Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Aug. 03, 2018 | |
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 | Jun. 30, 2018 | |
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 | 8,845,663 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q2 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
ASSETS | ||
Real estate investments, net | $ 641,801 | $ 648,677 |
Cash and cash equivalents | 13,809 | 12,490 |
Restricted deposits | 10,507 | 8,063 |
Investment in unconsolidated affiliates | 2,649 | 2,772 |
Due from related party | 3 | |
Receivables | 4,633 | 5,113 |
Prepaid expenses | 1,666 | 482 |
Financing and lease costs, less accumulated amortization of $1,966 in 2018 and $1,943 in 2017 | 706 | 737 |
Assets held for sale | 4,695 | |
Lease intangible assets, less accumulated amortization of $13,603 in 2018 and $12,932 in 2017 | 11,459 | 13,263 |
Other assets | 5 | 5 |
Total Assets | 691,930 | 691,605 |
LIABILITIES | ||
Mortgage notes payable, net | 393,935 | 394,843 |
Special assessments payable | 486 | 518 |
Dividends payable | 6,682 | 6,436 |
Due to related party | 666 | 366 |
Tenant security deposits payable | 4,073 | 4,038 |
Subordinated debt | 175 | 175 |
Lease intangible liabilities, less accumulated amortization of $1,487 in 2018 and $1,386 in 2017 | 1,608 | 1,776 |
Accounts payable - trade | 2,020 | 486 |
Retainage payable | 170 | 16 |
Liabilities related to assets held for sale | 93 | |
Fair value of interest rate swaps | 42 | 65 |
Deferred insurance proceeds | 37 | 1,216 |
Accrued expenses and other liabilities | 6,414 | 7,895 |
Total Liabilities | 416,401 | 417,830 |
COMMITMENTS and CONTINGENCIES - Note 15 | ||
SHAREHOLDERS' EQUITY | ||
Beneficial interest | 93,925 | 90,816 |
Noncontrolling interest in operating partnership | 178,559 | 179,844 |
Noncontrolling in partially owned properties | 3,087 | 3,180 |
Accumulated other comprehensive loss | (42) | (65) |
Total Shareholders' Equity | 275,529 | 273,775 |
Total liabilities and shareholders' equity | $ 691,930 | $ 691,605 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
CONSOLIDATED BALANCE SHEETS | ||
Accumulated amortization on financing and lease cost | $ 1,966 | $ 1,943 |
Accumulated amortization on intangible assets | 13,603 | 12,932 |
Accumulated amortization on unfavorable leases | $ 1,487 | $ 1,386 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income from rental operations | ||||
Real estate rental income | $ 27,767 | $ 27,111 | $ 55,385 | $ 53,518 |
Total income from rental operations | 29,288 | 28,513 | 58,518 | 56,543 |
Expenses from rental operations | ||||
Interest | 4,576 | 4,609 | 9,076 | 9,248 |
Depreciation and amortization | 5,283 | 5,381 | 10,633 | 10,744 |
Real estate taxes | 2,898 | 2,607 | 5,744 | 5,203 |
Property management | 3,898 | 2,991 | 7,180 | 6,026 |
Utilities | 2,210 | 2,048 | 5,004 | 4,545 |
Repairs and maintenance | 5,657 | 4,974 | 10,194 | 9,932 |
Insurance | 586 | 368 | 1,103 | 736 |
Loss on lease terminations | 31 | 146 | ||
Total expenses from rental operations | 25,108 | 23,009 | 48,934 | 46,580 |
Administration of REIT | ||||
Administrative expenses | 101 | 133 | 207 | 229 |
Advisory fees | 722 | 704 | 1,440 | 1,400 |
Acquisition and disposition expenses | 149 | 863 | 149 | 1,375 |
Trustee fees | 14 | 19 | 34 | 32 |
Legal and accounting | 103 | 101 | 413 | 287 |
Total Administration of REIT | 1,089 | 1,820 | 2,243 | 3,323 |
Total expenses | 26,197 | 24,829 | 51,177 | 49,903 |
Income from operations | 3,091 | 3,684 | 7,341 | 6,640 |
Other income (expense) | ||||
Equity in income of unconsolidated affiliates | 127 | 157 | 284 | 369 |
Other income | 55 | 26 | 160 | 51 |
Gain on sale of real estate and non-real estate investments | 1,084 | 2,075 | 1,084 | 2,052 |
Gain on change in control of real estate investments | 2,186 | 2,186 | ||
Gain on sale of investment in equity method investee | 3 | |||
Gain on involuntary conversion | 620 | 162 | 1,367 | 189 |
Total other income (expense) | 1,886 | 4,606 | 2,895 | 4,850 |
Net income | 4,977 | 8,290 | 10,236 | 11,490 |
Net income attributable to noncontrolling interest in operating partnership | 3,376 | 5,654 | 6,912 | 7,883 |
Net (loss) attributable to noncontrolling interest in partially owned properties | (74) | (46) | (93) | (131) |
Net income attributable to Sterling Real Estate Trust | $ 1,675 | $ 2,682 | $ 3,417 | $ 3,738 |
Net income per common share, basic and diluted | $ 0.19 | $ 0.33 | $ 0.39 | $ 0.46 |
Comprehensive income: | ||||
Net income | $ 4,977 | $ 8,290 | $ 10,236 | $ 11,490 |
Other comprehensive gain - change in fair value of interest rate swaps | 10 | 16 | 23 | 41 |
Comprehensive income | 4,987 | 8,306 | 10,259 | 11,531 |
Comprehensive income attributable to noncontrolling interest | 3,309 | 5,619 | 6,835 | 7,779 |
Comprehensive income attributable to Sterling Real Estate Trust | 1,678 | 2,687 | 3,424 | 3,752 |
Tenant Reimbursements | ||||
Income from rental operations | ||||
Income from rental operations | $ 1,521 | $ 1,402 | $ 3,133 | $ 3,025 |
CONSOLIDATED STATEMENT OF SHARE
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY - 6 months ended Jun. 30, 2018 - 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, 2017 | $ 113,995 | $ (23,179) | $ 90,816 | $ 179,844 | $ 3,180 | $ (65) | $ 273,775 | |
Beginning Balance (in shares) at Dec. 31, 2017 | 8,488,000 | 8,488,000 | ||||||
Contribution of assets in exchange for the issuance of noncontrolling interest shares | 1,546 | $ 1,546 | ||||||
Shares/units redeemed | (858) | (858) | (805) | (1,663) | ||||
Shares/units redeemed (in shares) | (49,000) | |||||||
Dividends declared | (4,407) | (4,407) | (8,938) | (13,345) | ||||
Dividends reinvested - stock dividend | 2,798 | 2,798 | $ 2,798 | |||||
Dividends reinvested - stock dividend (in shares) | 159,000 | 159,000 | ||||||
Issuance of shares under optional purchase plan | 2,159 | 2,159 | $ 2,159 | |||||
Issuance of shares under optional purchase plan (in shares) | 117,000 | |||||||
Change in fair value of interest rate swaps | 23 | 23 | ||||||
Net income | 3,417 | 3,417 | 6,912 | (93) | 10,236 | |||
Ending balance at Jun. 30, 2018 | $ 118,094 | $ (24,169) | $ 93,925 | $ 178,559 | $ 3,087 | $ (42) | $ 275,529 | |
Ending balance (in shares) at Jun. 30, 2018 | 8,715,000 | 8,715,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
OPERATING ACTIVITIES | ||
Net income | $ 10,236 | $ 11,490 |
Adjustments to reconcile net income to net cash from operating activities | ||
(Gain) on sale of real estate investments | (1,084) | (2,075) |
Loss on sale of non-real estate investments | 23 | |
(Gain) on change in control of real estate investment | (2,186) | |
(Gain) on involuntary conversion | (1,367) | (189) |
Loss on lease terminations | 146 | |
Equity in income of unconsolidated affiliates | (284) | (369) |
Distributions of earnings of unconsolidated affiliates | 284 | 369 |
Allowance for uncollectible accounts receivable | (706) | |
Depreciation | 9,505 | 9,454 |
Amortization | 1,099 | 1,258 |
Amortization of debt issuance costs | 338 | 371 |
Effects on operating cash flows due to changes in | ||
Due from related party | 3 | (24) |
Receivables | 895 | 44 |
Prepaid expenses | (1,184) | (650) |
Other assets | (76) | |
Due to related party | 300 | (397) |
Tenant security deposits payable | 5 | 183 |
Accounts payable - trade | 944 | (131) |
Accrued expenses and other liabilities | (1,966) | (1,276) |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 17,018 | 15,965 |
INVESTING ACTIVITIES | ||
Purchase of real estate investment properties | (2,979) | (1,925) |
Capital expenditures and tenant improvements | (4,548) | (5,499) |
Proceeds from sale of real estate investments and non-real estate investments | 5,200 | 4,442 |
Proceeds from involuntary conversion | 330 | 1,914 |
Investment in unconsolidated affiliates | (20) | |
Distributions in excess of earnings received from unconsolidated affiliates | 124 | 245 |
Notes receivable payments received | 41 | |
NET CASH USED IN INVESTING ACTIVITIES | (1,873) | (802) |
FINANCING ACTIVITIES | ||
Payments for financing, debt issuance and lease costs | (149) | (333) |
Principal payments on special assessments payable | (269) | (101) |
Proceeds from issuance of mortgage notes payable and subordinated debt | 7,064 | 16,152 |
Principal payments on mortgage notes payable | (8,223) | (12,252) |
Advances on lines of credit | 2,964 | |
Payments on lines of credit | (2,964) | |
Proceeds from issuance of shares under optional purchase plan | 2,159 | 1,361 |
Shares/units redeemed | (1,663) | (1,109) |
Dividends/distributions paid | (10,301) | (9,620) |
NET CASH USED IN FINANCING ACTIVITIES | (11,382) | (5,902) |
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS | 3,763 | 9,261 |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF PERIOD | 20,553 | 19,270 |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD | $ 24,316 | $ 28,531 |
CONSOLIDATED STATEMENTS OF CAS7
CONSOLIDATED STATEMENTS OF CASH FLOWS - Supplemental Disclosures - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD | ||
Cash and cash equivalents | $ 13,809 | $ 16,580 |
Restricted deposits | 10,507 | 11,951 |
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS, END OF PERIOD | 24,316 | 28,531 |
SCHEDULE OF CASH FLOW INFORMATION | ||
Cash paid during the period for interest, net of capitalized interest | 9,068 | 9,282 |
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Dividends reinvested | 2,798 | 2,546 |
Dividends declared and not paid | 2,217 | 2,036 |
UPREIT distributions declared and not paid | 4,465 | 4,340 |
UPREIT units converted to REIT common shares | 133 | |
Acquisition of assets in exchange for the issuance of noncontrolling interest units in UPREIT | 1,546 | 14,378 |
Increase in land improvements due to increase in special assessments payable | 251 | 185 |
Unrealized gain on interest rate swaps | 23 | 41 |
Acquisition of assets with new financing | 3,265 | |
Acquisition of assets through assumption of debt and liabilities | 54 | 1,295 |
Capitalized interest and real estate taxes related to construction in progress | 97 | 94 |
Acquisition of assets with accounts payable | $ 752 | $ 957 |
ORGANIZATION
ORGANIZATION | 6 Months Ended |
Jun. 30, 2018 | |
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 June 30, 2018 and December 31, 2017, Sterling owned approximately 33.18% and 32.64%, respectively, of the operating partnership. |
PRINCIPAL ACTIVITY AND SIGNIFIC
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2018 | |
