||||||||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 16 | $ 16 | $ 15.50 | |||||||||
Price per limited partnership unit issued for acquisition, price two | $ / shares | $ 16.50 | $ 16 | ||||||||||
Aggregate value of limited partnership units issued for acquisition | $ 9,651 | $ 16,940 | ||||||||||
1031 tax-deferred exchange funds | 4,278 | |||||||||||
New loans issued to finance acquisition | $ 2,392 | 2,392 | 2,662 | |||||||||
Assumed liabilities | 72 | 78 | ||||||||||
Consideration in cash to pay for acquisitions | 3,718 | $ 7,352 | ||||||||||
Gain on change in control of real estate investments | $ 2,186 | |||||||||||
Sargent Apartments, Fargo ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 36 | |||||||||||
Acquisition price | $ 1,710 | |||||||||||
Prorata Acquisition Price | $ 1,710 | |||||||||||
Arrowhead, Grand Forks, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 82 | |||||||||||
Acquisition price | $ 5,494 | |||||||||||
Prorata Acquisition Price | $ 5,494 | |||||||||||
West Oak Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 777 | |||||||||||
Prorata Acquisition Price | $ 777 | |||||||||||
Carr, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 828 | |||||||||||
Prorata Acquisition Price | $ 828 | |||||||||||
Plumtree Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 907 | |||||||||||
Prorata Acquisition Price | $ 907 | |||||||||||
Sunchase Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 36 | |||||||||||
Acquisition price | $ 1,765 | |||||||||||
Prorata Acquisition Price | 1,765 | |||||||||||
Essex Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 858 | |||||||||||
Prorata Acquisition Price | $ 858 | |||||||||||
Jadestone Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 809 | |||||||||||
Prorata Acquisition Price | $ 809 | |||||||||||
Park Circle Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 18 | |||||||||||
Acquisition price | $ 903 | |||||||||||
Prorata Acquisition Price | $ 903 | |||||||||||
Eagle Bridge Apartments, Fargo, ND | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Units acquired | item | 58 | |||||||||||
Acquisition price | $ 6,060 | |||||||||||
Prorata Acquisition Price | $ 6,060 | |||||||||||
Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||||||||||
Acquisition price | 6,022 | |||||||||||
Aggregate value of limited partnership units issued for acquisition | 4,727 | |||||||||||
total loan used to finance the acquisition, including new financing and assumed loans | 2,167 | |||||||||||
New loans issued to finance acquisition | 872 | |||||||||||
Assumed loans | $ 1,295 | |||||||||||
Residential, multi-tenant apartment complex, Units | item | 144 | |||||||||||
Percentage of interest acquired | 59.74% | |||||||||||
Fair value of property | $ 10,080 | |||||||||||
Gain on change in control of real estate investments | $ 2,186 | $ 2,186 |
Business Combinations and Acq64
Business Combinations and Acquisitions - Purchases, Prior Year (Details) $ / shares in Units, $ in Thousands | Sep. 13, 2016USD ($)item | Aug. 29, 2016USD ($)a | Aug. 01, 2016USD ($)item | May 04, 2016USD ($)item | Mar. 01, 2016USD ($)item | Feb. 01, 2016USD ($)ft²item | Jan. 29, 2016USD ($)ft² | Sep. 30, 2017USD ($)$ / sharesshares | Sep. 30, 2016USD ($)$ / sharesshares | Mar. 29, 2017$ / shares | Mar. 23, 2016$ / shares |
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Acquisition price | $ 20,111 | $ 27,032 | |||||||||
Prorata Acquisition Price | $ 20,111 | $ 27,032 | |||||||||
Aggregate number of limited partnership units issued for acquisition | shares | 603,000 | 1,086 | |||||||||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 16 | $ 15.50 | |||||||||
Price per limited partnership unit issued for acquisition, price two | $ / shares | $ 16.50 | $ 16 | |||||||||
