Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | May 06, 2020 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | Sterling Real Estate Trust | |
Entity Central Index Key | 0001412502 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 9,614,311 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
ASSETS | ||
Land and land improvements | $ 116,102 | $ 114,666 |
Building and improvements | 686,188 | 676,228 |
Construction in progress | 17,017 | 11,134 |
Real estate investments | 819,307 | 802,028 |
Less accumulated depreciation | (150,822) | (146,316) |
Real estate investments, net | 668,485 | 655,712 |
Cash and cash equivalents | 4,295 | 9,002 |
Restricted deposits | 11,398 | 8,380 |
Investment in unconsolidated affiliates | 7,848 | 7,915 |
Note receivable | 1,300 | 1,300 |
Lease intangible assets, less accumulated amortization of $15,429 in 2020 and $15,558 in 2019 | 8,395 | 9,133 |
Other assets, net | 6,218 | 8,244 |
Total Assets | 707,939 | 699,686 |
LIABILITIES | ||
Mortgage notes payable, net | 395,074 | 393,164 |
Dividends payable | 7,358 | 7,118 |
Tenant security deposits payable | 4,648 | 4,439 |
Lease intangible liabilities, less accumulated amortization of $1,916 in 2020 and $1,881 in 2019 | 1,151 | 1,207 |
Accrued expenses and other liabilities | 13,697 | 14,711 |
Total Liabilities | 421,928 | 420,639 |
COMMITMENTS and CONTINGENCIES - Note 16 | ||
SHAREHOLDERS' EQUITY | ||
Beneficial interest | 103,750 | 102,373 |
Noncontrolling interest in Operating partnership | 181,299 | 174,221 |
Partially owned properties | 2,411 | 2,416 |
Accumulated other comprehensive loss | (1,449) | 37 |
Total Shareholders' Equity | 286,011 | 279,047 |
Total liabilities and shareholders' equity | $ 707,939 | $ 699,686 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
CONSOLIDATED BALANCE SHEETS | ||
Lease intangible assets, accumulated amortization | $ 15,429 | $ 15,558 |
Lease intangible liabilities, accumulated amortization | $ 1,916 | $ 1,881 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income from rental operations | ||
Real estate rental income | $ 29,906 | $ 29,831 |
Expenses from rental operations | ||
Operating expenses, excluding real estate taxes | 12,535 | 12,179 |
Real estate taxes | 3,164 | 3,029 |
Depreciation and amortization | 5,252 | 5,538 |
Interest | 4,350 | 4,715 |
Total expenses from rental operations | 25,301 | 25,461 |
Administration of REIT | ||
Administration of REIT | 1,162 | 1,111 |
Total expenses | 26,463 | 26,572 |
Income from operations | 3,443 | 3,259 |
Other income | ||
Equity in income of unconsolidated affiliates | 158 | 132 |
Other income | 119 | 70 |
Gain on sale of real estate and non-real estate investments | 1,455 | |
(Loss)/gain on involuntary conversion | 52 | 329 |
Total other income | 1,784 | 531 |
Net income | 5,227 | 3,790 |
Net income attributable to noncontrolling interest in operating partnership | 3,419 | 2,532 |
Net income (loss) attributable to noncontrolling interest in partially owned properties | (5) | (30) |
Net income attributable to Sterling Real Estate Trust | $ 1,813 | $ 1,288 |
Net income per common share, basic and diluted | $ 190 | $ 140 |
Comprehensive income: | ||
Net income | $ 5,227 | $ 3,790 |
Other comprehensive (loss) gain - change in fair value of interest rate swaps | (1,486) | 4 |
Comprehensive income | 3,741 | 3,794 |
Comprehensive income attributable to noncontrolling interest | 2,442 | 2,505 |
Comprehensive income attributable to Sterling Real Estate Trust | $ 1,299 | $ 1,289 |
Weighted average Common Shares outstanding | 9,562,000 | 9,091,000 |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - 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, 2018 | $ 122,624 | $ (24,741) | $ 97,883 | $ 183,360 | $ 2,538 | $ (30) | $ 283,751 | |
Beginning Balance (in shares) at Dec. 31, 2018 | 8,967 | |||||||
Shares/units redeemed | (197) | (197) | (629) | (826) | ||||
Shares/units redeemed (in shares) | (11) | |||||||
Dividends declared | (2,374) | (2,374) | (4,661) | (7,035) | ||||
Dividends reinvested - stock dividend | 1,479 | 1,479 | $ 1,479 | |||||
Dividends reinvested - stock dividend (in shares) | 82 | 82,000 | ||||||
Issuance of shares under optional purchase plan | 929 | 929 | $ 929 | |||||
Issuance of shares under optional purchase plan (in shares) | 49 | |||||||
Change in fair value of interest rate swaps | 4 | 4 | ||||||
Net income | 1,288 | 1,288 | 2,532 | (30) | 3,790 | |||
Ending balance at Mar. 31, 2019 | 124,835 | (25,827) | 99,008 | 180,602 | 2,508 | (26) | 282,092 | |
Ending balance (in shares) at Mar. 31, 2019 | 9,087 | |||||||
Beginning Balance at Dec. 31, 2019 | 131,261 | (28,888) | 102,373 | 174,221 | 2,416 | 37 | $ 279,047 | |
Beginning Balance (in shares) at Dec. 31, 2019 | 9,436 | 9,436,000 | ||||||
Contribution of assets in exchange for the issuance of noncontrolling interest shares | 9,031 | $ 9,031 | ||||||
Shares/units redeemed | (696) | (696) | (541) | (1,237) | ||||
Shares/units redeemed (in shares) | (38) | |||||||
Dividends declared | (2,527) | (2,527) | (4,831) | (7,358) | ||||
Dividends reinvested - stock dividend | 1,584 | 1,584 | $ 1,584 | |||||
Dividends reinvested - stock dividend (in shares) | 87 | 87,000 | ||||||
Issuance of shares under optional purchase plan | 1,203 | 1,203 | $ 1,203 | |||||
Issuance of shares under optional purchase plan (in shares) | 62 | |||||||
Change in fair value of interest rate swaps | (1,486) | (1,486) | ||||||
Net income | 1,813 | 1,813 | 3,419 | (5) | 5,227 | |||
Ending balance at Mar. 31, 2020 | $ 133,352 | $ (29,602) | $ 103,750 | $ 181,299 | $ 2,411 | $ (1,449) | $ 286,011 | |
Ending balance (in shares) at Mar. 31, 2020 | 9,547 | 9,547,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
OPERATING ACTIVITIES | ||
Net income | $ 5,227 | $ 3,790 |
Adjustments to reconcile net income to net cash from operating activities | ||
Gain on sale of real estate investments | (1,455) | |
Loss/(Gain) on involuntary conversion | (52) | (329) |
Equity in income of unconsolidated affiliates | (158) | (132) |
Distributions of earnings of unconsolidated affiliates | 158 | 132 |
Allowance for uncollectible accounts receivable | 113 | 50 |
Depreciation | 4,868 | 5,012 |
Amortization | 380 | 512 |
Amortization of debt issuance costs | 140 | 155 |
Effects on operating cash flows due to changes in | ||
Other assets | 1,449 | 613 |
Tenant security deposits payable | 131 | 203 |
Accrued expenses and other liabilities | (3,617) | (1,726) |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 7,184 | 8,280 |
INVESTING ACTIVITIES | ||
Purchase of real estate investment properties | (375) | |
Capital expenditures and tenant improvements | (5,058) | (1,263) |
Proceeds from sale of real estate investments and non-real estate investments | 3,494 | |
Proceeds from involuntary conversion | 259 | 294 |
Investment in unconsolidated affiliates | (38) | |
Distributions in excess of earnings received from unconsolidated affiliates | 105 | 121 |
NET CASH USED IN INVESTING ACTIVITIES | (1,613) | (848) |
FINANCING ACTIVITIES | ||
Payments for financing, debt issuance and lease costs | (98) | |
Principal payments on special assessments payable | (253) | (32) |
Proceeds from issuance of mortgage notes payable and subordinated debt | 7,788 | |
Principal payments on mortgage notes payable | (9,129) | (3,150) |
Proceeds from issuance of shares under optional purchase plan | 1,203 | 929 |
Shares/units redeemed | (1,237) | (826) |
Dividends/distributions paid | (5,534) | (5,349) |
NET CASH USED IN FINANCING ACTIVITIES | (7,260) | (8,428) |
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS | (1,689) | (996) |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF YEAR | 17,382 | 30,065 |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF YEAR | $ 15,693 | $ 29,069 |
CONSOLIDATED STATEMENTS OF CA_2
CONSOLIDATED STATEMENTS OF CASH FLOWS - Supplemental Disclosures - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD | ||
Cash and cash equivalents | $ 4,295 | $ 21,345 |
Restricted deposits | 11,398 | 7,724 |
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS, END OF YEAR | 15,693 | 29,069 |
SCHEDULE OF CASH FLOW INFORMATION | ||
Cash paid during the period for interest, net of capitalized interest | 4,203 | 4,599 |
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Dividends reinvested | 1,584 | 1,479 |
Dividends declared and not paid | 2,527 | 2,374 |
UPREIT distributions declared and not paid | 4,831 | 4,661 |
Acquisition of assets in exchange for the issuance of noncontrolling interest units in UPREIT | 9,031 | |
Increase in land improvements due to increase in special assessments payable | 65 | 213 |
Unrealized (loss) gain on interest rate swaps | (1,486) | 4 |
Acquisition of assets with new financing | 3,225 | |
Acquisition of assets through assumption of debt and liabilities | 265 | |
Capitalized interest and real estate taxes related to construction in progress | $ 137 | $ 7 |
ORGANIZATION
ORGANIZATION | 3 Months Ended |
Mar. 31, 2020 | |
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 December 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 March 31, 2020 and December 31, 2019, Sterling owned approximately 34.34% and 34.63%, respectively, of the operating partnership. |
PRINCIPAL ACTIVITY AND SIGNIFIC
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2020 | |
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, 2019, 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 sheets as of March 31, 2020 and consolidated statements of operations and other comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows for the three months ended March 31, 2020 and 2019, 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 months ended March 31, 2020 and 2019. 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 178 properties. The Trust’s 131 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 47 commercial properties primarily located in North Dakota with others located in Arkansas, Colorado, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, and Wisconsin. The commercial properties include retail, office, industrial, restaurant and medical properties. Presently, the Trust’s mix of properties is 74.0% residential and 26.0% commercial (based on cost) and total $668,485 in real estate investments at March 31, 2020. Currently Sterling’s acquisition strategy and focus is on multifamily apartment properties. We currently have no plans to dispose of our non-multifamily apartment properties. 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 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 Trust allocates the purchase price of each acquired investment property accounted for as an asset acquisition based upon the estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, and (v) any assumed financing that is determined to be above or below market, if any. Transaction costs related to acquisitions accounted for as an asset acquisition are capitalized as incurred and included as a cost of the Building in the accompanying consolidated balance sheet. For tangible assets acquired, including land, building and other improvements, the Trust 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 Trust 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 Trust also evaluates each acquired lease as compared to current market rates. If an acquired lease is determined to be above or below market, the Trust 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 Trust 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 Trust incurred amortization expense pertaining to acquired in-place lease value intangibles of $341 and $429 for the three months ended March 31, 2020 and 2019, 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 $52 and $54 for the three months ended March 31, 2020 and 2019, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $56 and $67 for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 and 2019 totaled $4,868 and $5,012, respectively. The Trust’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 Trust’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 three months ended March 31, 2020 and 2019. Properties Held for Sale We account for our properties held for sale in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), which addresses financial accounting and reporting in a period in which a component or group of components of an entity either has been disposed of or is classified as held for sale. In accordance with ASC 360, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amount, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as properties held for sale in the period in which all of the following criteria are met: · management, having the authority to approve the action, commits to a plan to sell the asset; · the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; · an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated; · the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; · the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and · given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. The results of operations of a component of an entity that either has been disposed of or is classified as held-for-sale under the requirements of ASC 360 shall be reported in discontinued operations in accordance with ASC 205, Presentation of Financial Statements (“ASC 205”) if such disposal or classification represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There were no properties classified as held for sale at March 31, 2020 or December 31, 2019. See Note 15. 