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, 2017, 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 June 30, 2018 and consolidated statements of operations and other comprehensive income, consolidated statement of shareholders’ equity, and consolidated statements of cash flows for the three and six months ended June 30, 2018 and 2017, 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 six months ended June 30, 2018. 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 166 properties. The Trust’s 118 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 48 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 71.8% residential and 28.2% commercial (based on cost) and total $641,801 in real estate investments at June 30, 2018. Sterling’s current acquisition strategy and focus is solely on multifamily apartment properties. We currently have no plans to actively market our existing commercial properties for sale. We will consider unsolicited offers for purchase of non-multifamily properties on a case by case basis. 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 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. 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. Acquisitions executed prior to our adoption of ASU 2017-01 as of July 1, 2017 were accounted for as business combinations. Transaction costs related to acquisitions accounted for as business combinations were expensed as incurred and included within “Administration of REIT expenses” in the accompanying consolidated statements of operations and other comprehensive income. 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 in-place lease value intangibles of $503 and $568 for the three months ended June 30, 2018 and 2017, respectively and $1,043 and $1,164 for the six months ended June 30, 2018 and 2017, 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 real estate rental income. Amortization pertaining to above market lease intangibles of $55 and $56 for the three months ended June 30, 2018 and 2017, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $70 and $71 for the three months ended June 30, 2018 and 2017, respectively, was recorded as an increase to real estate rental income. Amortization pertaining to above market lease intangibles of $111 and $113 for the six months ended June 30, 2018 and 2017, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $140 and $144 for the six months ended June 30, 2018 and 2017, respectively, was recorded as an increase to real estate rental income. 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 June 30, 2018 and 2017 totaled $4,738 and $4,749, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 totaled $9,505 and $9,454, 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 six months ended June 30, 2018 and 2017. 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 two properties classified as held for sale at June 30, 2018. There were no properties classified as held for sale at December 31, 2017. See Note 16. 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 six months ended June 30, 2018 and 2017. 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 June 30, 2018, 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 June 30, 2018 and December 31, 2017, the unconsolidated affiliates held total assets of $23,220 and $23,466 and mortgage notes payable of $17,253 and $17,470, respectively. 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 June 30, 2018 and December 31, 2017 of $10,558 and $10,692, 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 June 30, 2018 and December 31, 2017 of $6,695 and $6,778, 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. Accounts receivable are carried at original amounts billed less an estimate made for doubtful accounts based on a review of outstanding amounts on a quarterly basis and reflect management’s best estimate of the amounts that will not be collected. Accounts receivable are written off when collection efforts have been exhausted and they are deemed uncollectible. Recoveries, if any, of receivables previously written off are recorded when received. The receivables are non-interest bearing and are unsecured. As of June 30, 2018, management’s estimate of uncollectible accounts receivable was $706. As of December 31, 2017, 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 June 30, 2018 and December 31, 2017. 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 June 30, 2018 and December 31, 2017 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 2014. 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 $19 and $54 for the three months ended June 30, 2018 and 2017, respectively. The straight-line rent adjustment increased revenue by $70 and $127 the six months ended June 30, 2018 and 2017, respectively. The straight-line receivable balance included in receivables on the consolidated balance sheets as of June 30, 2018 and December 31, 2017 was $3,465 and $3,586, 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. 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 June 30, 2018 and 2017, and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the three months ended June 30, 2018 and 2017, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,720,000 and 8,227,000, respectively. For the six months ended June 30, 2018 and 2017, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,674,000 and 8,172,000, respectively. Reclassifications Certain reclassifications considered necessary for a fair presentation have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications have not changed the results of operations or equity. 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 have completed an adoption plan which included 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 adopted this standard effective as of January 1, 2018 and have concluded that the adoption of this guidance did not have an impact on our financial position or results of operations. We concluded this standard will have an impact on the disclosure of gain/loss on sale of real estate investments upon the adoption of the update ASU 2014-09, but will not have an impact on “total real estate rental income.” 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. In January 2018, the FASB released an exposure draft to ASU No. 2016-02 that if issued in its current form would (1) simplify transition requirements for both lessees and lessors by adding an option that would permit an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and, (2) provide a practical expedient for lessors that would permit lessors to not be required to separate nonlease components from the associated lease components if certain conditions are met. The Company is evaluating the impact of ASU No. 2016-02 on its financial position and results of operations. 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 re |
SEGMENT REPORTING
SEGMENT REPORTING | 6 Months Ended |
Jun. 30, 2018 | |
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 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 six months ended June 30, 2018 and 2017, 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 June 30, 2018 Three months ended June 30, 2017 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 22,644 $ 6,644 $ 29,288 $ 21,667 $ 6,846 $ 28,513 Expenses from rental operations 13,386 1,863 15,249 11,247 1,741 12,988 Net operating income $ 9,258 $ 4,781 $ 14,039 $ 10,420 $ 5,105 $ 15,525 Interest 4,576 4,609 Depreciation and amortization 5,283 5,381 Administration of REIT 1,089 1,820 Loss on lease terminations — 31 Other (income)/expense (1,886) (4,606) Net income $ 4,977 $ 8,290 Six months ended June 30, 2018 Six months ended June 30, 2017 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 44,994 $ 13,524 $ 58,518 $ 42,715 $ 13,828 $ 56,543 Expenses from rental operations 25,595 3,630 29,225 22,867 3,575 26,442 Net operating income $ 19,399 $ 9,894 $ 29,293 $ 19,848 $ 10,253 $ 30,101 Interest 9,076 9,248 Depreciation and amortization 10,633 10,744 Administration of REIT 2,243 3,323 Loss on lease terminations — 146 Other (income)/expense (2,895) (4,850) Net income $ 10,236 $ 11,490 Segment Assets and Accumulated Depreciation As of June 30, 2018 Residential Commercial Total (in thousands) Real estate investments $ 567,593 $ 193,199 $ 760,792 Accumulated depreciation (83,163) (35,828) (118,991) $ 484,430 $ 157,371 641,801 Cash and cash equivalents 13,809 Restricted deposits and funded reserves 10,507 Investment in unconsolidated affiliates 2,649 Receivables and other assets 6,304 Financing and lease costs, less accumulated amortization 706 Intangible assets, less accumulated amortization 11,459 Total Assets $ 691,930 As of December 31, 2017 Residential Commercial Total (in thousands) Real estate investments $ 557,309 $ 202,394 $ 759,703 Accumulated depreciation (76,404) (34,622) (111,026) $ 480,905 $ 167,772 648,677 Cash and cash equivalents 12,490 Restricted deposits and funded reserves 8,063 Investment in unconsolidated affiliates 2,772 Receivables and other assets 5,603 Financing and lease costs, less accumulated amortization 737 Intangible assets, less accumulated amortization 13,263 Total Assets $ 691,605 |
REAL ESTATE INVESTMENTS
REAL ESTATE INVESTMENTS | 6 Months Ended |
Jun. 30, 2018 | |
REAL ESTATE INVESTMENTS | |
REAL ESTATE INVESTMENTS | note 4 – real estate investments As of June 30, 2018 Residential Commercial Total (in thousands) Land and land improvements $ 73,746 $ 36,466 $ 110,212 Building and improvements 462,424 155,267 617,691 Furniture, fixtures and equipment 25,491 1,466 26,957 Construction in progress 5,932 — 5,932 567,593 193,199 760,792 Less accumulated depreciation (83,163) (35,828) (118,991) $ 484,430 $ 157,371 $ 641,801 As of December 31, 2017 Residential Commercial Total (in thousands) Land and land improvements $ 73,109 $ 37,841 $ 110,950 Building and improvements 457,443 163,087 620,530 Furniture, fixtures and equipment 25,381 1,466 26,847 Construction in progress 1,376 — 1,376 557,309 202,394 759,703 Less accumulated depreciation (76,404) (34,622) (111,026) $ 480,905 $ 167,772 $ 648,677 Construction in progress as of June 30, 2018 consists primarily of development and planning costs associated with phase III of a multifamily apartment community under construction in Bismarck, North Dakota and a project to rebuild a multifamily apartment building destroyed by fire in Omaha, Nebraska. Phase I and II of the Bismarck development are completed and Phase III is still in the planning stages and construction has not yet commenced. The Omaha project has commenced and will consist of one 18-unit building. We have a construction contract of $2,031 for the Omaha project, of which $1,907 has been completed to date, including $170 of retainage which is included in payables at June 30, 2018. The Omaha project was completed in the third quarter of 2018. |
LEASE INTANGIBLES
LEASE INTANGIBLES | 6 Months Ended |
Jun. 30, 2018 | |
LEASE INTANGIBLES | |