Aggregate value of limited partnership units issued for acquisition | $ 9,651 | $ 16,940 | |||||||||
New loans issued to finance acquisition | 2,392 | 2,662 | |||||||||
Assumed liabilities | 72 | 78 | |||||||||
Consideration in cash to pay for acquisitions | 3,718 | $ 7,352 | |||||||||
Gain on change in control of real estate investments | $ 2,186 | ||||||||||
Titan Machinery, North Platte, NE | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Area of the property purchased | ft² | 16,480 | ||||||||||
Acquisition price | $ 1,769 | ||||||||||
Prorata Acquisition Price | $ 1,769 | ||||||||||
Bristol Park Apartments, Grand Forks, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 80 | ||||||||||
Acquisition price | $ 5,050 | ||||||||||
Prorata Acquisition Price | $ 5,050 | ||||||||||
Redpath, White Bear Lake, MN | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Area of the property purchased | ft² | 25,817 | ||||||||||
Acquisition price | $ 4,000 | ||||||||||
Prorata Acquisition Price | $ 4,000 | ||||||||||
Eagle Sky I Apartments, Bismarck, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 20 | ||||||||||
Acquisition price | $ 1,525 | ||||||||||
Prorata Acquisition Price | $ 1,525 | ||||||||||
Eagle Sky II Apartments, Bismarck, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 20 | ||||||||||
Acquisition price | $ 1,525 | ||||||||||
Prorata Acquisition Price | $ 1,525 | ||||||||||
Garden Grove Apartments, Bismarck, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 95 | ||||||||||
Acquisition price | $ 7,072 | ||||||||||
Prorata Acquisition Price | $ 7,072 | ||||||||||
Washington Apartments, Grand Forks, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 17 | ||||||||||
Acquisition price | $ 667 | ||||||||||
Prorata Acquisition Price | $ 667 | ||||||||||
Roughrider Grand Forks, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 12 | ||||||||||
Acquisition price | $ 582 | ||||||||||
Prorata Acquisition Price | $ 582 | ||||||||||
West 80 Development Land Rochester, MN | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Area of the property purchased | a | 18.8 | ||||||||||
Acquisition price | $ 900 | ||||||||||
Prorata Acquisition Price | $ 900 | ||||||||||
Amberwood Apartments Grand Forks, ND | |||||||||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||||||||
Units acquired | item | 95 | ||||||||||
Acquisition price | $ 3,942 | ||||||||||
Prorata Acquisition Price | $ 3,942 |
Business Combinations and Acq65
Business Combinations and Acquisitions - Schedule of Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ / shares in Units, $ in Thousands | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Mar. 29, 2017 | Mar. 23, 2016 | |
BUSINESS COMBINATIONS AND ACQUISITIONS | ||||
Land, building, tenant improvements and FF&E | $ 20,111 | $ 25,822 | ||
Acquired lease intangible assets | 1,386 | |||
Acquired lease intangible liabilities | (176) | |||
Other liabilities | (72) | (78) | ||
Net assets acquired | 20,039 | 26,954 | ||
Equity/limited partnership unit consideration | (9,651) | (16,940) | ||
Restricted cash proceeds related to IRC Section 1031 tax-deferred exchange | (4,278) | |||
New loans | (2,392) | (2,662) | ||
Net cash consideration | 3,718 | 7,352 | ||
Transactions costs expensed | $ 1,131 | $ 1,526 | ||
Price per limited partnership unit issued for acquisition, price one | $ 16 | $ 15.50 | ||
Price per limited partnership unit issued for acquisition, price two | $ 16.50 | $ 16 |
Subsequent Events - Additional
Subsequent Events - Additional Information (Details) - $ / shares | Oct. 16, 2017 | Sep. 30, 2017 | Sep. 30, 2016 |
Subsequent Events | |||
Dividend or distribution paid | $ 0.7425 | $ 0.7200 | |
Subsequent Event | |||
Subsequent Events | |||
Dividend or distribution paid | $ 0.2475 |