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. Construction in progress as of March 31, 2020 consists primarily of development and planning costs associated with the Glen Pond development in Eagan, Minnesota and Goldmark Office Park 1715 and 1711 buildings located in Fargo, North Dakota. The Glen Pond development consists of an addition of 114 units to the current multifamily property. Current expectations are that the project will be completed in the second or third quarter of calendar year 2020 and the current project budget approximates $15,598. The Goldmark Office Park consists of three commercial office buildings. Current expectations are that the project which includes building renovations, reconstruction of portions of the Office Park and additional amenities will be completed in phases with the primary phase completed in the second quarter of calendar year 2020. The current project budget is approximately $3,833. Cash and Cash Equivalents and Restricted Deposits We classify highly liquid investments with a maturity of three months or less when purchased as cash equivalents. Restricted deposits include funds escrowed for tenant for tenant security deposits, real estate taxes, insurance and mortgage escrow deposits required by lenders on certain properties to be used for future building renovations or tenant improvements and potential Internal Revenue Code section 1031 tax deferred exchanges (1031 Exchanges). 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 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 to unconsolidated affiliates for the three months ended March 31, 2020 and 2019. 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 March 31, 2020, 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 March 31, 2020 and December 31, 2019, the unconsolidated affiliates held total assets of $33,451 and $31,261 and mortgage notes payable of $18,169 and $16,690, 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 March 31, 2020 and December 31, 2019 of $10,208 and $10,264, 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 March 31, 2020 and December 31, 2019 of $6,379 and $6,426, respectively. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 60% interest in a joint venture (“SE Savage”) that is developing a 190 unit multifamily property. The property is encumbered by a first construction mortgage with a balance at March 31, 2020 of $1,583 and no mortgage balance at December 31, 2019. The operating partnership has contributed $3,305 in cash to SE Savage as of March 31, 2020. The partnership holds total assets of $8,107. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 60% interest in a joint venture (“SE Maple Grove”) that intends to develop a 160 unit multifamily property. The operating partnership has contributed $2,073 in cash to SE Maple Grove as of March 31, 2020. SE Maple Grove holds land located in Maple Grove, Minnesota, total assets of $3,455, and no mortgage payable. Receivables Receivables consist primarily of amounts due for rent and tenant charges. Accounts receivable are carried at original amounts billed. The operating partnership reviews collectability of charges under its tenant operating leases on a quarterly basis. In the event that collection is deemed not probable for any tenant charges, beginning with the adoption of ASC 842 as of January 1, 2019, the operating partnership recognizes an adjustment to real estate rental income. Prior to the adoption of ASC 842, the Company recognized a provision for uncollectible amounts or a direct write-off of the specific rent receivable. Receivables are included in other assets in the accompanying consolidated balance sheets. Note receivables are issued periodically and are secured and interest bearing. 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. 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 March 31, 2020 and December 31, 2019. 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 Trust 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 generally 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 March 31, 2020 and December 31, 2019, 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 2016. 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 The Trust is the lessor for its residential and commercial leases. Leases are analyzed on an individual basis to determine lease classification. The Trust has determined any lease less than twelve months in length will not be looked at in the classification process and will be presumed an operating lease. As of March 31, 2020, all leases analyzed under the Trust’s lease classification process were determined to be operating leases. As of March 31, 2019, all leases continued to be accounted for as operating leases under the new standard as described under Recent Accounting Pronouncements. As of March 31, 2020, we derived 79% of our revenues from residential leases that are generally for terms of one year or less. The residential leases may include lease income related items such as parking, storage and non-refundable deposits that we treat as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore we subsequently recognize lease income over the lease term on a straight-line basis. Residential leases are renewable upon consent of both parties on an annual or monthly basis. As of March 31, 2020, we derived 21% of our revenues from commercial leases primarily under long-term lease agreements. Substantially all commercial leases contain fixed escalations or, in some instances, changes based on the Consumer Price Index, which occur at specified times during the term of the lease. In certain commercial leases, variable lease income, such as percentage rent, is recognized when rents are earned. We recognize rental income and rental abatements from our commercial leases when earned on a straight-line basis over the lease term. Recognition of rental income commences when control of the leased space has been transferred to the tenant. We recognize variable income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements. When we pay pass-through expenses, subject to reimbursement by the tenant, they are included within Operating expenses, excluding real estate taxes, and reimbursements are included within Real estate rental income along with the associated base rent in the accompanying consolidated financial statements. 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 decreased revenue by $65 and increased revenue by $103 the three months ended March 31, 2020 and 2019, respectively. The straight-line receivable balance included in other assets on the consolidated balance sheets as of March 31, 2020 and December 31, 2019 was $3,093 and $3,331, 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 are immaterial, are recognized in the subsequent year. Upon adoption of ASU 2016-02 on January 1, 2019, we elected not to bifurcate lease contracts into lease and non-lease components, since the timing and pattern of revenue is not materially different and the non-lease components is not the primary component of the lease. Accordingly, both lease and non-lease components are presented in “Real estate rental income” in our consolidated financial statements. The adoption of ASU 2016-02 did not result in a material change to our recognition of real estate rental income. Lease income related to the Company’s operating leases is comprised of the following: Three months ended March 31, 2020 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 23,203 $ 4,714 $ 27,917 Lease income related to variable lease payments — 1,261 1,261 Other (a) (257) (90) (347) Lease Income (b) $ 22,946 $ 5,885 $ 28,831 Three months ended March 31, 2019 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 22,797 $ 4,777 $ 27,574 Lease income related to variable lease payments — 1,487 1,487 Other (a) (217) 117 (100) Lease Income (b) $ 22,580 $ 6,381 $ 28,961 (a) For the three months ended March 31, 2020 and 2019, “Other” is comprised of revenue adjustments related to changes in collectibility and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the three months ended March 31, 2020 and 2019 of $1,075 and $870, respectively, which is accounted for under the revenue recognition standard. As of March 31, 2020, non-cancelable commercial operating leases provide for future minimum rental income as follows. Apartment leases are not included as the terms are generally for one year or less. Years ending December 31, Amount (in thousands) 2020 (April 1, 2020 – December 31, 2020) $ 13,288 2021 14,836 2022 11,453 2023 9,479 2024 9,017 Thereafter 42,479 $ 100,552 Business Interruption Proceeds In the Trust’s normal course of business we periodically receive insurance recoveries for business interruption. The Trust received no insurance recoveries for business interruption during the three months ended March 31, 2020 and 2019. When insurance proceeds are received they are reflected in the statement of operations as real estate rental income. 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 |
SEGMENT REPORTING
SEGMENT REPORTING | 3 Months Ended |
Mar. 31, 2020 | |
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 property administrative and management fees). We believe NOI is an important measure of operating performance even though it should not be considered an alternative to net income or cash flow from operating activities. NOI is unaffected by financing, depreciation, amortization, legal and professional fees and certain general and administrative expenses. The accounting policies of each segment are consistent with those described in Note 2 of this report. Segment Revenues and Net Operating Income The revenues and net operating income for the reportable segments (residential and commercial) are summarized as follows for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 Three months ended March 31, 2019 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 23,995 $ 5,911 $ 29,906 $ 23,434 $ 6,397 $ 29,831 Expenses from rental operations 13,912 1,787 15,699 13,389 1,819 15,208 Net operating income $ 10,083 $ 4,124 $ 14,207 $ 10,045 $ 4,578 $ 14,623 Depreciation and amortization 5,252 5,538 Interest 4,350 4,715 Administration of REIT 1,162 1,111 Other (income)/expense (1,784) (531) Net income $ 5,227 $ 3,790 Segment Assets and Accumulated Depreciation As of March 31, 2020 Residential Commercial Total (in thousands) Real estate investments $ 622,753 $ 196,554 $ 819,307 Accumulated depreciation (107,785) (43,037) (150,822) $ 514,968 $ 153,517 668,485 Cash and cash equivalents 4,295 Restricted deposits and funded reserves 11,398 Investment in unconsolidated affiliates 7,848 Other assets 6,218 Note receivable 1,300 Intangible assets, less accumulated amortization 8,395 Total Assets $ 707,939 As of December 31, 2019 Residential Commercial Total (in thousands) Real estate investments $ 605,813 $ 196,215 $ 802,028 Accumulated depreciation (104,170) (42,146) (146,316) $ 501,643 $ 154,069 655,712 Cash and cash equivalents 9,002 Restricted deposits and funded reserves 8,380 Investment in unconsolidated affiliates 7,915 Other assets 8,244 Note receivable 1,300 Intangible assets, less accumulated amortization 9,133 Total Assets $ 699,686 |
LEASE INTANGIBLES
LEASE INTANGIBLES | 3 Months Ended |
Mar. 31, 2020 | |
LEASE INTANGIBLES | |
LEASE INTANGIBLES | NOTE 4 - 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 March 31, 2020 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,018 $ (14,083) $ 6,935 Above-market leases 2,806 (1,346) 1,460 $ 23,824 $ (15,429) $ 8,395 Lease Intangible Liabilities Below-market leases $ (3,067) $ 1,916 $ (1,151) Lease Accumulated Lease As of December 31, 2019 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,480 $ (14,051) $ 7,429 Above-market leases 3,211 (1,507) 1,704 $ 24,691 $ (15,558) $ 9,133 Lease Intangible Liabilities Below-market leases $ (3,088) $ 1,881 $ (1,207) 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) 2020 (April 1, 2020 – December 31, 2020) $ 1,028 $ 156 2021 1,121 184 2022 987 164 2023 849 151 2024 849 151 Thereafter 3,561 345 $ 8,395 $ 1,151 The weighted average amortization period for the intangible assets, in-place leases, above-market leases, and below-market leases acquired as of March 31, 2020 was 6.6 years. |
LINES OF CREDIT
LINES OF CREDIT | 3 Months Ended |
Mar. 31, 2020 | |
LINES OF CREDIT | |