LEASE INTANGIBLES | NOTE 5 - 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 June 30, 2018 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,958 $ (12,360) $ 9,598 Above-market leases 3,104 (1,243) 1,861 $ 25,062 $ (13,603) $ 11,459 Lease Intangible Liabilities Below-market leases $ (3,095) $ 1,487 $ (1,608) Lease Accumulated Lease As of December 31, 2017 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,080 $ (11,797) $ 11,283 Above-market leases 3,115 (1,135) 1,980 $ 26,195 $ (12,932) $ 13,263 Lease Intangible Liabilities Below-market leases $ (3,162) $ 1,386 $ (1,776) 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) 2018 (July 1, 2018 to December 31, 2018) $ 1,035 $ 136 2019 1,854 264 2020 1,429 213 2021 1,132 184 2022 998 164 Thereafter 5,011 647 $ 11,459 $ 1,608 The weighted average amortization period for the intangible assets, in-place leases, above-market leases, and below-market leases acquired as of June 30, 2018 was 6.0 years. |
LINES OF CREDIT
LINES OF CREDIT | 6 Months Ended |
Jun. 30, 2018 | |
LINES OF CREDIT | |
LINES OF CREDIT | NOTE 6 – 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 expired in June 2018; subsequent to June 30, 2018 the line of credit was renewed at $18,300 variable rate (1-month LIBOR plus 2.25%), which expires in June 2021; a $6,315 variable rate (prime rate less 0.5%) line of credit agreement with Bremer Bank, which expires in November 2019; a $5,000 variable rate (floating LIBOR plus 2.00%) line of credit agreement with Bremer Bank, which expires June 2022; and a $3,200 variable rate (LIBOR plus 2.04%) line of credit agreement with Bank of the West, which expires November 2020. The lines of credit are secured by properties in Duluth, Edina, Moorhead and St. Cloud, Minnesota; and Bismarck, Dickinson, Grand Forks and Fargo, North Dakota. At June 30, 2018, there was no balance outstanding on the lines of credit, leaving $32,815 available and unused under the agreements. Certain of the variable lines of credit have limits on availability based on collateral specific criteria. Certain line of credit agreements includes covenants that, in part, impose maintenance of certain debt service coverage and debt to net worth ratios. As of June 30, 2018, we were in compliance with all covenants. |
MORTGAGE NOTES PAYABLE
MORTGAGE NOTES PAYABLE | 6 Months Ended |
Jun. 30, 2018 | |
MORTGAGE NOTES PAYABLE | |
MORTGAGE NOTES PAYABLE | NOTE 7 - MORTGAGE NOTES PAYABLE The following table summarizes the Company’s mortgage notes payable. Principal Balance At June 30, December 31, 2018 2017 (in thousands) Fixed rate mortgage notes payable (a) $ 396,408 $ 397,567 Less unamortized debt issuance costs 2,473 2,724 $ 393,935 $ 394,843 (a) Includes $890 and $913 of variable rate mortgage debt that was swapped to a fixed rate at June 30, 2018 and December 31, 2017, respectively. As of June 30, 2018, we had 121 mortgage loans with effective interest rates ranging from 3.44% to 7.25% per annum and a weighted average effective interest rate of 4.40% per annum. As of December 31, 2017, we had 122 mortgage loans with effective interest rates ranging from 3.44% to 7.25% per annum, and a weighted average effective interest rate of 4.39% 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 net worth ratios. As of June 30, 2018, 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) 2018 (July 1, 2018 to December 31, 2018) $ 8,882 2019 25,460 2020 28,144 2021 46,040 2022 31,321 Thereafter 256,561 Total payments $ 396,408 |
HEDGING ACTIVITIES
HEDGING ACTIVITIES | 6 Months Ended |
Jun. 30, 2018 | |
HEDGING ACTIVITIES | |
HEDGING ACTIVITIES | NOTE 8 – 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 entered into an interest rate swap in the notional amount of $1,294 to provide a fixed rate of 7.25% that matures in April 2020. The swap was issued at approximate market terms and thus no fair value adjustment was recorded at inception. The carrying amount of the swap has been adjusted to its fair value 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 swap is accounted for as an effective hedge in accordance with ASC 815-20 whereby it is recorded at fair value and changes in fair value are recorded to accumulated comprehensive income. As of June 30, 2018 and December 31, 2017, we recorded a liability and other accumulated comprehensive loss of $42 and $65, respectively. |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | 6 Months Ended |
Jun. 30, 2018 | |
FAIR VALUE MEASUREMENT | |
FAIR VALUE MEASUREMENT | NOTE 9 - FAIR VALUE MEASUREMENT The following table presents the carrying value and estimated fair value of the Company’s financial instruments: June 30, 2018 December 31, 2017 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial liabilities: Mortgage notes payable, net $ 393,935 $ 390,287 $ 394,843 $ 396,261 Fair value of interest rate swaps $ 42 $ 42 $ 65 $ 65 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) June 30, 2018 Fair value of interest rate swaps $ — $ 42 $ — $ 42 December 31, 2017 Fair value of interest rate swaps $ — $ 65 $ — $ 65 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 June 30, 2018 and December 31, 2017 , 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 8. 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) June 30, 2018 Mortgage notes payable, net $ — $ — $ 390,287 $ 390,287 December 31, 2017 Mortgage notes payable, net $ — $ — $ 396,261 $ 396,261 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 4.67% to 4.79% and from 4.20% to 4.52% at June 30, 2018 and December 31, 2017 , 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 June 30, 2018 and December 31, 2017. The Company’s mortgage notes payable are further described in Note 7. |
NONCONTROLLING INTEREST OF UNIT
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | 6 Months Ended |
Jun. 30, 2018 | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | NOTE 10 – NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP As of June 30, 2018 and December 31, 2017, outstanding limited partnership units totaled 17,555,000 and 17,517,000 respectively. As of June 30, 2018 and 2017, the operating partnership declared distributions of $4,465 and $4,340 respectively, to limited partners which were paid on July 16, 2018 and July 17, 2017, respectively. Distributions per unit were $0.508750 and $0.4950 during the six months ended June 30, 2018 and 2017, respectively. During the six months ended June 30, 2018, there were no limited partnership units exchanged for common shares pursuant to redemption requests. During the six months ended June 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 exist, 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 | 6 Months Ended |
Jun. 30, 2018 | |
REDEMPTION PLANS | |
REDEMPTION PLANS | NOTE 11 – 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 $35,000 worth of securities. Currently, the fixed redemption price is $17.50 per share or unit under the plans, which price became effective January 1, 2018. 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 six months ended June 30, 2018 and 2017, the Company redeemed 49,000 and 31,000 common shares valued at $858 and $471. In addition, during the six months ended June 30, 2018 and 2017, the Company redeemed 46,000 and 42,000 units valued at $805 and $638. |
BENEFICIAL INTEREST
BENEFICIAL INTEREST | 6 Months Ended |
Jun. 30, 2018 | |
BENEFICIAL INTEREST | |
BENEFICIAL INTEREST | NOTE 12 – 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 June 30, 2018 and December 31, 2017, there were 8,715,000 and 8,488,000 common shares outstanding, respectively. We had no preferred shares outstanding as of either date. Dividends paid to holders of common shares were $0.508750 per share and $0.4950 per share for the six months ended June 30, 2018 and 2017, respectively. |
DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT PLAN | 6 Months Ended |
Jun. 30, 2018 | |
DIVIDEND REINVESTMENT PLAN | |
DIVIDEND REINVESTMENT PLAN | NOTE 13 – 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. In addition, participants may not, in any calendar year, purchase or receive via transfer more than $40 in Common Shares derived from the rights granted to Participants. The estimated value per common share was $18.50 and $16.50 at June 30, 2018 and December 31, 2017, respectively. See discussion of determination of estimated value in Note 17. Therefore, the purchase price per common share for dividend reinvestments was $17.58 and $15.68 and for additional optional cash purchases was $18.50 and $16.50 at June 30, 2018 and December 31, 2017, 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 six months ended June 30, 2018, 159,000 shares were issued pursuant to dividend reinvestments and 117,000 shares were issued pursuant to additional optional cash purchases under the plan. In the six months ended June 30, 2017, 165,000 shares were issued pursuant to dividend reinvestments and 84,000 shares were issued pursuant to additional optional cash purchases under the plan. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2018 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 14 – RELATED PARTY TRANSACTIONS Property Management Fees During the six months ended June 30, 2018 and 2017, 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 six months ended June 30, 2018 and 2017, we paid management fees of $6,409 and $5,560, respectively, to GOLDMARK Property Management. In addition, during the six months ended June 30, 2018 and 2017, we paid repair and maintenance related payroll and payroll related expenses to GOLDMARK Property Management totaling $2,581 and $2,379, respectively. Board of Trustee Fees We incurred Trustee fees of $34 and $32 during the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, and December 31, 2017 we owed our Trustees $30 and $23 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 March 29, 2018, effective January 1, 2018, and amended on June 21, 2018. 