LINES OF CREDIT | NOTE 5 – LINES OF CREDIT We have a $18,300 variable rate (1-month LIBOR plus 2.25%) line of credit agreement with Wells Fargo Bank, 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 June 2022; 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 March 31, 2020, the Bremer line of credit secured two letters of credit totaling $1,216, leaving $31,599 available and unused under the agreements. Certain line of credit agreements include covenants that, in part, impose maintenance of certain debt service coverage and debt to net worth ratios. We are not required to determine compliance with all covenants as of March 31, 2020; however, we have not received any notice of non-compliance with our covenants through the date of this filing. As of December 31, 2019, three residential properties were out of compliance with Bremer’s debt service coverage ratio requirement on an individual property basis. An annual waiver was received from the lender. |
MORTGAGE NOTES PAYABLE
MORTGAGE NOTES PAYABLE | 3 Months Ended |
Mar. 31, 2020 | |
MORTGAGE NOTES PAYABLE | |
MORTGAGE NOTES PAYABLE | NOTE 6 - MORTGAGE NOTES PAYABLE The following table summarizes the Company’s mortgage notes payable. Principal Balance At March 31, December 31, 2020 2019 (in thousands) Fixed rate mortgage notes payable (a) $ 396,922 $ 395,038 Less unamortized debt issuance costs 1,848 1,874 $ 395,074 $ 393,164 (a) Includes $16,079 and $12,960 of variable rate mortgage debt that was swapped to a fixed rate at March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020, we had 121 mortgage loans with effective interest rates ranging from 3.15% to 7.25% per annum and a weighted average effective interest rate of 4.30% per annum. As of December 31, 2019, we had 121 mortgage loans with effective interest rates ranging from 3.15% to 7.25% per annum, and a weighted average effective interest rate of 4.31% 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. We are not required to determine compliance with all covenants as of March 31, 2020; however, we have not received any notice of non-compliance with our covenants through the date of this filing. As of December 31, 2019, ten loans on residential properties were out of compliance due to various unit renovation and parking lot repair and maintenance costs, bad debts and increased vacancies in the North Dakota markets. The loans were secured by properties located in Bismarck, Fargo and Grand Forks, North Dakota with a total outstanding balance of $16,361 at December 31, 2019. Annual waivers have been received from the lenders on $10,435 of the loans out of compliance. Annual waivers were not received from one lender on loans with a balance of $5,926. The Trust elected to pay the loans off in March 2020 with no penalty. 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) 2020 (April 1, 2020 – December 31, 2020) $ 21,654 2021 32,575 2022 26,753 2023 49,526 2024 16,943 Thereafter 249,471 Total payments $ 396,922 |
DERIVATIVES AND HEDGING ACTIVIT
DERIVATIVES AND HEDGING ACTIVITIES | 3 Months Ended |
Mar. 31, 2020 | |
DERIVATIVES AND HEDGING ACTIVITIES | |
DERIVATIVES AND HEDGING ACTIVITIES | NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES As part of our interest rate risk management strategy, we have used derivative instruments to manage our exposure to interest rate movements and add stability to interest expense. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Trust making fixed rate payments over the life of the agreement without exchange of the underlying notional amount. As of March 31, 2020, the Trust used four interest rate swaps to hedge the variable cash flows associated with variable rate debt. Changes in fair value of the derivatives that are designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss and are reclassified into interest expense as interest payments are made on the Trust’s variable rate debt. Over the next nine months, the Trust estimates that an additional $30 will be reclassified as a $30 increase to interest expense. The following table summarizes the Trust’s interest rate swaps as of March 31, 2020, which effectively convert on month floating rate LIBOR to a fixed rate: Fixed Effective Date Notional Interest Rate Maturity Date April 15, 2005 $ 801 7.25% April 15, 2020 November 1, 2019 $ 7,121 3.15% November 1, 2029 November 1, 2019 $ 4,946 3.28% November 1, 2029 January 10, 2020 $ 3,211 3.39% January 10, 2030 The following table summarizes the Trust’s interest rate swaps that were designated as cash flow hedges of interest rate risk: Number of Instruments Notional Interest Rate Derivatives March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 Interest rate swaps 4 3 $ 16,079 $ 12,960 The table below presents the estimated fair value of the Trust’s derivative financial instruments as well as their classification in the accompanying consolidated balance sheets. The valuation techniques are described in Note 8 to the consolidated financial statements. Derivatives Derivatives designated as March 31, 2020 December 31, 2019 cash flow hedges: Balance Sheet Location Fair Value Balance Sheet Location Fair Value Interest rate swaps Other assets, net $ — Other assets, net $ 58 Interest rate swaps Accrued expenses and other liabilities $ 1,449 Accrued expenses and other liabilities $ 21 The carrying amount of the swaps have been adjusted to their 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 swap. 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 comprehensive income. The following table presents the effect of the Company’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive loss (income) for the quarters ended March 31, 2020 and 2019: Location of Gain Amount of (Gain)/Loss Reclassified from Derivatives in Recognized in Other Accumulated other Amount of (Gain)/Loss Cash Flow Hedging Comprehensive Income Comprehensive Income Reclassified from Relationships on Derivatives (AOCI) into Income AOCI into income 2020 2020 Interest rate swaps $ 1,486 Interest expense $ 10 2019 2019 Interest rate swaps $ (4) Interest expense $ 7 Credit-risk-related Contingent Features The Trust has agreements with each of its derivative counterparties that contain a provision whereby if the Trust defaults on the related indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Trust could also be declared in default on its corresponding derivative obligation. The Trust’s agreements with each of its derivative counterparties also contain a provision whereby if the Trust consolidates with, merges with or into, or transfers all or substantially all of its assets to another entity and the creditworthiness of the resulting, surviving or transferee entity, is materially weaker than the Trust’s, the counterparty has the right to terminate the derivative obligations. As of March 31, 2020, the termination value of derivatives in a liability position, which includes accrued interest but excludes any adjustment for non-performance risk, which the Trust has deemed not significant, was $1,449. As of March 31, 2020, the Trust has pledged the properties related to the loans which are hedged as collateral. If the Trust had breached any of these provisions as of March 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $1,449 . |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | 3 Months Ended |
Mar. 31, 2020 | |
FAIR VALUE MEASUREMENT | |
FAIR VALUE MEASUREMENT | NOTE 8 - FAIR VALUE MEASUREMENT The following table presents the carrying value and estimated fair value of the Company’s financial instruments: March 31, 2020 (unaudited) December 31, 2019 (audited) Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial assets: Note receivable $ 1,300 $ 1,320 $ 1,300 $ 1,389 Derivative assets $ — $ — $ 58 $ 58 Financial liabilities: Mortgage notes payable, net $ 395,074 $ 426,891 $ 393,164 $ 415,183 Derivative liabilities $ 1,449 $ 1,449 $ 21 $ 21 The carrying values shown in the table are included in the consolidated balance sheets under the captions indicated in Note 7. 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) March 31, 2020 Derivative liabilities $ — $ 1,449 $ — $ 1,449 December 31, 2019 (audited) Derivative assets $ — $ 58 $ $ 58 Derivative liabilities $ — $ 21 $ — $ 21 Derivatives: 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 Trust 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 Trust 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 March 31, 2020 and December 31, 2019 , 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 described in Note 7. 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) March 31, 2020 Mortgage notes payable, net $ — $ — $ 426,891 $ 426,891 December 31, 2019 (audited) Mortgage notes payable, net $ — $ — $ 415,183 $ 415,183 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 3.25% to 3.35% and from 3.75% to 3.80% at March 31, 2020 and December 31, 2019 , 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 March 31, 2020 and December 31, 2019. The Company’s mortgage notes payable are described in Note 6. |
NONCONTROLLING INTEREST OF UNIT
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | 3 Months Ended |
Mar. 31, 2020 | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | |
NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP | NOTE 9 – NONCONTROLLING INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP As of March 31, 2020 and December 31, 2019, outstanding limited partnership units totaled 18,251,000 and 17,811,000 respectively. Total aggregate distributions per unit were $0.2647 and $0.2613 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and 2019, the operating partnership declared first quarter distributions of $4,831 and $4,661 respectively, to limited partners paid on April 15, 2020 and 2019, respectively. During the three months ended March 31, 2020 and 2019, there were no limited partnership units exchanged for common shares pursuant to redemption requests. At the sole and absolute discretion of the limited partnership, and so long our redemption plans exists and applicable holding periods are met, Limited Partners may request the operating partnership redeem their limited partnership units. The operating partnership may choose to offer the Limited Partner: (i) cash for the redemption or, at the request of the Limited Partner, or (ii) 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 | 3 Months Ended |
Mar. 31, 2020 | |
REDEMPTION PLANS | |
REDEMPTION PLANS | NOTE 10 – 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 $18.25 per share or unit under the plans, which price became effective January 1, 2020. Prior to January 1, 2020 the redemption price was $18.00 per share or unit under the plan. 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 three months ended March 31, 2020 and 2019, the Company redeemed 38,000 and 11,000 common shares valued at $696 and $197, respectively. In addition, during the three months ended March 31, 2020 and 2019, the Company redeemed 30,000 and 35,000 units valued at $541 and $629, respectively. The total amount remaining available under the plan as of March 31, 2020 is $4,625 worth of securities. |
BENEFICIAL INTEREST
BENEFICIAL INTEREST | 3 Months Ended |
Mar. 31, 2020 | |
BENEFICIAL INTEREST | |
BENEFICIAL INTEREST | NOTE 11 – 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 March 31, 2020 and December 31, 2019, there were 9,547,000 and 9,436,000 common shares outstanding, respectively. We had no preferred shares outstanding as of either date. Dividends paid to holders of common shares were $0.2647 per share and $0.2613 per share for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and 2019, the operating partnership declared first quarter distributions of $2,527 and $2,374, respectively, to holders of common shares paid on April 15, 2020 and 2019, respectively. |
DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT PLAN | 3 Months Ended |
Mar. 31, 2020 | |
DIVIDEND REINVESTMENT PLAN | |
DIVIDEND REINVESTMENT PLAN | NOTE 12 – DIVIDEND REINVESTMENT PLAN Our Board of Trustees approved a dividend reinvestment plan to provide existing holders of our common shares with a convenient 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, eligible shareholders may not in any calendar year purchase or receive via transfer more than $40 additional optional cash purchases of Common Shares. The estimated value per common share was $19.25 and $19.00 at March 31, 2020 and December 31, 2019, respectively. See discussion of determination of estimated value in Note 16. Therefore, the purchase price per common share for dividend reinvestments was $18.29 and $18.05 and for additional optional cash purchases was $19.25 and $19.00 at March 31, 2020 and December 31, 2019, 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 three months ended March 31, 2020, 87,000 shares were issued pursuant to dividend reinvestments and 62,000 shares were issued pursuant to additional optional cash purchases under the plan, valued at $1,584 and $1,203 respectively. In the three months ended March 31, 2019, 82,000 shares were issued pursuant to dividend reinvestments and 49,000 shares were issued pursuant to additional optional cash purchases under the plan, valued at $1,479 and $929, respectively. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2020 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 13 – RELATED PARTY TRANSACTIONS Property Management Fee During the three months ended March 31, 2020 and 2019, we paid property management and administrative fees to GOLDMARK Property Management, Inc. GOLDMARK Property Management, Inc. is owned in part by Kenneth Regan, James Wieland and Joel Thomsen. For the three months ended March 31, 2020 and 2019, we paid management fees, on-site staff costs and other miscellaneous fees required to run the property of $3,312 and $3,123, respectively, to GOLDMARK Property Management, Inc. Management fees paid during the three months ended March 31, 2020 and 2019 approximated 5% of net collected rents. In addition, during the three months ended March 31, 2020 and 2019, we paid repair and maintenance related payroll and payroll related expenses to GOLDMARK Property Management, Inc. totaling $1,627 and $1,474, respectively. Board of Trustee Fees We incurred Trustee fees of $20 and $16 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019 we owed our Trustees $49 and $29 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 and was 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 26, 2020, effective until March 31, 2021. 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. During the three months ended March 31, 2020 and 2019, we incurred advisory management fees of $765 and $749 with Sterling Management, LLC, our Advisor. As of March 31, 2020, and December 31, 2019, we owed our Advisor $256 and $503, 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 three months ended March 31, 2020, we reimbursed our Advisor for $5 in operating costs. During the three months ended March 31, 2019, we did not reimburse the Advisor for any operating costs. As of March 31, 2020, we owed our Advisor $5 for unpaid operating costs. As of December 31, 2019, there were no operating costs owed to our Advisor. 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. During the three months ended March 31, 2020, we incurred $302 in acquisition fees with our advisor. During the three months ended March 31, 2019, there were no acquisition fees incurred with our Advisor. There were no acquisition fees owed to our Advisor as of March 31, 2020 or December 31, 2019. 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. During the three months ended March 31, 2020, we incurred disposition fees of $92 with our Advisor. During the three months ended March 31, 2019, there were no disposition fees incurred with our Advisor. See Note 15. There were no disposition fees owed to our Advisor as of March 31, 2020 or December 31, 2019. 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. During the three months ended March 31, 2020, we incurred financing fees of $25 with our Advisor. During the three months ended March 31, 2019, there were no financing fees incurred with our Advisor. There were no financing fees owed to our Advisor as of March 31, 2020 or December 31, 2019. 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 During the three months ended March 31, 2020 and 2019, there were no development fees incurred with our Advisor. During the three months ended March 31, 2020, our Advisor decided to forgo the $104 portion of the held back development fee related to the Stonefield development project which was recognized as a reduction in building and improvements. There were no development fees owed to our Advisor as of March 31, 2020 and December 31, 2019. Project Management Fee: 6% of all completed capital improvement projects on real estate investments owned by the Trust are paid to the Advisor. Our Advisor began completing our capital improvement projects in September 2019. These projects were previously performed by our property managers. During the three months ended March 31, 2020, there were $17 in project management fees incurred with our Advisor for capital improvement projects. There were no project management fees owed to our Advisor as of March 31, 2020. As of December 31, 2019, we owed our Advisor $67 for project management fees. Operating Partnership Units Issued in Connection with Acquisitions During the three months ended March 31, 2020, we issued directly or indirectly, 176,000 operating partnership units to an entity affiliated with Messrs. Regan and Wieland, two of our trustees, in connection with the acquisition of various properties. The aggregate value of these units was $3,373. During the three months ended March 31, 2019, there were no operating partnership units issued directly or indirectly, to affiliated entities. Commissions During the three months ended March 31, 2020, we incurred real estate commissions of $324, to GOLDMARK Commercial Real Estate Services, Inc., which is controlled by Messrs. Regan and Wieland. During the three months ended March 31, 2019, there were no commissions incurred. There were no outstanding commissions owed as of March 31, 2020 or December 31, 2019. Rental Income During the three months ended March 31, 2020 and 2019, we received rental income of $66 and $57, respectively, under an operating lease agreement with GOLDMARK Property Management, Inc.. During the three months ended March 31, 2020 and 2019, we received rental income of $14 and $14, respectively, under an operating lease agreement with GOLDMARK Commercial Real Estate, Inc. During the three months ended March 31, 2020 and 2019, we received rental income of $21 and $13, respectively, under operating lease agreements with our Advisor. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2020 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 14 - 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, tornadoes, 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. Significant Risks and Uncertainties The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact its tenants and business partners. While the Company did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, it is unable to predict the impact that the COVID-19 pandemic will have on its future financial condition, results of operations and cash flows due to numerous uncertainties . In April, the Company received certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19. The Company is evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modification agreements, nor is the Company forgoing its contractual rights under its lease agreements. |
DISPOSITIONS
DISPOSITIONS | 3 Months Ended |
Mar. 31, 2020 | |
DISPOSITIONS | |
DISPOSITIONS | NOTE 15 – DISPOSITIONS During the three months ended March 31, 2020, the operating partnership sold one property. We sold a retail property located in Apple Valley, Minnesota, for $3,670 and recognized a gain of $1,455 in March 2020. During the three months ended March 31, 2019, the operating partnership did not dispose of any properties. |
ACQUISITIONS
ACQUISITIONS | 3 Months Ended |
Mar. 31, 2020 | |
ACQUISITIONS | |
ACQUISITIONS | NOTE 16 – ACQUISITIONS The Company closed on the following acquisitions during the three months ended March 31, 2020. Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price 1/12/20 Wolf Creek Fargo, ND Apartment complex 54 units $ 4,968 1/31/20 Columbia Park Village Grand Forks, ND Apartment complex 12 units 612 3/1/20 Belmont East & West Bismarck, ND Apartment complex 26 units 1,494 3/1/20 Eastbrook Bismarck, ND Apartment complex 24 units 1,296 3/1/20 Hawn Fargo, ND Apartment complex 48 units 2,400 3/1/20 Rosser Bismarck, ND Apartment complex 24 units 1,296 $ 12,066 (a) (a) Acquisition price does not include capitalized closing costs and adjustments totaling $636, special assessments assumed and capitalized of $168 or additional costs incurred due to difference in unit price of $26. Total consideration given for acquisitions through March 31, 2020 was completed through issuing approximately 469,000 limited partnership units of the operating partnership valued at $19.25 per unit for an aggregate consideration of approximately $9,031, assumed liabilities of $265, a mortgage $3,225 and cash of $375. 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 had no acquisitions during the three months ended March 31, 2019. The following table summarizes the acquisition date fair values, before pro-rations, the Company recorded in conjunction with the acquisitions discussed above: Three Months Ended March 31, 2020 2019 Land, building, tenant improvements and FF&E $ 12,896 $ - Other liabilities (265) - Net assets acquired 12,631 - Equity/limited partnership unit consideration (9,031) - New loans (3,225) - Net cash consideration $ 375 $ - Estimated Value of Units/Shares The Board of Trustees determined an estimate of fair value for the trust shares in the first three months of 2020 and 2019. 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 three months of 2020 and 2019. 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 fair value was not determined based on, nor intended to comply with, fair value standards under US GAAP and the value may not be indicative of the price we would get for selling our assets in their current condition. The Board determined the fair value of the shares and limited partnership units to be $19.25 per share/unit effective January 1, 2020. The Board determined the fair value of the shares and limited partnership units to be $19.00 per share/unit effective January 1, 2019. 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 2231 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 | 3 Months Ended |
Mar. 31, 2020 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 17 - SUBSEQUENT EVENTS On April 15, 2020, we paid a dividend or distribution of $0.2647 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 March 31, 2020. On April 15, 2020, we refinanced a mortgage totaling approximately $1,180. 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 SIGNIF_2
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
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, 2019, 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 sheets as of March 31, 2020 and consolidated statements of operations and other comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows for the three months ended March 31, 2020 and 2019, 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 months ended March 31, 2020 and 2019. 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 178 properties. The Trust’s 131 residential properties are located in North Dakota, Minnesota, Missouri and Nebraska and are principally multifamily apartment buildings. The Trust owns 47 commercial properties primarily located in North Dakota with others located in Arkansas, Colorado, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, and Wisconsin. The commercial properties include retail, office, industrial, restaurant and medical properties. Presently, the Trust’s mix of properties is 74.0% residential and 26.0% commercial (based on cost) and total $668,485 in real estate investments at March 31, 2020. Currently Sterling’s acquisition strategy and focus is on multifamily apartment properties. We currently have no plans to dispose of our non-multifamily apartment properties. 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 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 Trust allocates the purchase price of each acquired investment property accounted for as an asset acquisition based upon the estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, and (v) any assumed financing that is determined to be above or below market, if any. Transaction costs related to acquisitions accounted for as an asset acquisition are capitalized as incurred and included as a cost of the Building in the accompanying consolidated balance sheet. For tangible assets acquired, including land, building and other improvements, the Trust 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 Trust 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 Trust also evaluates each acquired lease as compared to current market rates. If an acquired lease is determined to be above or below market, the Trust 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 Trust 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 Trust incurred amortization expense pertaining to acquired in-place lease value intangibles of $341 and $429 for the three months ended March 31, 2020 and 2019, 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 $52 and $54 for the three months ended March 31, 2020 and 2019, respectively, was recorded as a reduction to real estate rental income. Amortization pertaining to below market lease intangibles of $56 and $67 for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 and 2019 totaled $4,868 and $5,012, respectively. The Trust’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 Trust’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 three months ended March 31, 2020 and 2019. |