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 six months ended June 30, 2018 and 2017, we incurred advisory management fees of $1,440 and $1,400 with Sterling Management, LLC, our Advisor. As of June 30, 2018 and December 31, 2017, we owed our Advisor $483 and $238, 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 six months ended June 30, 2018 and 2017, we reimbursed the Advisor for operating costs totaling $15 and $5, respectively. Acquisition Fees During the six months ended June 30, 2018 and 2017, we incurred acquisition fees of $114 and $503, respectively, with our Advisor. There were no acquisition fees owed to our Advisor as of June 30, 2018 or December 31, 2017. Financing Fees During the six months ended June 30, 2018 and 2017, we incurred financing fees of $25 and $54 with our Advisor for loan financing and refinancing activities. As of June 30, 2018, we owed our Advisor $21 for unpaid financing fees. There were no financing fees owed to our Advisor as of December 31, 2017. Disposition Fees During the six months ended June 30, 2018 and 2017, we incurred $130 and $110 in disposition fees with our Advisor, respectively. See Note 16. There were no disposition fees owed to our Advisor as of June 30, 2018 or December 31, 2017. Development Fees During the six months ended June 30, 2018, there were no development fees incurred with our Advisor. During the six months ended June 30, 2017, we incurred $344 in development fees incurred with our Advisor. As of both June 30, 2018, and December 31, 2017, we owed our Advisor a total of $104 for unpaid development fees, of which the entire amount was for unpaid development fees as part of a 10% hold back, respectively. Operating Partnership Units Issued in Connection with Acquisitions During the six months ended June 30, 2018, we issued directly or indirectly 42,000 operating partnership units to an entity affiliated with Messr. Regan, one of our trustees, in connection with the acquisition of a property. The aggregate value of these units was $773. During the six months ended June 30, 2017, we issued directly or indirectly 402,000 operating partnership units 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. Commissions During the six months ended June 30, 2018, there were no real estate commissions incurred that were 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. During the six months ended June 30, 2017, we incurred real estate commissions of $549 owed to GOLDMARK Commercial Real Estate Services, Inc., which is controlled by Messrs. Regan and Wieland. There were no outstanding commissions owed as of June 30, 2018 and December 31, 2017. Rental Income During the six months ended June 30, 2018 and 2017, we received rental income of $25 and $23, respectively, under an operating lease agreement with our Advisor. During the six months ended June 30, 2018 and 2017, we received rental income of $27 and $27, respectively, under an operating lease agreement with GOLDMARK Commercial Real Estate Services, Inc. During the six months ended June 30, 2018 and 2017, we received rental income of $115 and $109, respectively, under operating lease agreements with GOLDMARK Property Management. Construction Costs There were no constructions costs incurred during the six months ended June 30, 2018 to GOLDMARK Development, which is controlled by Messrs. Regan and Wieland. As of December 31, 2017, since Phase II of the Bismarck, North Dakota development project’s inception through its completion in August 2017, we incurred total costs of $8,997 related to the construction of a clubhouse and six 6-plex two-story townhomes to GOLDMARK Development. There was no retainage or unpaid construction fees owed to GOLDMARK Development as of June 30, 2018 and December 31, 2017. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2018 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 15 - 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 | 6 Months Ended |
Jun. 30, 2018 | |
DISPOSITIONS | |
DISPOSITIONS | NOTE 16 – DISPOSITIONS During the six months ended June 30, 2018, the Company entered into two purchase agreements to sell one retail property located in Austin, Texas and one office property located in Bismarck, North Dakota. These properties qualified for held for sale accounting treatment on or prior to June 30, 2018, at which time depreciation and amortization ceased. As such, the assets and liabilities associated with these properties were separately classified as held for sale in the consolidated balance sheet as of June 30, 2018. Subsequent to June 30, 2018, the operating partnership sold the retail property in Austin, Texas for approximately $3,615 and sold the office property in Bismarck, North Dakota for approximately $4,250. During the six months ended June 30, 2018, the operating partnership sold an industrial property located in Redwood Falls, Minnesota for approximately $5,200 and recognized a gain of $1,084. 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. The following table presents the assets and liabilities associated with the investment properties held for sale: June 30, December 31, 2018 2017 (in thousands) ASSETS Real estate investments $ 4,411 $ — Receivables 119 — Financing and lease costs, less accumulated amortization of $85 in 2018 7 — Lease intangible assets, less accumulated amortization of $219 in 2018 158 — Total Assets $ 4,695 $ — LIABILITIES Special assessments payable $ 16 $ — Unfavorable leases, less accumulated amortization of $39 in 2018 28 — Accounts payable - trade 7 — Accrued expenses and other liabilities 41 — Total Liabilities $ 92 $ — |
ACQUISITIONS
ACQUISITIONS | 6 Months Ended |
Jun. 30, 2018 | |
ACQUISITIONS | |
BUSINESS ACQUISITIONS | NOTE 17 – ACQUISITIONS The Company closed on the following acquisitions during the six months ended June 30, 2018: Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 3/1/18 Thunder Creek Apartments Fargo, ND Apartment complex 57 units $ 4,460 $ 4,460 (a) (a) Acquisition price does not include capitalized costs and adjustments of $119. Total consideration given for acquisitions through June 30, 2018 was completed through issuing approximately 84,000 limited partnership units of the operating partnership valued at $18.50 per unit for an aggregate consideration of approximately $1,546, assumed liabilities of $54 and cash of $2,979. 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 Company closed on the following acquisitions during the six months ended June 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 $ 14,051 $ 14,051 Total consideration given for acquisitions through June 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, new loans of $2,392 and cash of $2,008. 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 following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the acquisitions discussed above: Six Months Ended June 30, 2018 2017 Land, building, tenant improvements and FF&E $ 4,579 $ 14,051 Other liabilities (54) - Net assets acquired 4,525 14,051 Equity/limited partnership unit consideration (1,546) (9,651) New loans - (2,392) Net cash consideration $ 2,979 $ 2,008 Estimated Value of Units/Shares The Board of Trustees determined an estimate of fair value for the trust shares in the first six months of 2018 and 2017. 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 six months of 2018 and 2017. In determining this value, the Board relied upon their experience with, and knowledge about, the Trust’s real estate portfolio and debt obligations. The Board typically determines the share price on an annual basis. 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. The Board determined the fair value of the shares and limited partnership units to be $16.50 per share/unit effective March 29, 2017. The Board determined the fair value of the shares and limited partnership units to be $18.50 per share/unit effective January 1, 2018. 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. 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 and weighted 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. 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 book 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 applied a liquidity discount to one valuation scenario in order to reflect the fact that the shares and limited partnership units are not currently traded on a national securities exchange and did not consider: 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 common shares on a national securities exchange or a merger or sale of our portfolio. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2018 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 18 - SUBSEQUENT EVENTS On July 16, 2018, we paid a dividend or distribution of $0.254375 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 June 30, 2018. On July 16, 2018, the operating partnership sold a retail property in Austin, Texas for approximately $3,615. On July 20, 2018, the operating partnership sold an office property in Bismarck, North Dakota for approximately $4,250. 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) | 6 Months Ended |
Jun. 30, 2018 | |
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, 2017, 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 June 30, 2018 and consolidated statements of operations and other comprehensive income, consolidated statement of shareholders’ equity, and consolidated statements of cash flows for the three and six months ended June 30, 2018 and 2017, 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 six months ended June 30, 2018. 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 166 properties. The Trust’s 118 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 48 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 71.8% residential and 28.2% commercial (based on cost) and total $641,801 in real estate investments at June 30, 2018. Sterling’s current acquisition strategy and focus is solely on multifamily apartment properties. We currently have no plans to actively market our existing commercial properties for sale. We will consider unsolicited offers for purchase of non-multifamily properties on a case by case basis. 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 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. 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. Acquisitions executed prior to our adoption of ASU 2017-01 as of July 1, 2017 were accounted for as business combinations. Transaction costs related to acquisitions accounted for as business combinations were expensed as incurred and included within “Administration of REIT expenses” in the accompanying consolidated statements of operations and other comprehensive income. 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 in-place lease value intangibles of $503 and $568 for the three months ended June 30, 2018 and 2017, respectively and $1,043 and $1,164 for the six months ended June 30, 2018 and 2017, 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 real estate rental income. Amortization pertaining to above market lease intangibles of $55 and $56 for the three months ended June 30, 2018 and 2017, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $70 and $71 for the three months ended June 30, 2018 and 2017, respectively, was recorded as an increase to real estate rental income. Amortization pertaining to above market lease intangibles of $111 and $113 for the six months ended June 30, 2018 and 2017, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $140 and $144 for the six months ended June 30, 2018 and 2017, respectively, was recorded as an increase to real estate rental income. 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 June 30, 2018 and 2017 totaled $4,738 and $4,749, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 totaled $9,505 and $9,454, 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 six months ended June 30, 2018 and 2017. |
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 two properties classified as held for sale at June 30, 2018. There were no properties classified as held for sale at December 31, 2017. See Note 16. |