Properties Held for Sale | Properties Held for Sale We account for our properties held for sale in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), which addresses financial accounting and reporting in a period in which a component or group of components of an entity either has been disposed of or is classified as held for sale. In accordance with ASC 360, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amount, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as properties held for sale in the period in which all of the following criteria are met: · management, having the authority to approve the action, commits to a plan to sell the asset; · the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; · an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated; · the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; · the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and · given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. The results of operations of a component of an entity that either has been disposed of or is classified as held-for-sale under the requirements of ASC 360 shall be reported in discontinued operations in accordance with ASC 205, Presentation of Financial Statements (“ASC 205”) if such disposal or classification represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There were no properties classified as held for sale at March 31, 2020 or December 31, 2019. See Note 15. |
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. Construction in progress as of March 31, 2020 consists primarily of development and planning costs associated with the Glen Pond development in Eagan, Minnesota and Goldmark Office Park 1715 and 1711 buildings located in Fargo, North Dakota. The Glen Pond development consists of an addition of 114 units to the current multifamily property. Current expectations are that the project will be completed in the second or third quarter of calendar year 2020 and the current project budget approximates $15,598. The Goldmark Office Park consists of three commercial office buildings. Current expectations are that the project which includes building renovations, reconstruction of portions of the Office Park and additional amenities will be completed in phases with the primary phase completed in the second quarter of calendar year 2020. The current project budget is approximately $3,833. |
Cash and Cash Equivalents and Restricted Deposits | Cash and Cash Equivalents and Restricted Deposits We classify highly liquid investments with a maturity of three months or less when purchased as cash equivalents. Restricted deposits include funds escrowed for tenant for tenant security deposits, real estate taxes, insurance and mortgage escrow deposits required by lenders on certain properties to be used for future building renovations or tenant improvements and potential Internal Revenue Code section 1031 tax deferred exchanges (1031 Exchanges). |
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 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 to unconsolidated affiliates for the three months ended March 31, 2020 and 2019. 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 March 31, 2020, 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 March 31, 2020 and December 31, 2019, the unconsolidated affiliates held total assets of $33,451 and $31,261 and mortgage notes payable of $18,169 and $16,690, 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 March 31, 2020 and December 31, 2019 of $10,208 and $10,264, 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 March 31, 2020 and December 31, 2019 of $6,379 and $6,426, respectively. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 60% interest in a joint venture (“SE Savage”) that is developing a 190 unit multifamily property. The property is encumbered by a first construction mortgage with a balance at March 31, 2020 of $1,583 and no mortgage balance at December 31, 2019. The operating partnership has contributed $3,305 in cash to SE Savage as of March 31, 2020. The partnership holds total assets of $8,107. The Company is jointly and severally liable for the full mortgage balance. The operating partnership owns a 60% interest in a joint venture (“SE Maple Grove”) that intends to develop a 160 unit multifamily property. The operating partnership has contributed $2,073 in cash to SE Maple Grove as of March 31, 2020. SE Maple Grove holds land located in Maple Grove, Minnesota, total assets of $3,455, and no mortgage payable. |
Receivables | Receivables Receivables consist primarily of amounts due for rent and tenant charges. Accounts receivable are carried at original amounts billed. The operating partnership reviews collectability of charges under its tenant operating leases on a quarterly basis. In the event that collection is deemed not probable for any tenant charges, beginning with the adoption of ASC 842 as of January 1, 2019, the operating partnership recognizes an adjustment to real estate rental income. Prior to the adoption of ASC 842, the Company recognized a provision for uncollectible amounts or a direct write-off of the specific rent receivable. Receivables are included in other assets in the accompanying consolidated balance sheets. Note receivables are issued periodically and are secured and interest bearing. |
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 | 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 March 31, 2020 and December 31, 2019. |
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 Trust 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 generally 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 March 31, 2020 and December 31, 2019, 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 2016. 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 The Trust is the lessor for its residential and commercial leases. Leases are analyzed on an individual basis to determine lease classification. The Trust has determined any lease less than twelve months in length will not be looked at in the classification process and will be presumed an operating lease. As of March 31, 2020, all leases analyzed under the Trust’s lease classification process were determined to be operating leases. As of March 31, 2019, all leases continued to be accounted for as operating leases under the new standard as described under Recent Accounting Pronouncements. As of March 31, 2020, we derived 79% of our revenues from residential leases that are generally for terms of one year or less. The residential leases may include lease income related items such as parking, storage and non-refundable deposits that we treat as a single lease component because the amenities cannot be leased on their own and the timing and pattern of revenue recognition are the same. The collection of lease payments at lease commencement is probable and therefore we subsequently recognize lease income over the lease term on a straight-line basis. Residential leases are renewable upon consent of both parties on an annual or monthly basis. As of March 31, 2020, we derived 21% of our revenues from commercial leases primarily under long-term lease agreements. Substantially all commercial leases contain fixed escalations or, in some instances, changes based on the Consumer Price Index, which occur at specified times during the term of the lease. In certain commercial leases, variable lease income, such as percentage rent, is recognized when rents are earned. We recognize rental income and rental abatements from our commercial leases when earned on a straight-line basis over the lease term. Recognition of rental income commences when control of the leased space has been transferred to the tenant. We recognize variable income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements. When we pay pass-through expenses, subject to reimbursement by the tenant, they are included within Operating expenses, excluding real estate taxes, and reimbursements are included within Real estate rental income along with the associated base rent in the accompanying consolidated financial statements. 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 decreased revenue by $65 and increased revenue by $103 the three months ended March 31, 2020 and 2019, respectively. The straight-line receivable balance included in other assets on the consolidated balance sheets as of March 31, 2020 and December 31, 2019 was $3,093 and $3,331, 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 are immaterial, are recognized in the subsequent year. Upon adoption of ASU 2016-02 on January 1, 2019, we elected not to bifurcate lease contracts into lease and non-lease components, since the timing and pattern of revenue is not materially different and the non-lease components is not the primary component of the lease. Accordingly, both lease and non-lease components are presented in “Real estate rental income” in our consolidated financial statements. The adoption of ASU 2016-02 did not result in a material change to our recognition of real estate rental income. Lease income related to the Company’s operating leases is comprised of the following: Three months ended March 31, 2020 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 23,203 $ 4,714 $ 27,917 Lease income related to variable lease payments — 1,261 1,261 Other (a) (257) (90) (347) Lease Income (b) $ 22,946 $ 5,885 $ 28,831 Three months ended March 31, 2019 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 22,797 $ 4,777 $ 27,574 Lease income related to variable lease payments — 1,487 1,487 Other (a) (217) 117 (100) Lease Income (b) $ 22,580 $ 6,381 $ 28,961 (a) For the three months ended March 31, 2020 and 2019, “Other” is comprised of revenue adjustments related to changes in collectibility and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the three months ended March 31, 2020 and 2019 of $1,075 and $870, respectively, which is accounted for under the revenue recognition standard. As of March 31, 2020, non-cancelable commercial operating leases provide for future minimum rental income as follows. Apartment leases are not included as the terms are generally for one year or less. Years ending December 31, Amount (in thousands) 2020 (April 1, 2020 – December 31, 2020) $ 13,288 2021 14,836 2022 11,453 2023 9,479 2024 9,017 Thereafter 42,479 $ 100,552 |
Business Interruption Proceeds | Business Interruption Proceeds In the Trust’s normal course of business we periodically receive insurance recoveries for business interruption. The Trust received no insurance recoveries for business interruption during the three months ended March 31, 2020 and 2019. When insurance proceeds are received they are reflected in the statement of operations as real estate rental income. |
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 March 31, 2020 and 2019, and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the three months ended March 31, 2020 and 2019, Sterling’s denominators for the basic and diluted earnings per common share were approximately 9,562,000 and 9,091,000, respectively. |
Incurred but Not Reported Insurance Liability | Incurred but Not Reported Insurance Liability The Company maintains a business insurance program with deductible limits, which cover property, business automobile and general liability claims. The Company accrues estimated losses using a reserve for known claims and estimates based on historical loss experience. The calculations used to estimate property claim reserves are based on numerous assumptions, some of which are subjective. The Company will adjust the property claim reserves, if necessary, in the event future loss experience differs from historical loss patterns. As of March 31, 2020 and December 31, 2019, property claim reserves were $510 and $204, respectively, and are included in other liabilities on the consolidated balance sheet. |