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 six months ended June 30, 2018 and 2017. 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 June 30, 2018, 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 June 30, 2018 and December 31, 2017, the unconsolidated affiliates held total assets of $23,220 and $23,466 and mortgage notes payable of $17,253 and $17,470, respectively. 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 June 30, 2018 and December 31, 2017 of $10,558 and $10,692, 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 June 30, 2018 and December 31, 2017 of $6,695 and $6,778, 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. Accounts receivable are carried at original amounts billed less an estimate made for doubtful accounts based on a review of outstanding amounts on a quarterly basis and reflect management’s best estimate of the amounts that will not be collected. Accounts receivable are written off when collection efforts have been exhausted and they are deemed uncollectible. Recoveries, if any, of receivables previously written off are recorded when received. The receivables are non-interest bearing and are unsecured. As of June 30, 2018, management’s estimate of uncollectible accounts receivable was $706. As of December 31, 2017, 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 June 30, 2018 and December 31, 2017. |
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 June 30, 2018 and December 31, 2017 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 2014. 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 $19 and $54 for the three months ended June 30, 2018 and 2017, respectively. The straight-line rent adjustment increased revenue by $70 and $127 the six months ended June 30, 2018 and 2017, respectively. The straight-line receivable balance included in receivables on the consolidated balance sheets as of June 30, 2018 and December 31, 2017 was $3,465 and $3,586, 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. |
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 June 30, 2018 and 2017, and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the three months ended June 30, 2018 and 2017, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,720,000 and 8,227,000, respectively. For the six months ended June 30, 2018 and 2017, Sterling’s denominators for the basic and diluted earnings per common share were approximately 8,674,000 and 8,172,000, respectively. |
Reclassifications | Reclassifications Certain reclassifications considered necessary for a fair presentation have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications have not changed the results of operations or equity. |
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 have completed an adoption plan which included 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 adopted this standard effective as of January 1, 2018 and have concluded that the adoption of this guidance did not have an impact on our financial position or results of operations. We concluded this standard will have an impact on the disclosure of gain/loss on sale of real estate investments upon the adoption of the update ASU 2014-09, but will not have an impact on “total real estate rental income.” 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. In January 2018, the FASB released an exposure draft to ASU No. 2016-02 that if issued in its current form would (1) simplify transition requirements for both lessees and lessors by adding an option that would permit an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and, (2) provide a practical expedient for lessors that would permit lessors to not be required to separate nonlease components from the associated lease components if certain conditions are met. The Company is evaluating the impact of ASU No. 2016-02 on its financial position and results of operations. 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 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption was permitted. The pronouncement requires a retrospective transition method of adoption. We adopted this standard effective January 1, 2018. Upon adoption, the Company included 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. We adopted this standard effective January 1, 2018 and have concluded that the adoption of this guidance did not have an impact on our financial position or results of operations, since the cumulative earnings approach for distributions received from equity method investees would continue to be utilized. The new standards must be applied retrospectively to all periods presented in the financial statements. The Company adopted the new standard effective January 1, 2018 and will continue to apply the cumulative earnings approach for distributions received from equity method investees. While overall cash flows did not change, there were changes between cash flow classifications due primarily to restricted deposits. As of June 30, 2017, the following cash flows were reclassified: Six Months Ended June 30, 2017 As Originally Reclassification As Presented Presented Adjustments Herein (in thousands) Cash Flows from Operating Activities: Restricted deposits - tenant security deposits $ (203) $ 203 $ — Restricted deposits - real estate tax and insurance escrow $ 905 $ (905) $ — Net cash provided by operating activities $ 16,667 $ (702) $ 15,965 Cash Flows from Investing Activities Restricted deposits - exchange escrow $ (4,328) $ 4,328 $ — Restricted deposits - replacement reserves $ (1,006) $ 1,006 $ — Purchase of real estate investment properties $ (2,008) $ 83 $ (1,925) Net cash provided by Investing activities $ (6,219) $ 5,417 $ (802) Cash and cash equivalents, beginning of period $ 12,034 (adjustments for restricted deposits, beginning of period) $ 7,236 Cash and cash equivalents and restricted deposits, beginning of period $ 19,270 Cash and cash equivalents, end of period $ 16,580 (adjustments for restricted deposits, end of period) $ 11,951 Cash and cash equivalents and restricted deposits, end of period $ 28,531 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. |
PRINCIPAL ACTIVITY AND SIGNIF27
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
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 |
Schedule of cash flows that were reclassified | Six Months Ended June 30, 2017 As Originally Reclassification As Presented Presented Adjustments Herein (in thousands) Cash Flows from Operating Activities: Restricted deposits - tenant security deposits $ (203) $ 203 $ — Restricted deposits - real estate tax and insurance escrow $ 905 $ (905) $ — Net cash provided by operating activities $ 16,667 $ (702) $ 15,965 Cash Flows from Investing Activities Restricted deposits - exchange escrow $ (4,328) $ 4,328 $ — Restricted deposits - replacement reserves $ (1,006) $ 1,006 $ — Purchase of real estate investment properties $ (2,008) $ 83 $ (1,925) Net cash provided by Investing activities $ (6,219) $ 5,417 $ (802) Cash and cash equivalents, beginning of period $ 12,034 (adjustments for restricted deposits, beginning of period) $ 7,236 Cash and cash equivalents and restricted deposits, beginning of period $ 19,270 Cash and cash equivalents, end of period $ 16,580 (adjustments for restricted deposits, end of period) $ 11,951 Cash and cash equivalents and restricted deposits, end of period $ 28,531 |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
SEGMENT REPORTING | |
Summary of Segment Revenues and Net Operating Income | Three months ended June 30, 2018 Three months ended June 30, 2017 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 22,644 $ 6,644 $ 29,288 $ 21,667 $ 6,846 $ 28,513 Expenses from rental operations 13,386 1,863 15,249 11,247 1,741 12,988 Net operating income $ 9,258 $ 4,781 $ 14,039 $ 10,420 $ 5,105 $ 15,525 Interest 4,576 4,609 Depreciation and amortization 5,283 5,381 Administration of REIT 1,089 1,820 Loss on lease terminations — 31 Other (income)/expense (1,886) (4,606) Net income $ 4,977 $ 8,290 Six months ended June 30, 2018 Six months ended June 30, 2017 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 44,994 $ 13,524 $ 58,518 $ 42,715 $ 13,828 $ 56,543 Expenses from rental operations 25,595 3,630 29,225 22,867 3,575 26,442 Net operating income $ 19,399 $ 9,894 $ 29,293 $ 19,848 $ 10,253 $ 30,101 Interest 9,076 9,248 Depreciation and amortization 10,633 10,744 Administration of REIT 2,243 3,323 Loss on lease terminations — 146 Other (income)/expense (2,895) (4,850) Net income $ 10,236 $ 11,490 |
Summary of Segment Assets and Accumulated Depreciation | As of June 30, 2018 Residential Commercial Total (in thousands) Real estate investments $ 567,593 $ 193,199 $ 760,792 Accumulated depreciation (83,163) (35,828) (118,991) $ 484,430 $ 157,371 641,801 Cash and cash equivalents 13,809 Restricted deposits and funded reserves 10,507 Investment in unconsolidated affiliates 2,649 Receivables and other assets 6,304 Financing and lease costs, less accumulated amortization 706 Intangible assets, less accumulated amortization 11,459 Total Assets $ 691,930 As of December 31, 2017 Residential Commercial Total (in thousands) Real estate investments $ 557,309 $ 202,394 $ 759,703 Accumulated depreciation (76,404) (34,622) (111,026) $ 480,905 $ 167,772 648,677 Cash and cash equivalents 12,490 Restricted deposits and funded reserves 8,063 Investment in unconsolidated affiliates 2,772 Receivables and other assets 5,603 Financing and lease costs, less accumulated amortization 737 Intangible assets, less accumulated amortization 13,263 Total Assets $ 691,605 |
REAL ESTATE INVESTMENTS (Tables
REAL ESTATE INVESTMENTS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
REAL ESTATE INVESTMENTS | |
Summary of Real Estate Investments | As of June 30, 2018 Residential Commercial Total (in thousands) Land and land improvements $ 73,746 $ 36,466 $ 110,212 Building and improvements 462,424 155,267 617,691 Furniture, fixtures and equipment 25,491 1,466 26,957 Construction in progress 5,932 — 5,932 567,593 193,199 760,792 Less accumulated depreciation (83,163) (35,828) (118,991) $ 484,430 $ 157,371 $ 641,801 As of December 31, 2017 Residential Commercial Total (in thousands) Land and land improvements $ 73,109 $ 37,841 $ 110,950 Building and improvements 457,443 163,087 620,530 Furniture, fixtures and equipment 25,381 1,466 26,847 Construction in progress 1,376 — 1,376 557,309 202,394 759,703 Less accumulated depreciation (76,404) (34,622) (111,026) $ 480,905 $ 167,772 $ 648,677 |
LEASE INTANGIBLES (Tables)
LEASE INTANGIBLES (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
LEASE INTANGIBLES | |
Schedule of Intangible Assets, Liabilities and Accumulated Amortization | Lease Accumulated Lease As of June 30, 2018 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,958 $ (12,360) $ 9,598 Above-market leases 3,104 (1,243) 1,861 $ 25,062 $ (13,603) $ 11,459 Lease Intangible Liabilities Below-market leases $ (3,095) $ 1,487 $ (1,608) Lease Accumulated Lease As of December 31, 2017 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 23,080 $ (11,797) $ 11,283 Above-market leases 3,115 (1,135) 1,980 $ 26,195 $ (12,932) $ 13,263 Lease Intangible Liabilities Below-market leases $ (3,162) $ 1,386 $ (1,776) |