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 March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The standard provides for optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. On July 27, 2017, the Financial Conduct Authority (FCA), tasked with overseeing the London Interbank Offered Rate (LIBOR) announced the benchmark interest rate will be phased out by the end of 2021. As a result, existing and future contracts indexed to LIBOR will need to be renegotiated to reference another rate. We adopted the standard effective as of January 1, 2020, using the optional transition method to apply the standard as of the effective date. The Trust elected to apply the optional expedients for all of the Trust’s hedging relationships. The Trust will disregard the potential change in the designated hedged risk that may occur due to reference rate reform when the Trust assesses whether the hedged forecasted transaction is probable in accordance with the requirements of Topic 815. The Trust will continue current hedge accounting for our existing cash flow hedges when the hedged risk changes by assuming the reference rate will not be replaced for the remainder of the hedging relationships for our assessment of hedge effectiveness and all subsequent hedge effectiveness assessments. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which superseded FASB ASC Topic 840. The standard for operating leases as lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating and finance leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. We adopted this standard effective as of January 1, 2019, using the optional transition method to apply the standard as of the effective date. The Company elected to apply the package of practical expedients for the leases as lessor for its residential and commercial leases and these leases will continue to be accounted for as operating leases as of the effective date. Further, the Company elected the practical expedient to combine lease and nonlease components for leases as lessor. Finally, the Company evaluated taxes collected from lessees, lessor costs paid directly by lessees, and initial direct costs and determined that the guidance was consistent with existing practice. Based on these evaluations, the Company determined that for leases as lessor, as of January 1, 2019, there was no impact on lease revenue or related expenses. 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 SIGNIF_3
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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 Wisconsin |
Summary of Estimated Useful Life | Buildings and improvements 40 years Furniture, fixtures and equipment 5-9 years |
Schedule of Lease Income related to the Company's Operating Leases | Three months ended March 31, 2020 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 23,203 $ 4,714 $ 27,917 Lease income related to variable lease payments — 1,261 1,261 Other (a) (257) (90) (347) Lease Income (b) $ 22,946 $ 5,885 $ 28,831 Three months ended March 31, 2019 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 22,797 $ 4,777 $ 27,574 Lease income related to variable lease payments — 1,487 1,487 Other (a) (217) 117 (100) Lease Income (b) $ 22,580 $ 6,381 $ 28,961 (a) For the three months ended March 31, 2020 and 2019, “Other” is comprised of revenue adjustments related to changes in collectibility and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the three months ended March 31, 2020 and 2019 of $1,075 and $870, respectively, which is accounted for under the revenue recognition standard. |
Schedule of Future Minimum Rental Income | Years ending December 31, Amount (in thousands) 2020 (April 1, 2020 – December 31, 2020) $ 13,288 2021 14,836 2022 11,453 2023 9,479 2024 9,017 Thereafter 42,479 $ 100,552 |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
SEGMENT REPORTING | |
Summary of Segment Revenues and Net Operating Income | Three months ended March 31, 2020 Three months ended March 31, 2019 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 23,995 $ 5,911 $ 29,906 $ 23,434 $ 6,397 $ 29,831 Expenses from rental operations 13,912 1,787 15,699 13,389 1,819 15,208 Net operating income $ 10,083 $ 4,124 $ 14,207 $ 10,045 $ 4,578 $ 14,623 Depreciation and amortization 5,252 5,538 Interest 4,350 4,715 Administration of REIT 1,162 1,111 Other (income)/expense (1,784) (531) Net income $ 5,227 $ 3,790 |
Summary of Segment Assets and Accumulated Depreciation | As of March 31, 2020 Residential Commercial Total (in thousands) Real estate investments $ 622,753 $ 196,554 $ 819,307 Accumulated depreciation (107,785) (43,037) (150,822) $ 514,968 $ 153,517 668,485 Cash and cash equivalents 4,295 Restricted deposits and funded reserves 11,398 Investment in unconsolidated affiliates 7,848 Other assets 6,218 Note receivable 1,300 Intangible assets, less accumulated amortization 8,395 Total Assets $ 707,939 As of December 31, 2019 Residential Commercial Total (in thousands) Real estate investments $ 605,813 $ 196,215 $ 802,028 Accumulated depreciation (104,170) (42,146) (146,316) $ 501,643 $ 154,069 655,712 Cash and cash equivalents 9,002 Restricted deposits and funded reserves 8,380 Investment in unconsolidated affiliates 7,915 Other assets 8,244 Note receivable 1,300 Intangible assets, less accumulated amortization 9,133 Total Assets $ 699,686 |
LEASE INTANGIBLES (Tables)
LEASE INTANGIBLES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
LEASE INTANGIBLES | |
Schedule of Intangible Assets, Liabilities and Accumulated Amortization | Lease Accumulated Lease As of March 31, 2020 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,018 $ (14,083) $ 6,935 Above-market leases 2,806 (1,346) 1,460 $ 23,824 $ (15,429) $ 8,395 Lease Intangible Liabilities Below-market leases $ (3,067) $ 1,916 $ (1,151) Lease Accumulated Lease As of December 31, 2019 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 21,480 $ (14,051) $ 7,429 Above-market leases 3,211 (1,507) 1,704 $ 24,691 $ (15,558) $ 9,133 Lease Intangible Liabilities Below-market leases $ (3,088) $ 1,881 $ (1,207) |
Schedule of Estimated Aggregate Amortization Expense | Intangible Intangible Years ending December 31, Assets Liabilities (in thousands) 2020 (April 1, 2020 – December 31, 2020) $ 1,028 $ 156 2021 1,121 184 2022 987 164 2023 849 151 2024 849 151 Thereafter 3,561 345 $ 8,395 $ 1,151 |
MORTGAGE NOTES PAYABLE (Tables)
MORTGAGE NOTES PAYABLE (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
MORTGAGE NOTES PAYABLE | |
Schedule of Mortgage Notes Payable | Principal Balance At March 31, December 31, 2020 2019 (in thousands) Fixed rate mortgage notes payable (a) $ 396,922 $ 395,038 Less unamortized debt issuance costs 1,848 1,874 $ 395,074 $ 393,164 (a) Includes $16,079 and $12,960 of variable rate mortgage debt that was swapped to a fixed rate at March 31, 2020 and December 31, 2019, respectively. |
Scheduled Maturities of Mortgage Notes Payable | Years ending December 31, Amount (in thousands) 2020 (April 1, 2020 – December 31, 2020) $ 21,654 2021 32,575 2022 26,753 2023 49,526 2024 16,943 Thereafter 249,471 Total payments $ 396,922 |
DERIVATIVES AND HEDGING ACTIV_2
DERIVATIVES AND HEDGING ACTIVITIES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
DERIVATIVES AND HEDGING ACTIVITIES | |
Schedule of interest rate swaps | The following table summarizes the Trust’s interest rate swaps as of March 31, 2020, which effectively convert on month floating rate LIBOR to a fixed rate: Fixed Effective Date Notional Interest Rate Maturity Date April 15, 2005 $ 801 7.25% April 15, 2020 November 1, 2019 $ 7,121 3.15% November 1, 2029 November 1, 2019 $ 4,946 3.28% November 1, 2029 January 10, 2020 $ 3,211 3.39% January 10, 2030 The following table summarizes the Trust’s interest rate swaps that were designated as cash flow hedges of interest rate risk: Number of Instruments Notional Interest Rate Derivatives March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 Interest rate swaps 4 3 $ 16,079 $ 12,960 |
Schedule of the estimated fair value of derivatives | Derivatives Derivatives designated as March 31, 2020 December 31, 2019 cash flow hedges: Balance Sheet Location Fair Value Balance Sheet Location Fair Value Interest rate swaps Other assets, net $ — Other assets, net $ 58 Interest rate swaps Accrued expenses and other liabilities $ 1,449 Accrued expenses and other liabilities $ 21 |
Schedule of the effect of the derivatives | Location of Gain Amount of (Gain)/Loss Reclassified from Derivatives in Recognized in Other Accumulated other Amount of (Gain)/Loss Cash Flow Hedging Comprehensive Income Comprehensive Income Reclassified from Relationships on Derivatives (AOCI) into Income AOCI into income 2020 2020 Interest rate swaps $ 1,486 Interest expense $ 10 2019 2019 Interest rate swaps $ (4) Interest expense $ 7 |
FAIR VALUE MEASUREMENT (Tables)
FAIR VALUE MEASUREMENT (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
FAIR VALUE MEASUREMENT | |
Carrying Value and Estimated Fair Value of Company's Financial Instruments | March 31, 2020 (unaudited) December 31, 2019 (audited) Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial assets: Note receivable $ 1,300 $ 1,320 $ 1,300 $ 1,389 Derivative assets $ — $ — $ 58 $ 58 Financial liabilities: Mortgage notes payable, net $ 395,074 $ 426,891 $ 393,164 $ 415,183 Derivative liabilities $ 1,449 $ 1,449 $ 21 $ 21 |
Schedule of Fair Value of Liabilities on Recurring Basis | Level 1 Level 2 Level 3 Total (in thousands) March 31, 2020 Derivative liabilities $ — $ 1,449 $ — $ 1,449 December 31, 2019 (audited) Derivative assets $ — $ 58 $ $ 58 Derivative liabilities $ — $ 21 $ — $ 21 |
Fair Value of Company's Financial Assets and Liabilities | Level 1 Level 2 Level 3 Total (in thousands) March 31, 2020 Mortgage notes payable, net $ — $ — $ 426,891 $ 426,891 December 31, 2019 (audited) Mortgage notes payable, net $ — $ — $ 415,183 $ 415,183 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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) |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
ACQUISITIONS | |
Schedule of acquisitions | Date Property Name Location Property Type Units/ Square Footage/ Acres Acquisition Price 1/12/20 Wolf Creek Fargo, ND Apartment complex 54 units $ 4,968 1/31/20 Columbia Park Village Grand Forks, ND Apartment complex 12 units 612 3/1/20 Belmont East & West Bismarck, ND Apartment complex 26 units 1,494 3/1/20 Eastbrook Bismarck, ND Apartment complex 24 units 1,296 3/1/20 Hawn Fargo, ND Apartment complex 48 units 2,400 3/1/20 Rosser Bismarck, ND Apartment complex 24 units 1,296 $ 12,066 (a) (a) Acquisition price does not include capitalized closing costs and adjustments totaling $636, special assessments assumed and capitalized of $168 or additional costs incurred due to difference in unit price of $26. |
Schedule of acquisition date fair values, before prorations recorded in conjunction with acquisitions | Three Months Ended March 31, 2020 2019 Land, building, tenant improvements and FF&E $ 12,896 $ - Other liabilities (265) - Net assets acquired 12,631 - Equity/limited partnership unit consideration (9,031) - New loans (3,225) - Net cash consideration $ 375 $ - |
Organization - Additional Infor
Organization - Additional Information (Details) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Properties | ||
Ownership in operating partnership | 34.34% | 34.63% |
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 Signif_4
Principal Activity and Significant Accounting Policies - Principal Business Activity (Details) $ in Thousands | Mar. 31, 2020USD ($)ft²propertyitem | Dec. 31, 2019USD ($) |
Properties | ||
Real estate investments | $ | $ 668,485 | $ 655,712 |
No. of properties | 178 | |
Residential Property | ||
Properties | ||
Percentage of residential property out of the trust properties | 74.00% | |
No. of properties | 131 | |
Units | item | 10,040 | |
Residential Property | North Dakota | ||
Properties | ||
No. of properties | 111 | |
Units | item | 6,348 | |
Residential Property | Minnesota | ||
Properties | ||
No. of properties | 16 | |
Units | item | 3,033 | |
Residential Property | Missouri | ||
Properties | ||
No. of properties | 1 | |
Units | item | 164 | |
Residential Property | Nebraska | ||
Properties | ||
No. of properties | 3 | |
Units | item | 495 | |
Commercial Property | ||
Properties | ||
Percentage of commercial property out of the trust properties | 26.00% | |
No. of properties | 47 | |
Area of commercial property | ft² | 1,657,000 | |
Commercial Property | North Dakota | ||
Properties | ||
No. of properties | 20 | |
Area of commercial property | ft² | 780,000 | |
Commercial Property | Minnesota | ||
Properties | ||
No. of properties | 14 | |
Area of commercial property | ft² | 675,000 | |
Commercial Property | Nebraska | ||
Properties | ||
No. of properties | 1 | |
Area of commercial property | ft² | 19,000 | |
Commercial Property | Arkansas | ||
Properties | ||
No. of properties | 2 | |
Area of commercial property | ft² | 28,000 | |
Commercial Property | Colorado | ||
Properties | ||
No. of properties | 1 | |
Area of commercial property | ft² | 17,000 | |
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 | Mississippi | ||
Properties | ||
No. of properties | 1 | |
Area of commercial property | ft² | 15,000 | |
Commercial Property | Wisconsin | ||
Properties | ||
No. of properties | 5 | |
Area of commercial property | ft² | 63,000 |
Principal Activity and Signif_5
Principal Activity and Significant Accounting Policies - Real Estate Investments (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Real Estate Investments | |||
Amortization expense | $ 380 | $ 512 | |
Amortization expense of below market lease | 56 | 67 | |
Depreciation expense | 4,868 | 5,012 | $ 5,012 |
Loss on impairment of property | $ 0 | 0 | |
Building and improvements | |||
Real Estate Investments | |||
Estimated useful life | 40 years | ||
Furniture and fixtures | Minimum | |||
Real Estate Investments | |||
Estimated useful life | 5 years | ||
Furniture and fixtures | Maximum | |||
Real Estate Investments | |||