Schedule of Estimated Aggregate Amortization Expense | Intangible Intangible Years ending December 31, Assets Liabilities (in thousands) 2018 (July 1, 2018 to December 31, 2018) $ 1,035 $ 136 2019 1,854 264 2020 1,429 213 2021 1,132 184 2022 998 164 Thereafter 5,011 647 $ 11,459 $ 1,608 |
MORTGAGE NOTES PAYABLE (Tables)
MORTGAGE NOTES PAYABLE (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
MORTGAGE NOTES PAYABLE | |
Schedule of Mortgage Notes Payable | Principal Balance At June 30, December 31, 2018 2017 (in thousands) Fixed rate mortgage notes payable (a) $ 396,408 $ 397,567 Less unamortized debt issuance costs 2,473 2,724 $ 393,935 $ 394,843 (a) Includes $890 and $913 of variable rate mortgage debt that was swapped to a fixed rate at June 30, 2018 and December 31, 2017, respectively. |
Scheduled Maturities of Mortgage Notes Payable | Years ending December 31, Amount (in thousands) 2018 (July 1, 2018 to December 31, 2018) $ 8,882 2019 25,460 2020 28,144 2021 46,040 2022 31,321 Thereafter 256,561 Total payments $ 396,408 |
FAIR VALUE MEASUREMENT (Tables)
FAIR VALUE MEASUREMENT (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
FAIR VALUE MEASUREMENT | |
Carrying Value and Estimated Fair Value of Company's Financial Instruments | June 30, 2018 December 31, 2017 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial liabilities: Mortgage notes payable, net $ 393,935 $ 390,287 $ 394,843 $ 396,261 Fair value of interest rate swaps $ 42 $ 42 $ 65 $ 65 |
Schedule of Fair Value of Liabilities on Recurring Basis | Level 1 Level 2 Level 3 Total (in thousands) June 30, 2018 Fair value of interest rate swaps $ — $ 42 $ — $ 42 December 31, 2017 Fair value of interest rate swaps $ — $ 65 $ — $ 65 |
Fair Value of Company's Financial Assets and Liabilities | Level 1 Level 2 Level 3 Total (in thousands) June 30, 2018 Mortgage notes payable, net $ — $ — $ 390,287 $ 390,287 December 31, 2017 Mortgage notes payable, net $ — $ — $ 396,261 $ 396,261 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
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) | 6 Months Ended |
Jun. 30, 2018 | |
DISPOSITIONS | |
Schedule of assets and liabilities associated with the real estate investments held for sale | June 30, December 31, 2018 2017 (in thousands) ASSETS Real estate investments $ 4,411 $ — Receivables 119 — Financing and lease costs, less accumulated amortization of $85 in 2018 7 — Lease intangible assets, less accumulated amortization of $219 in 2018 158 — Total Assets $ 4,695 $ — LIABILITIES Special assessments payable $ 16 $ — Unfavorable leases, less accumulated amortization of $39 in 2018 28 — Accounts payable - trade 7 — Accrued expenses and other liabilities 41 — Total Liabilities $ 92 $ — |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Schedule of acquisition date fair values, before prorations recorded in conjunction with acquisitions | Six Months Ended June 30, 2018 2017 Land, building, tenant improvements and FF&E $ 4,579 $ 14,051 Other liabilities (54) - Net assets acquired 4,525 14,051 Equity/limited partnership unit consideration (1,546) (9,651) New loans - (2,392) Net cash consideration $ 2,979 $ 2,008 |
Real Estate Property Acquisitions 2018 | |
Schedule of acquisitions | Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price Prorata Acquisition Price 3/1/18 Thunder Creek Apartments Fargo, ND Apartment complex 57 units $ 4,460 $ 4,460 (a) (a) Acquisition price does not include capitalized costs and adjustments of $119. |
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 $ 14,051 $ 14,051 |
Organization - Additional Infor
Organization - Additional Information (Details) | 6 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | |
Properties | ||
Ownership in operating partnership | 33.18% | 32.64% |
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) $ in Thousands | Jun. 30, 2018USD ($)ft²propertyitem | Dec. 31, 2017USD ($) |
Properties | ||
Real estate investments | $ | $ 641,801 | $ 648,677 |
No. of properties | 166 | |
Residential Property | ||
Properties | ||
No. of properties | 118 | |
Percentage of residential property out of the trust properties | 71.80% | |
Units | item | 9,458 | |
Residential Property | North Dakota | ||
Properties | ||
No. of properties | 99 | |
Units | item | 5,951 | |
Residential Property | Minnesota | ||
Properties | ||
No. of properties | 16 | |
Units | item | 3,027 | |
Residential Property | Missouri | ||
Properties | ||
No. of properties | 1 | |
Area of commercial property | ft² | 164 | |
Residential Property | Nebraska | ||
Properties | ||
No. of properties | 2 | |
Units | item | 316 | |
Commercial Property | ||
Properties | ||
No. of properties | 48 | |
Percentage of commercial property out of the trust properties | 28.20% | |
Area of commercial property | ft² | 1,652,000 | |
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 | 14 | |
Area of commercial property | ft² | 644,000 | |
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 | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Real Estate Investments | ||||
Amortization expense | $ 1,099 | $ 1,258 | ||
Amortization expense of below market lease | $ 70 | $ 71 | 140 | 144 |
Depreciation expense | 4,738 | 4,749 | 9,505 | 9,454 |
Loss on impairment of property | $ 0 | 0 | ||
Building and improvements | ||||
Real Estate Investments | ||||
Estimated useful life | 40 years | |||
Furniture, fixtures and equipment | Minimum | ||||
Real Estate Investments | ||||
Estimated useful life | 5 years | |||
Furniture, fixtures and equipment | Maximum | ||||
Real Estate Investments | ||||
Estimated useful life | 9 years | |||
In-place leases | ||||
Real Estate Investments | ||||
Amortization expense | 503 | 568 | $ 1,043 | 1,164 |
Above-market leases | ||||
Real Estate Investments | ||||
Amortization expense | $ 55 | $ 56 | $ 111 | $ 113 |
Principal Activity and Signif39
Principal Activity and Significant Accounting Policies - Held for Sale and Unconsolidated Affiliates (Details) $ in Thousands | 6 Months Ended | ||
Jun. 30, 2018USD ($)ft²property | Jun. 30, 2017USD ($) | Dec. 31, 2017USD ($)property | |
Significant Accounting Policies | |||
Number of real estate properties classified as held for sale | property | 2 | 0 | |
Impairment losses related to the unconsolidated affiliates | $ 0 | $ 0 | |
Total assets held by unconsolidated affiliates | 23,220 | $ 23,466 | |
Mortgage notes held by unconsolidated affiliates | $ 17,253 | 17,470 | |
Operating Partnership | Grand Forks Marketplace Retail Center | |||
Significant Accounting Policies | |||
Investment in unconsolidated affiliates | 50.00% | ||
Percentage of interest | 100.00% | ||
Area of commercial property | ft² | 183,000 | ||
Operating Partnership | Tenant in common - Office building, Fargo, North Dakota | |||
Significant Accounting Policies | |||
Investment in unconsolidated affiliates | 66.67% | ||
Area of commercial property | ft² | 75,000 | ||
Mortgages | Grand Forks Marketplace Retail Center | |||
Significant Accounting Policies | |||
Mortgage carrying amount | $ 10,558 | 10,692 | |
Mortgages | Tenant in common - Office building, Fargo, North Dakota | |||
Significant Accounting Policies | |||
Mortgage carrying amount | $ 6,695 | $ 6,778 |
Principal Activity and Signif40
Principal Activity and Significant Accounting Policies - Other (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |||||||
Allowance for uncollectible receivables | $ 706 | $ 706 | $ 706 | $ 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 | $ 19 | $ 54 | $ 70 | $ 127 | |||
Straight - line receivable | $ 3,465 | $ 3,465 | $ 3,465 | $ 3,586 | |||
Earnings per Common Share | |||||||
Dilutive potential common shares | 0 | 0 | |||||
Denominators for the basic and diluted earnings per common share | 8,720,000 | 8,227,000 | 8,674,000 | 8,172,000 |
Principal Activity and Signif41
Principal Activity and Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Cash Flows from Operating Activities | ||||
Net cash provided by operating activities | $ 17,018 | $ 15,965 | ||
Cash Flows from Investing Activities | ||||
Purchase of real estate investment properties | (2,979) | (1,925) | ||
Net cash provided by Investing activities | (1,873) | (802) | ||
Cash and cash equivalents | 13,809 | 16,580 | $ 12,490 | |
Restricted deposits | 10,507 | 11,951 | 8,063 | |
Cash and cash equivalents and restricted deposits | $ 24,316 | 28,531 | $ 20,553 | $ 19,270 |
ASU No. 2016-18 | As Originally Presented | ||||
Cash Flows from Operating Activities | ||||
Restricted deposits - tenant security deposits | (203) | |||
Restricted deposits - real estate tax and insurance escrow | 905 | |||
Net cash provided by operating activities | 16,667 | |||
Cash Flows from Investing Activities | ||||
Restricted deposits - exchange escrow | (4,328) | |||
Restricted deposits - replacement reserves | (1,006) | |||
Purchase of real estate investment properties | (2,008) | |||
Net cash provided by Investing activities | (6,219) | |||
Cash and cash equivalents | 16,580 | 12,034 | ||
ASU No. 2016-18 | Reclassification Adjustments | ||||
Cash Flows from Operating Activities | ||||
Restricted deposits - tenant security deposits | 203 | |||
Restricted deposits - real estate tax and insurance escrow | (905) | |||
Net cash provided by operating activities | (702) | |||
Cash Flows from Investing Activities | ||||
Restricted deposits - exchange escrow | 4,328 | |||
Restricted deposits - replacement reserves | 1,006 | |||
Purchase of real estate investment properties | 83 | |||
Net cash provided by Investing activities | 5,417 | |||
Restricted deposits | $ 11,951 | $ 7,236 |
Segment Reporting - Additional
Segment Reporting - Additional Information (Details) | 6 Months Ended |
Jun. 30, 2018segment | |
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 | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
SEGMENT REPORTING | ||||
Income from rental operations | $ 29,288 | $ 28,513 | $ 58,518 | $ 56,543 |
Expenses from rental operations | 15,249 | 12,988 | 29,225 | 26,442 |
Net operating income | 14,039 | 15,525 | 29,293 | 30,101 |
Interest | 4,576 | 4,609 | 9,076 | 9,248 |
Depreciation and amortization | 5,283 | 5,381 | 10,633 | 10,744 |
Administration of REIT | 1,089 | 1,820 | 2,243 | 3,323 |
Loss on lease terminations | 31 | 146 | ||
Other (income)/expense | (1,886) | (4,606) | (2,895) | (4,850) |
Net income | 4,977 | 8,290 | 10,236 | 11,490 |
Residential | ||||
SEGMENT REPORTING | ||||
Income from rental operations | 22,644 | 21,667 | 44,994 | 42,715 |
Expenses from rental operations | 13,386 | 11,247 | 25,595 | 22,867 |
Net operating income | 9,258 | 10,420 | 19,399 | 19,848 |
Commercial | ||||
SEGMENT REPORTING | ||||
Income from rental operations | 6,644 | 6,846 | 13,524 | 13,828 |
Expenses from rental operations | 1,863 | 1,741 | 3,630 | 3,575 |
Net operating income | $ 4,781 | $ 5,105 | $ 9,894 | $ 10,253 |
Segment Reporting - Summary o44
Segment Reporting - Summary of Segment Assets and Accumulated Depreciation (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 | Jun. 30, 2017 |
SEGMENT REPORTING | |||