Estimated useful life | 9 years | ||
In-place leases | |||
Real Estate Investments | |||
Amortization expense | $ 341 | 429 | |
Above-market leases | |||
Real Estate Investments | |||
Amortization expense | $ 52 | $ 54 |
Principal Activity and Signif_6
Principal Activity and Significant Accounting Policies - Held for Sale and Unconsolidated Affiliates (Details) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020USD ($)ft²propertyitem | Mar. 31, 2019USD ($) | Dec. 31, 2019USD ($)property | |
Significant Accounting Policies | |||
Number of real estate properties classified as held for sale | property | 0 | 0 | |
Impairment losses related to the unconsolidated affiliates | $ 0 | $ 0 | |
Total assets held by unconsolidated affiliates | 33,451 | $ 31,261 | |
Mortgage notes held by unconsolidated affiliates | 18,169 | 16,690 | |
Assets | $ 707,939 | 699,686 | |
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 | ||
Operating Partnership | SE Savage | |||
Significant Accounting Policies | |||
Number of units | property | 190 | ||
Investment in unconsolidated affiliates | 60.00% | ||
Assets | $ 8,107 | ||
Cash contribution | $ 3,305 | ||
Operating Partnership | SE Maple Grove | |||
Significant Accounting Policies | |||
Number of units | property | 160 | ||
Investment in unconsolidated affiliates | 60.00% | ||
Assets | $ 3,455 | ||
Cash contribution | 2,073 | ||
Mortgages | SE Savage | |||
Significant Accounting Policies | |||
Mortgage carrying amount | 1,583 | 0 | |
Mortgages | SE Maple Grove | |||
Significant Accounting Policies | |||
Mortgage carrying amount | 0 | ||
Mortgages | Grand Forks Marketplace Retail Center | |||
Significant Accounting Policies | |||
Mortgage carrying amount | 10,208 | 10,264 | |
Mortgages | Tenant in common - Office building, Fargo, North Dakota | |||
Significant Accounting Policies | |||
Mortgage carrying amount | $ 6,379 | $ 6,426 | |
Glen Pond Development | |||
Significant Accounting Policies | |||
Number of units | item | 114 | ||
Development project budget | $ 15,598 | ||
Goldmark Office Park | |||
Significant Accounting Policies | |||
Development project budget | $ 3,833 |
Principal Activity and Signif_7
Principal Activity and Significant Accounting Policies - Other (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | ||
Impairment of lease intangible assets | $ 0 | $ 0 |
Taxable income to be distributed | 90.00% | |
Retainable taxable income | 10.00% | |
Provisions or liabilities for income taxes | $ 0 |
Principal Activity and Signif_8
Principal Activity and Significant Accounting Policies - Revenue recognition (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Revenue Recognition | |||
Decrease/Increase in revenue due to straight - line adjustment | $ 65 | $ 103 | |
Straight - line receivable | $ 3,093 | $ 3,331 | |
Term of lease | 1 year | ||
Lease income: | |||
Lease income related to fixed lease payments | $ 27,917 | 27,574 | |
Lease income related to variable lease payments | 1,261 | 1,487 | |
Other | (347) | (100) | |
Lease income | 28,831 | 28,961 | |
Rental income accounted for under revenue recognition standard: | |||
Other rental income | 1,075 | 870 | |
Future minimum rental income: | |||
2020 (April 1, 2020 – December 31, 2020) | 13,288 | ||
2021 | 14,836 | ||
2022 | 11,453 | ||
2023 | 9,479 | ||
2024 | 9,017 | ||
Thereafter | 42,479 | ||
Total | $ 100,552 | ||
Residential | |||
Revenue Recognition | |||
Revenue From Tenant Rents And Related Activities | 79.00% | ||
Lease income: | |||
Lease income related to fixed lease payments | $ 23,203 | 22,797 | |
Other | (257) | (217) | |
Lease income | $ 22,946 | 22,580 | |
Commercial | |||
Revenue Recognition | |||
Percentage of revenue from leases primarily under long-term lease agreements | 21.00% | ||
Lease income: | |||
Lease income related to fixed lease payments | $ 4,714 | 4,777 | |
Lease income related to variable lease payments | 1,261 | 1,487 | |
Other | (90) | 117 | |
Lease income | $ 5,885 | $ 6,381 |
Principal Activity and Signif_9
Principal Activity and Significant Accounting Policies - Business Interruption Proceeds (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | ||
Insurance recoveries | $ 0 | $ 0 |
Principal Activity and Signi_10
Principal Activity and Significant Accounting Policies - Earnings Per Common Share And Incurred But Not Reported Insurance Liability (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Earnings per Common Share | |||
Dilutive potential common shares | 0 | 0 | |
Denominators for the basic and diluted earnings per common share | 9,562,000 | 9,091,000 | |
Accrued expenses and other liabilities | |||
Incurred but Not Reported Insurance Liability | |||
Property claim reserves | $ 510 | $ 204 |
Segment Reporting - Additional
Segment Reporting - Additional Information (Details) | 3 Months Ended |
Mar. 31, 2020segment | |
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 | |
Mar. 31, 2020 | Mar. 31, 2019 | |
SEGMENT REPORTING | ||
Real estate rental income | $ 29,906 | $ 29,831 |
Expenses from rental operations | 15,699 | 15,208 |
Net operating income | 14,207 | 14,623 |
Depreciation and amortization | 5,252 | 5,538 |
Interest | 4,350 | 4,715 |
Administration of REIT | 1,162 | 1,111 |
Other (income)/expense | (1,784) | (531) |
Net income | 5,227 | 3,790 |
Residential | ||
SEGMENT REPORTING | ||
Real estate rental income | 23,995 | 23,434 |
Expenses from rental operations | 13,912 | 13,389 |
Net operating income | 10,083 | 10,045 |
Commercial | ||
SEGMENT REPORTING | ||
Real estate rental income | 5,911 | 6,397 |
Expenses from rental operations | 1,787 | 1,819 |
Net operating income | $ 4,124 | $ 4,578 |
Segment Reporting - Summary o_2
Segment Reporting - Summary of Segment Assets and Accumulated Depreciation (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2019 |
SEGMENT REPORTING | |||
Real estate investments | $ 819,307 | $ 802,028 | |
Accumulated depreciation | (150,822) | (146,316) | |
Real estate investments, net | 668,485 | 655,712 | |
Cash and cash equivalents | 4,295 | 9,002 | $ 21,345 |
Restricted deposits and funded reserves | 11,398 | 8,380 | $ 7,724 |
Investment in unconsolidated affiliates | 7,848 | 7,915 | |
Other assets | 6,218 | 8,244 | |
Note receivable | 1,300 | 1,300 | |
Intangible assets, less accumulated amortization | 8,395 | 9,133 | |
Total Assets | 707,939 | 699,686 | |
Residential | |||
SEGMENT REPORTING | |||
Real estate investments | 622,753 | 605,813 | |
Accumulated depreciation | (107,785) | (104,170) | |
Real estate investments, net | 514,968 | 501,643 | |
Commercial | |||
SEGMENT REPORTING | |||
Real estate investments | 196,554 | 196,215 | |
Accumulated depreciation | (43,037) | (42,146) | |
Real estate investments, net | $ 153,517 | $ 154,069 |
Lease Intangibles - Schedule of
Lease Intangibles - Schedule of Intangible Assets and Liabilities and Accumulated Amortization (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Intangible Assets | ||
Lease Intangibles | $ 23,824 | $ 24,691 |
Accumulated Amortization | (15,429) | (15,558) |
Total | 8,395 | 9,133 |
Intangible Liabilities | ||
Below-market lease | (3,067) | (3,088) |
Below-market lease, accumulated amortization | 1,916 | 1,881 |
Below-market lease, net | (1,151) | (1,207) |
In-place leases | ||
Intangible Assets | ||
Lease Intangibles | 21,018 | 21,480 |
Accumulated Amortization | (14,083) | (14,051) |
Total | 6,935 | 7,429 |
Above-market leases | ||
Intangible Assets | ||
Lease Intangibles | 2,806 | 3,211 |
Accumulated Amortization | (1,346) | (1,507) |
Total | $ 1,460 | $ 1,704 |
Lease Intangibles - Schedule _2
Lease Intangibles - Schedule of Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Intangible Assets | ||
2020 (April 1, 2020 – December 31, 2020) | $ 1,028 | |
2021 | 1,121 | |
2022 | 987 | |
2023 | 849 | |
2024 | 849 | |
Thereafter | 3,561 | |
Total | 8,395 | $ 9,133 |
Intangible Liabilities | ||
2020 (April 1, 2020 – December 31, 2020) | 156 | |
2021 | 184 | |
2022 | 164 | |
2023 | 151 | |
2024 | 151 | |
Thereafter | 345 | |
Total | $ 1,151 | $ 1,207 |
Amortization period | 6 years 7 months 6 days |
Lines of Credit - Additional In
Lines of Credit - Additional Information (Details) $ in Thousands | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020USD ($)item | Dec. 31, 2019property | |
Lines of Credit | ||
Number of letters of credit secured | item | 2 | |
Letters of credit total | $ 1,216 | |
Unused line of credit | 31,599 | |
Wells Fargo Bank | ||
Lines of Credit | ||
Agreed line of credit | $ 18,300 | |
Expiration date | Jun. 1, 2021 | |
Wells Fargo Bank | 1-Month LIBOR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2.25% | |
Bremer Bank | ||
Lines of Credit | ||
Number of properties out of compliance with debt covenant | property | 3 | |
Bremer Bank Agreement One | ||
Lines of Credit | ||
Agreed line of credit | $ 6,315 | |
Expiration date | Jun. 1, 2022 | |
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 | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020USD ($)item | Dec. 31, 2019USD ($)itemLender | |
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | $ 396,922 | |
Residential Property | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Number of mortgage loans out of compliance | item | 10 | |
Outstanding balance of loans out of compliance, in aggregate | $ 16,361 | |
Outstanding balance of mortgage loans out of compliance in which annual waivers were received from the lenders | $ 10,435 | |
Number of lenders in which annual waivers were not received for loans out of compliance | Lender | 1 | |
Outstanding balance of mortgage loans out of compliance in which annual waivers were not received from the lender | $ 5,926 | |
Fixed rate mortgage notes payable | Mortgage Notes Payable | ||
MORTGAGE NOTES PAYABLE | ||
Long-term debt, gross | 396,922 | 395,038 |
Less unamortized debt issuance costs | 1,848 | 1,874 |
Long-term debt, net | 395,074 | 393,164 |
Debt swapped from variable to fixed rate | $ 16,079 | $ 12,960 |
Number of mortgage loans | item | 121 | 121 |
Fixed rate mortgage notes payable | Mortgage Notes Payable | Minimum | ||
MORTGAGE NOTES PAYABLE | ||
Effective interest rate (as a percent) | 3.15% | 3.15% |
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) | 4.30% | 4.31% |
Mortgage Notes Payable - Schedu
Mortgage Notes Payable - Scheduled Maturities of Mortgage Notes Payable (Details) $ in Thousands | Mar. 31, 2020USD ($) |
MORTGAGE NOTES PAYABLE | |
2020 (April 1, 2020 – December 31, 2020) | $ 21,654 |
2021 | 32,575 |
2022 | 26,753 |
2023 | 49,526 |
2024 | 16,943 |
Thereafter | 249,471 |
Total payments | $ 396,922 |
Derivatives and Hedging Activ_3
Derivatives and Hedging Activities - Other (Details) - Interest rate swaps $ in Thousands | Mar. 31, 2020USD ($)instrument | Dec. 31, 2019instrument |
Derivatives and Hedging Activities | ||
Estimated amount to be reclassified over the next 9 months, as a increase to interest expense | $ | $ 30 | |
Designated as Hedging Instrument | Cash Flow Hedging | ||
Derivatives and Hedging Activities | ||
Number of instruments | instrument | 4 | 3 |
Derivatives and Hedging Activ_4
Derivatives and Hedging Activities - Summary (Details) - Designated as Hedging Instrument - Cash Flow Hedging $ in Thousands | 3 Months Ended | |
Mar. 31, 2020USD ($)instrument | Dec. 31, 2019USD ($)instrument | |
Interest rate swaps | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 16,079 | $ 12,960 |
Number of instruments | instrument | 4 | 3 |
Interest Rate Swap, April 2020 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 801 | |
Fixed interest rate (as a percent) | 7.25% | |
Derivative maturity date | Apr. 15, 2020 | |
Interest Rate Swap, November 2029 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 7,121 | |
Fixed interest rate (as a percent) | 3.15% | |
Derivative maturity date | Nov. 1, 2029 | |
Interest Rate Swap, November 2029 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 4,946 | |
Fixed interest rate (as a percent) | 3.28% | |
Derivative maturity date | Nov. 1, 2029 | |
Interest Rate Swap, January 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 3,211 | |
Fixed interest rate (as a percent) | 3.39% | |
Derivative maturity date | Jan. 10, 2030 |
Derivatives and Hedging Activ_5
Derivatives and Hedging Activities - Fair Value (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Other assets, net | ||
Derivatives and Hedging Activities | ||
Fair value, derivative assets | $ 58 | |
Accrued expenses and other liabilities | ||
Derivatives and Hedging Activities | ||
Fair value, derivative liabilities | $ 1,449 | $ 21 |
Derivatives and Hedging Activ_6
Derivatives and Hedging Activities - Gain/Loss (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Derivatives and Hedging Activities | ||
Amount of (Gain)/Loss Recognized in Other Comprehensive Income on Derivatives | $ 1,486 | $ (4) |
Interest rate swaps | ||
Derivatives and Hedging Activities | ||
Amount of (Gain)/Loss Recognized in Other Comprehensive Income on Derivatives | 1,486 | (4) |