Real estate investments | $ 760,792 | $ 759,703 | |
Accumulated depreciation | (118,991) | (111,026) | |
Real estate investments, net | 641,801 | 648,677 | |
Cash and cash equivalents | 13,809 | 12,490 | $ 16,580 |
Restricted deposits and funded reserves | 10,507 | 8,063 | $ 11,951 |
Investment in unconsolidated affiliates | 2,649 | 2,772 | |
Receivables and other assets | 6,304 | 5,603 | |
Financing and lease costs, less accumulated amortization | 706 | 737 | |
Intangible assets, less accumulated amortization | 11,459 | 13,263 | |
Total Assets | 691,930 | 691,605 | |
Residential | |||
SEGMENT REPORTING | |||
Real estate investments | 567,593 | 557,309 | |
Accumulated depreciation | (83,163) | (76,404) | |
Real estate investments, net | 484,430 | 480,905 | |
Commercial | |||
SEGMENT REPORTING | |||
Real estate investments | 193,199 | 202,394 | |
Accumulated depreciation | (35,828) | (34,622) | |
Real estate investments, net | $ 157,371 | $ 167,772 |
Real Estate Investments - Summa
Real Estate Investments - Summary of Real Estate Investments (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Real Estate Investments | ||
Real estate investments | $ 760,792 | $ 759,703 |
Less accumulated depreciation | (118,991) | (111,026) |
Real estate investments, net | 641,801 | 648,677 |
Land and land improvements | ||
Real Estate Investments | ||
Land and land improvements | 110,212 | 110,950 |
Building and improvements | ||
Real Estate Investments | ||
Building and improvements | 617,691 | 620,530 |
Furniture, fixtures and equipment | ||
Real Estate Investments | ||
Furniture, fixtures and equipment | 26,957 | 26,847 |
Construction in progress | ||
Real Estate Investments | ||
Construction in progress | 5,932 | 1,376 |
Residential | ||
Real Estate Investments | ||
Real estate investments | 567,593 | 557,309 |
Less accumulated depreciation | (83,163) | (76,404) |
Real estate investments, net | 484,430 | 480,905 |
Residential | Land and land improvements | ||
Real Estate Investments | ||
Land and land improvements | 73,746 | 73,109 |
Residential | Building and improvements | ||
Real Estate Investments | ||
Building and improvements | 462,424 | 457,443 |
Residential | Furniture, fixtures and equipment | ||
Real Estate Investments | ||
Furniture, fixtures and equipment | 25,491 | 25,381 |
Residential | Construction in progress | ||
Real Estate Investments | ||
Construction in progress | 5,932 | 1,376 |
Commercial | ||
Real Estate Investments | ||
Real estate investments | 193,199 | 202,394 |
Less accumulated depreciation | (35,828) | (34,622) |
Real estate investments, net | 157,371 | 167,772 |
Commercial | Land and land improvements | ||
Real Estate Investments | ||
Land and land improvements | 36,466 | 37,841 |
Commercial | Building and improvements | ||
Real Estate Investments | ||
Building and improvements | 155,267 | 163,087 |
Commercial | Furniture, fixtures and equipment | ||
Real Estate Investments | ||
Furniture, fixtures and equipment | $ 1,466 | $ 1,466 |
Real Estate Investments - Addit
Real Estate Investments - Additional Information (Details) - Omaha, Nebraska - Multifamily $ in Thousands | Jun. 30, 2018USD ($)item |
REAL ESTATE INVESTMENTS | |
Number of apartment buildings under construction | item | 1 |
Number of apartment units under construciton | item | 18 |
Construction contract amount | $ 2,031 |
Construction contract, amount completed to date | 1,907 |
Construction contract, retainage amount included in payables | $ 170 |
Lease Intangibles - Schedule of
Lease Intangibles - Schedule of Intangible Assets and Liabilities and Accumulated Amortization (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Intangible Assets | ||
Lease Intangibles | $ 25,062 | $ 26,195 |
Accumulated Amortization | (13,603) | (12,932) |
Total | 11,459 | 13,263 |
Intangible Liabilities | ||
Below-market lease | (3,095) | (3,162) |
Below-market lease, accumulated amortization | 1,487 | 1,386 |
Below-market lease, net | (1,608) | (1,776) |
In-place leases | ||
Intangible Assets | ||
Lease Intangibles | 21,958 | 23,080 |
Accumulated Amortization | (12,360) | (11,797) |
Total | 9,598 | 11,283 |
Above-market leases | ||
Intangible Assets | ||
Lease Intangibles | 3,104 | 3,115 |
Accumulated Amortization | (1,243) | (1,135) |
Total | $ 1,861 | $ 1,980 |
Lease Intangibles - Schedule 48
Lease Intangibles - Schedule of Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | |
Intangible Assets | ||
2018 (July 1, 2018 to December 31, 2018) | $ 1,035 | |
2,019 | 1,854 | |
2,020 | 1,429 | |
2,021 | 1,132 | |
2,022 | 998 | |
Thereafter | 5,011 | |
Total | 11,459 | $ 13,263 |
Intangible Liabilities | ||
2018 (July 1, 2018 to December 31, 2018) | 136 | |
2,019 | 264 | |
2,020 | 213 | |
2,021 | 184 | |
2,022 | 164 | |
Thereafter | 647 | |
Total | $ 1,608 | $ 1,776 |
Amortization period | 6 years |
Lines of Credit - Additional In
Lines of Credit - Additional Information (Details) - USD ($) $ in Thousands | 1 Months Ended | 6 Months Ended |
Aug. 08, 2018 | Jun. 30, 2018 | |
Lines of Credit | ||
Line of credit outstanding | $ 0 | |
Unused line of credit | 32,815 | |
Wells Fargo Bank | ||
Lines of Credit | ||
Agreed line of credit | $ 18,300 | $ 27,000 |
Expiration date | Jun. 1, 2021 | Jun. 1, 2018 |
Wells Fargo Bank | 1-Month LIBOR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2.25% | 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 | $ 5,000 | |
Expiration date | Jun. 1, 2022 | |
Bremer Bank Agreement Two | Floating LIBOR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2.00% | |
Bank of the West | ||
Lines of Credit | ||
Agreed line of credit | $ 3,200 | |
Expiration date | Nov. 1, 2020 | |
Bank of the West | LIBOR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2.04% |
Mortgage Notes Payable - Summar
Mortgage Notes Payable - Summary (Details) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018USD ($)item | Dec. 31, 2017USD ($)item | |
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | $ 396,408 | |
Fixed rate mortgage notes payable | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | 396,408 | $ 397,567 |
Less unamortized debt issuance costs | 2,473 | 2,724 |
Long-term debt, net | 393,935 | 394,843 |
Debt swapped from variable to fixed rate | $ 890 | $ 913 |
Number of mortgage loans | item | 121 | 122 |
Fixed rate mortgage notes payable | Mortgage Notes Payable | Minimum | ||
MORTGAGE NOTES PAYABLE | ||
Effective interest rate (as a percent) | 3.44% | 3.44% |
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) | 4.40% | 4.39% |
Mortgage Notes Payable - Schedu
Mortgage Notes Payable - Scheduled Maturities of Mortgage Notes Payable (Details) $ in Thousands | Jun. 30, 2018USD ($) |
MORTGAGE NOTES PAYABLE | |
2018 (July 1, 2018 to December 31, 2018) | $ 8,882 |
2,019 | 25,460 |
2,020 | 28,144 |
2,021 | 46,040 |
2,022 | 31,321 |
Thereafter | 256,561 |
Total payments | $ 396,408 |
Hedging Activities - Additional
Hedging Activities - Additional Information (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Hedging Activities | ||
Liability and other comprehensive loss | $ 42 | $ 65 |
Interest Rate Swap, April 2020 | ||
Hedging Activities | ||
Interest rate swaps value | $ 1,294 | |
Interest rate swaps percentage | 7.25% |
Fair Value Measurement - Carryi
Fair Value Measurement - Carrying Value and Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Financial liabilities: | ||
Fair value of interest rate swaps | $ 42 | $ 65 |
Carrying Value | ||
Financial liabilities: | ||
Mortgage notes payable, net | 393,935 | 394,843 |
Fair value of interest rate swaps | 42 | 65 |
Fair Value | ||
Financial liabilities: | ||
Mortgage notes payable, net | 390,287 | 396,261 |
Fair value of interest rate swaps | $ 42 | $ 65 |
Fair Value Measurement - Schedu
Fair Value Measurement - Schedule of Fair Value of Assets on Recurring Basis (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Fair Value Measurements | ||
Fair value of interest rate swaps | $ 42 | $ 65 |
Recurring | ||
Fair Value Measurements | ||
Fair value of interest rate swaps | 42 | 65 |
Recurring | Level 2 | ||
Fair Value Measurements | ||
Fair value of interest rate swaps | $ 42 | $ 65 |
Fair Value Measurement - Fair V
Fair Value Measurement - Fair Value of Company's Financial Assets and Liabilities (Details) - Fair Value - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Fair Value Measurements | ||
Fair value of mortgage notes payable | $ 390,287 | $ 396,261 |
Level 3 | ||
Fair Value Measurements | ||
Fair value of mortgage notes payable | $ 390,287 | $ 396,261 |
Fair Value Measurement - Additi
Fair Value Measurement - Additional Information (Details) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Minimum | ||
Fair Value Inputs, Liabilities, Quantitative Information | ||
Discount rates used to estimate fair value of mortgages and notes payable | 4.67% | 4.20% |
Maximum | ||
Fair Value Inputs, Liabilities, Quantitative Information | ||
Discount rates used to estimate fair value of mortgages and notes payable | 4.79% | 4.52% |
Noncontrolling Interest of Un57
Noncontrolling Interest of Unitholders in Operating Partnership - Additional Information (Details) $ / shares in Units, $ in Thousands | Jun. 30, 2018USD ($)shares | Jun. 30, 2017USD ($) | Jun. 30, 2018item$ / sharesshares | Jun. 30, 2017USD ($)$ / sharesshares | Dec. 31, 2017shares |
Noncontrolling Interest | |||||
Distributions per unit | $ / shares | $ 0.508750 | $ 0.4950 | |||
Maximum | |||||
Noncontrolling Interest | |||||
Number of permitted exchange requests in a calendar year | item | 2 | ||||
Limited Partnership | |||||
Noncontrolling Interest | |||||
Total units | 17,555,000 | 17,555,000 | 17,517,000 | ||
Units converted by limited partners into common shares | 0 | 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 | $ | $ 4,465 | $ 4,340 |
Redemption Plans - Additional I
Redemption Plans - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Redemption plans | ||
Redemption price of securities | $ 17.50 | |
Redemption of shares, value | $ 1,663 | |
Redemption Plans | ||
Redemption plans | ||
Amount of securities redemption | $ 35,000 | |
Redemption of shares | 49,000 | 31,000 |
Redemption of shares, value | $ 858 | $ 471 |
Additional redemption of units | 46,000 | 42,000 |
Additional redemption of units, value | $ 805 | $ 638 |
Beneficial Interest - Additiona
Beneficial Interest - Additional Information (Details) - $ / shares | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Beneficial Interest | |||
Common shares, outstanding | 8,715,000 | 8,488,000 | |
Preferred shares, outstanding | 0 | 0 | |
Dividends paid | $ 0.508750 | $ 0.4950 | |
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 | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | Jul. 11, 2017 | 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 | $ 18.50 | $ 16.50 | |||
Maximum value of common shares that my be purchased or received via transfer by participants under the dividend reivestment plan | $ 40 | ||||
Purchase price per common share for dividend reinvestments | $ 17.58 | 15.680 | |||
Purchase price per common share additional optional cash purchases | $ 18.50 | $ 16.50 | |||
Shares issued pursuant to dividend reinvestments | 159,000 | 165,000 | |||
Shares were issued pursuant to additional optional cash purchases under the plan | 117,000 | 84,000 |
Related Party Transactions - Pr
Related Party Transactions - Property Management and Board of Trustee Fees (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Related Party Transactions | |||||
Trustee fees | $ 14 | $ 19 | $ 34 | $ 32 | |
Unpaid board of trustee fees | $ 30 | $ 30 | $ 23 | ||
GOLDMARK Property Management | |||||
Related Party Transactions | |||||
Property management fee, percent fee | 5.00% | 5.00% | |||
Management fee, amount paid | $ 6,409 | $ 5,560 | |||
Repair and maintenance related payroll and payroll related expenses | $ 2,581 | $ 2,379 | |||
Board Chairman - Board Meeting | |||||
Related Party Transactions | |||||
Shares received by board members per meeting | 105 |
Related Party Transactions - Ad
Related Party Transactions - Advisory Agreement and Other (Details) $ / item in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2018USD ($)employee$ / itemshares | Jun. 30, 2017USD ($)shares | Dec. 31, 2017USD ($) | |
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 | $ 722,000 | $ 704,000 | $ 1,440,000 | $ 1,400,000 | |
Rental Income | 27,767,000 | $ 27,111,000 | $ 55,385,000 | 53,518,000 | |
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 | $ 38,000 | ||||
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 | 10,000,000 | ||||
Range of Fee | $ 500,000 | ||||
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 | $ 10,000,000 | ||||
Range of Fee | 500,000 | ||||
Advisory Agreement | 10M - 20M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 20,000,000 | ||||
Range of Fee | $ 950,000 | ||||
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 | $ 20,000,000 | ||||
Range of Fee | 950,000 | ||||
Advisory Agreement | 20M – 30M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 30,000,000 | ||||
Range of Fee | $ 1,350,000 | ||||
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 | $ 30,000,000 | ||||
Range of Fee | 1,350,000 | ||||
Advisory Agreement | 30M – 40M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 40,000,000 | ||||
Range of Fee | $ 1,700,000 | ||||
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 | $ 40,000,000 | ||||
Range of Fee | 1,700,000 | ||||
Advisory Agreement | 40M – 50M | Maximum | |||||
Related Party Transactions | |||||
Total Cost | 50,000,000 | ||||
Range of Fee | 2,000,000 | ||||
Sterling Management, LLC | |||||
Related Party Transactions | |||||
Advisory management fees | 1,440,000 | 1,400,000 | |||
Advisory management fees outstanding | 483,000 | 483,000 | $ 238,000 | ||
Advisory management fees for operating costs | 15,000 | 5,000 | |||
Acquisition fees | 114,000 | 503,000 | |||
Acquisition fees outstanding | 0 | 0 | |||
Financing fees for loan financing and refinancing activities | 25,000 | 54,000 | |||
Financing fees for loan financing and refinancing outstanding | 0 | 0 | 21,000 | ||
Disposition fees | 130,000 | 110,000 | |||
Disposition fees outstanding | 0 | ||||
Development fee | 0 | 344,000 | |||
Development fees Outstanding | 104,000 | 104,000 | 104,000 | ||
Development fees hold back outstanding | 10 | ||||
Rental Income | 115,000 | 109,000 | |||
GOLDMARK Property Management | |||||
Related Party Transactions | |||||
Rental Income | 27,000 | 27,000 | |||
GOLDMARK SCHLOSSMAN Commercial Real Estate Services | |||||
Related Party Transactions | |||||
Real estate commissions | 0 | 549,000 | |||
Real estate commissions outstanding | 0 | 0 | 0 | ||
Rental Income | $ 25,000 | $ 23,000 | |||
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 | 42,000 | 402,000 | |||
Value of operating partnership (OP) units issued in connection with the acquisition of various properties | $ 773,000 | $ 6,425,000 | |||
Goldmark Development | |||||
Related Party Transactions | |||||
Construction costs incurred to date | $ 0 | $ 0 | $ 8,997,000 |
Dispositions - Additional Infor
Dispositions - Additional Information (Details) $ in Thousands | Jul. 20, 2018USD ($) | Jul. 16, 2018USD ($) | Aug. 08, 2018USD ($) | Jun. 30, 2018USD ($)property | Jun. 30, 2017USD ($) |
Dispositions | |||||
Gain on sale of real estate | $ 1,084 | $ 2,075 | |||
ASSETS | |||||
Total Assets | 4,695 | ||||
Accumulated amortization of financing and lease costs | 85 | ||||
Accumulated amortization of lease intangible assets | 219 | ||||
LIABILITIES | |||||
Total Liabilities | 93 | ||||
Accumulated amortization of unfavorable leases | $ 39 | ||||
Texas | |||||
Dispositions | |||||
Number of dispositions | property | 1 | ||||
North Dakota | |||||
Dispositions | |||||
Number of dispositions | property | 1 | ||||
Assets Held for Sale | |||||
ASSETS | |||||
Real estate investments | $ 4,411 | ||||
Receivables | 119 | ||||
Financing and lease costs, less accumulated amortization of $85 in 2018 | 7 | ||||
Lease intangible assets, less accumulated amortization of $219 in 2018 | 158 | ||||
Total Assets | 4,695 | ||||
LIABILITIES | |||||
Special assessments payable | 16 | ||||
Unfavorable leases, less accumulated amortization of $39 in 2018 | 28 | ||||
Accounts payable - trade | 7 | ||||
Accrued expenses and other liabilities | 41 | ||||
Total Liabilities | 92 | ||||
Retail Property, Austin, TX | Subsequent Event | Disposed of by Sale | |||||
Dispositions | |||||
Property sold | $ 3,615 | $ 3,615 | |||
Retail Property, Bismarck, ND | Subsequent Event | Disposed of by Sale | |||||
Dispositions | |||||
Property sold | $ 4,250 | $ 4,250 | |||
Industrial Property, Redwood Falls, MN | Disposed of by Sale | |||||
Dispositions | |||||
Property sold | 5,200 | ||||
Gain on sale of real estate | $ 1,084 | ||||
Retail Property, Fargo, ND | Disposed of by Sale | |||||
Dispositions | |||||
Property sold | 4,400 | ||||
Gain on sale of real estate | $ 2,072 |
Acquisitions - Purchases, Curre
Acquisitions - Purchases, Current Year (Details) $ / shares in Units, $ in Thousands | Mar. 01, 2018USD ($)item | May 01, 2017USD ($) | Jun. 30, 2018USD ($)$ / sharesshares | Jun. 30, 2017USD ($)$ / sharesshares |
ACQUISITIONS | ||||
Aggregate number of limited partnership units issued for acquisition | shares | 84,000 | 603,000 | ||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 18.50 | $ 16 | ||
Aggregate value of limited partnership units issued for acquisition | $ 1,546 | $ 9,651 | ||
Assumed liabilities | 54 | |||
Consideration in cash to pay for acquisitions | $ 2,979 | |||
Thunder Creek Apartments, Fargo, ND | ||||
ACQUISITIONS | ||||
Units acquired | item | 57 | |||
Acquisition price | $ 4,460 | |||
Prorata Acquisition Price | 4,460 | |||
Capitalized closing costs and adjustments | $ 119 | |||
Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||
ACQUISITIONS | ||||
Aggregate value of limited partnership units issued for acquisition | $ 4,727 | |||
Assumed loans | $ 1,295 |
Acquisitions - Purchases, Prior
Acquisitions - Purchases, Prior Year (Details) $ / shares in Units, $ in Thousands | Jun. 01, 2017USD ($)item | May 01, 2017USD ($)item | Jan. 17, 2017USD ($)item | Jan. 11, 2017USD ($)item | Jan. 10, 2017USD ($)item | Jun. 30, 2017USD ($)$ / shares | Jun. 30, 2018USD ($)$ / sharesshares | Jun. 30, 2017USD ($)$ / sharesshares |
ACQUISITIONS | ||||||||
Acquisition price | $ 14,051 | |||||||
Prorata Acquisition Price | $ 14,051 | |||||||
Aggregate number of limited partnership units issued for acquisition | shares | 84,000 | 603,000 | ||||||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 16 | $ 18.50 | $ 16 | |||||
Aggregate value of limited partnership units issued for acquisition | $ 1,546 | $ 9,651 | ||||||
New loans issued to finance acquisition | $ 2,392 | 2,392 | ||||||
Consideration in cash to pay for acquisitions | 2,008 | |||||||
Gain on change in control of real estate investments | 2,186 | $ 2,186 | ||||||
Sargent Apartments, Fargo ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 36 | |||||||
Acquisition price | $ 1,710 | |||||||
Prorata Acquisition Price | $ 1,710 | |||||||
Arrowhead, Grand Forks, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 82 | |||||||
Acquisition price | $ 5,494 | |||||||
Prorata Acquisition Price | $ 5,494 | |||||||
West Oak Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 777 | |||||||
Prorata Acquisition Price | $ 777 | |||||||
Carr Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 828 | |||||||
Prorata Acquisition Price | $ 828 | |||||||
Plumtree Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 907 | |||||||
Prorata Acquisition Price | $ 907 | |||||||
Sunchase Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 36 | |||||||
Acquisition price | $ 1,765 | |||||||
Prorata Acquisition Price | 1,765 | |||||||
Essex Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 858 | |||||||
Prorata Acquisition Price | $ 858 | |||||||
Jadestone Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 809 | |||||||
Prorata Acquisition Price | $ 809 | |||||||
Park Circle Apartments, Fargo, ND | ||||||||
ACQUISITIONS | ||||||||
Units acquired | item | 18 | |||||||
Acquisition price | $ 903 | |||||||
Prorata Acquisition Price | $ 903 | |||||||
Single Asset Limited Liability Company - owns apartment complex, Bismarck, North Dakota | ||||||||
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 |
Acquisitions - Summary of Acqui
Acquisitions - Summary of Acquisition Date Fair Values (Details) - USD ($) $ / shares in Units, $ in Thousands | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jan. 01, 2018 | Mar. 29, 2017 | |
Acquisition date fair values | ||||
Net cash consideration | $ 2,979 | |||
Land, building, tenant improvements and FF&E | $ 14,051 | |||
Net assets acquired | 14,051 | |||
Equity/limited partnership unit consideration | (9,651) | |||
New loans | (2,392) | |||
Net cash consideration | $ 2,008 | |||
Price per limited partnership unit issued for acquisition | $ 18.50 | $ 16.50 | ||
Nonrecurring | ||||
Acquisition date fair values | ||||
Land, building, tenant improvements and FF&E | 4,579 | |||
Other liabilities | (54) | |||
Net assets acquired | 4,525 | |||
Equity/limited partnership unit consideration | (1,546) | |||
Net cash consideration | $ 2,979 |
Subsequent Events - Additional
Subsequent Events - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | Jul. 20, 2018 | Jul. 16, 2018 | Aug. 08, 2018 | Jun. 30, 2018 | Jun. 30, 2017 |
Subsequent Events | |||||
Dividend or distribution paid | $ 0.508750 | $ 0.4950 | |||
Subsequent Event | |||||
Subsequent Events | |||||
Dividend or distribution paid | $ 0.254375 | ||||
Retail Property, Austin, TX | Disposed of by Sale | Subsequent Event | |||||
Subsequent Events | |||||
Property sold | $ 3,615 | $ 3,615 | |||
Retail Property, Bismarck, ND | Disposed of by Sale | Subsequent Event | |||||
Subsequent Events | |||||
Property sold | $ 4,250 | $ 4,250 |