Interest rate swaps | Interest expense | ||
Derivatives and Hedging Activities | ||
Amount of (Gain)/Loss Reclassified from AOCI into income | $ 10 | $ 7 |
Derivatives and Hedging Activ_7
Derivatives and Hedging Activities - Credit-Risk Related Contingent Features (Details) $ in Thousands | Mar. 31, 2020USD ($) |
Credit-risk-related Contingent Features | |
Termination value of interest rate derivatives in liability position | $ 1,449 |
Fair Value Measurement - Carryi
Fair Value Measurement - Carrying Value and Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Carrying Value | ||
Financial assets: | ||
Note receivable | $ 1,300 | $ 1,300 |
Derivative assets | 58 | |
Financial liabilities: | ||
Mortgage notes payable, net | 395,074 | 393,164 |
Derivative liabilities | 1,449 | 21 |
Fair Value | ||
Financial assets: | ||
Note receivable | 1,320 | 1,389 |
Derivative assets | 58 | |
Financial liabilities: | ||
Mortgage notes payable, net | 426,891 | 415,183 |
Derivative liabilities | $ 1,449 | $ 21 |
Fair Value Measurement - Schedu
Fair Value Measurement - Schedule of Fair Value of Assets on Recurring Basis (Details) - Recurring - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Fair Value Measurements | ||
Derivative assets | $ 58 | |
Derivative liabilities | $ 1,449 | 21 |
Level 2 | ||
Fair Value Measurements | ||
Derivative assets | 58 | |
Derivative liabilities | $ 1,449 | $ 21 |
Fair Value Measurement - Fair V
Fair Value Measurement - Fair Value of Company's Financial Assets and Liabilities (Details) - Fair Value - USD ($) $ in Thousands | Mar. 31, 2020 | Dec. 31, 2019 |
Fair Value Measurements | ||
Mortgage notes payable, net | $ 426,891 | $ 415,183 |
Level 3 | ||
Fair Value Measurements | ||
Mortgage notes payable, net | $ 426,891 | $ 415,183 |
Fair Value Measurement - Additi
Fair Value Measurement - Additional Information (Details) | Mar. 31, 2020 | Dec. 31, 2019 |
Minimum | ||
Fair Value Disclosures | ||
Discount rates used to estimate fair value of mortgages and notes payable | 3.25 | 3.75 |
Maximum | ||
Fair Value Disclosures | ||
Discount rates used to estimate fair value of mortgages and notes payable | 3.35 | 3.80 |
Noncontrolling Interest of Un_2
Noncontrolling Interest of Unitholders in Operating Partnership - Additional Information (Details) $ / shares in Units, $ in Thousands | Mar. 31, 2020USD ($)shares | Mar. 31, 2019USD ($) | Mar. 31, 2020item$ / sharesshares | Mar. 31, 2019$ / sharesshares | Dec. 31, 2019shares |
Noncontrolling Interest | |||||
Distributions per unit | $ / shares | $ 0.2647 | $ 0.2613 | |||
Maximum | |||||
Noncontrolling Interest | |||||
Number of permitted exchange requests in a calendar year | item | 2 | ||||
Limited Partnership | |||||
Noncontrolling Interest | |||||
Total units | 18,251,000 | 18,251,000 | 17,811,000 | ||
Units converted by limited partners into common shares | 0 | 0 | |||
Total units | 1 | ||||
Limited Partnership | Minimum | |||||
Noncontrolling Interest | |||||
Number of units which can be redeemed in single redemption | 1,000 | ||||
Operating Partnership | |||||
Noncontrolling Interest | |||||
Declared distributions | $ | $ 4,831 | $ 4,661 |
Redemption Plans - Additional I
Redemption Plans - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | Jan. 01, 2020 | Dec. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 |
Redemption plans | ||||
Redemption of shares, value | $ 1,237 | $ 826 | ||
Redemption Plans | ||||
Redemption plans | ||||
Amount of securities redemption | 35,000 | |||
Remaining securities to be redeemed | $ 4,625 | |||
Redemption price of securities | $ 18.25 | $ 18 | ||
Redemption of shares | 38,000 | 11,000 | ||
Redemption of shares, value | $ 696 | $ 197 | ||
Additional redemption of units | 30,000 | 35,000 | ||
Additional redemption of units, value | $ 541 | $ 629 |
Beneficial Interest - Additiona
Beneficial Interest - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Beneficial Interest | |||
Common shares, outstanding | 9,547,000 | 9,436,000 | |
Preferred shares, outstanding | 0 | 0 | |
Dividends paid | $ 0.2647 | $ 0.2613 | |
Dividends declared | $ 7,358 | $ 7,035 | |
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 | ||
Dividends declared | $ 2,527 | $ 2,374 |
Dividend Reinvestment Plan - Ad
Dividend Reinvestment Plan - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | ||||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | 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% | ||||
Maximum value of common shares that may be purchased or received via transfer by participants under the dividend reinvestment plan | $ 40 | ||||
Estimated value per common share | $ 19.25 | $ 19 | |||
Purchase price per common share for dividend reinvestments | 18.29 | 18.05 | |||
Purchase price per common share additional optional cash purchases | $ 19.25 | $ 19 | |||
Notice period to participants | 10 days | ||||
Shares issued pursuant to dividend reinvestments | 87,000 | 82,000 | |||
Shares issued pursuant to additional optional cash purchases under the plan | 62,000 | 49,000 | |||
Value of shares issued pursuant to dividend reinvestments | $ 1,584 | $ 1,479 | |||
Value of shares issued pursuant to additional optional cash purchases under the plan | $ 1,203 | $ 929 |
Related Party Transactions - Pr
Related Party Transactions - Property Management and Board of Trustee Fees (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Related Party Transactions | |||
Management fees paid expressed as a percentage of net collected rents | 5.00% | 5.00% | |
Trustee fees | $ 20 | $ 16 | |
Unpaid board of trustee fees | 49 | $ 29 | |
GOLDMARK Property Management | |||
Related Party Transactions | |||
Management fee, amount paid | 3,312 | 3,123 | |
Repair and maintenance related payroll and payroll related expenses | $ 1,627 | $ 1,474 | |
Board Chairman - Board Meeting [Member] | |||
Related Party Transactions | |||
Shares received by board members per meeting | 105 | ||
Trustee - Board Meeting | |||
Related Party Transactions | |||
Shares received by board members per meeting | 75 | ||
Committee Chair – Committee Meeting | |||
Related Party Transactions | |||
Shares received by board members per meeting | 30 | ||
Trustee – Committee Meeting | |||
Related Party Transactions | |||
Shares received by board members per meeting | 30 |
Related Party Transactions - Ad
Related Party Transactions - Advisory Agreement and Other (Details) $ / item in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2020USD ($)employee$ / itemshares | Mar. 31, 2019USD ($)shares | Dec. 31, 2019USD ($) | |
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 | ||
Percentage Of Project Management Fee | 6.00% | ||
Rental Income | $ 27,917 | $ 27,574 | |
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 | ||
Project Management Fee | $ 17 | ||
Advisory Agreement | Minimum | |||
Related Party Transactions | |||
Development fee percentage | 3.00% | ||
Advisory Agreement | Maximum | |||
Related Party Transactions | |||
Criteria acquisition fees | $ / item | 375 | ||
Acquisition fees and expenses net percentage | 6.00% | ||
Development fee percentage | 5.00% | ||
Advisory Agreement | 0 – 10M | |||
Related Party Transactions | |||
Development fee percentage | 5.00% | ||
Formula | 0M – 5.0% x (TC – 0M) | ||
Advisory Agreement | 0 – 10M | Minimum | |||
Related Party Transactions | |||
Total Cost | $ 0 | ||
Range of Fee | 0 | ||
Advisory Agreement | 0 – 10M | Maximum | |||
Related Party Transactions | |||
Total Cost | 10,000 | ||
Range of Fee | $ 500 | ||
Advisory Agreement | 10M - 20M | |||
Related Party Transactions | |||
Development fee percentage | 4.50% | ||
Formula | .50M – 4.5% x (TC – 10M) | ||
Advisory Agreement | 10M - 20M | Minimum | |||
Related Party Transactions | |||
Total Cost | $ 10,000 | ||
Range of Fee | 500 | ||
Advisory Agreement | 10M - 20M | Maximum | |||
Related Party Transactions | |||
Total Cost | 20,000 | ||
Range of Fee | $ 950 | ||
Advisory Agreement | 20M – 30M | |||
Related Party Transactions | |||
Development fee percentage | 4.00% | ||
Formula | .95M – 4.0% x (TC – 20M) | ||
Advisory Agreement | 20M – 30M | Minimum | |||
Related Party Transactions | |||
Total Cost | $ 20,000 | ||
Range of Fee | 950 | ||
Advisory Agreement | 20M – 30M | Maximum | |||
Related Party Transactions | |||
Total Cost | 30,000 | ||
Range of Fee | $ 1,350 | ||
Advisory Agreement | 30M – 40M | |||
Related Party Transactions | |||
Development fee percentage | 3.50% | ||
Formula | 1.35M – 3.5% x (TC – 30M) | ||
Advisory Agreement | 30M – 40M | Minimum | |||
Related Party Transactions | |||
Total Cost | $ 30,000 | ||
Range of Fee | 1,350 | ||
Advisory Agreement | 30M – 40M | Maximum | |||
Related Party Transactions | |||
Total Cost | 40,000 | ||
Range of Fee | $ 1,700 | ||
Advisory Agreement | 40M – 50M | |||
Related Party Transactions | |||
Development fee percentage | 3.00% | ||
Formula | 1.70M – 3.0% x (TC – 40M) | ||
Advisory Agreement | 40M – 50M | Minimum | |||
Related Party Transactions | |||
Total Cost | $ 40,000 | ||
Range of Fee | 1,700 | ||
Advisory Agreement | 40M – 50M | Maximum | |||
Related Party Transactions | |||
Total Cost | 50,000 | ||
Range of Fee | 2,000 | ||
Sterling Management, LLC | |||
Related Party Transactions | |||
Advisory management fees | 765 | 749 | |
Advisory management fees outstanding | 256 | $ 503 | |
Advisory management fees for operating costs | 5 | 0 | |
Unpaid reimbursable operating costs owed to Advisor | 5 | 0 | |
Acquisition fees | 302 | 0 | |
Acquisition fees outstanding | 0 | 0 | |
Disposition fees | 92 | 0 | |
Disposition fees outstanding | 0 | 0 | |
Financing fees for loan financing and refinancing activities | 25 | 0 | |
Financing fees for loan financing and refinancing outstanding | 0 | ||
Development fee | 0 | 0 | 67 |
Development fees hold back outstanding | 104 | 0 | |
Rental Income | 21 | 13 | |
GOLDMARK Property Management | |||
Related Party Transactions | |||
Rental Income | 66 | 57 | |
GOLDMARK SCHLOSSMAN Commercial Real Estate Services | |||
Related Party Transactions | |||
Real estate commissions | 324 | 0 | |
Real estate commissions outstanding | 0 | $ 0 | |
Rental Income | $ 14 | $ 14 | |
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 | 176,000 | 0 | |
Value of operating partnership (OP) units issued in connection with the acquisition of various properties | $ 3,373 |
Dispositions - Assets and Liabi
Dispositions - Assets and Liabilities Classified as Held for Sale (Details) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020USD ($)property | Mar. 31, 2019property | |
Dispositions | ||
Number of dispositions | property | 1 | 0 |
Gain on sale of real estate | $ 1,455 | |
Retail Property, Apple Valley, MN | Disposed of by Sale | ||
Dispositions | ||
Property sold | 3,670 | |
Gain on sale of real estate | $ 1,455 |
Business Combinations and Acqui
Business Combinations and Acquisitions - Purchases, Current (Details) $ / shares in Units, $ in Thousands | Mar. 01, 2020USD ($)item | Jan. 31, 2020USD ($)item | Jan. 12, 2020USD ($)item | Mar. 31, 2020USD ($)$ / sharesshares | Mar. 31, 2019item |
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Number of acquisitions | item | 0 | ||||
Acquisition price | $ 12,066 | ||||
Capitalized closing costs and adjustments | 636 | ||||
Special assessments | 168 | ||||
Additional costs due to difference in unit price | $ 26 | ||||
Aggregate number of limited partnership units issued for acquisition | shares | 469,000 | ||||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 19.25 | ||||
Aggregate value of limited partnership units issued for acquisition | $ 9,031 | ||||
Assumed liabilities | 265 | ||||
Mortgage loan | 3,225 | ||||
Consideration in cash to pay for acquisitions | $ 375 | ||||
Wolf Creek, Fargo, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 54 | ||||
Acquisition price | $ 4,968 | ||||
Columbia Park Village, Grand Forks, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 12 | ||||
Acquisition price | $ 612 | ||||
Belmont East & West, Bismarck, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 26 | ||||
Acquisition price | $ 1,494 | ||||
Eastbrook, Bismarck, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 24 | ||||
Acquisition price | $ 1,296 | ||||
Hawn, Fargo, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 48 | ||||
Acquisition price | $ 2,400 | ||||
Rosser, Bismarck, ND | |||||
BUSINESS COMBINATIONS AND ACQUISITIONS | |||||
Units acquired | item | 24 | ||||
Acquisition price | $ 1,296 |
Business Combinations and Acq_2
Business Combinations and Acquisitions - Summary of Acquisition Date Fair Values (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | ||
Mar. 31, 2020 | Jan. 01, 2019 | Jan. 01, 2018 | |
Acquisition date fair values | |||
Net cash consideration | $ 375 | ||
Price per limited partnership unit issued for acquisition, price two | $ 19.25 | $ 19 | |
Nonrecurring | Real Estate Property Acquisitions 2020 | |||
Acquisition date fair values | |||
Land, building, tenant improvements and FF&E | 12,896 | ||
Other liabilities | (265) | ||
Net assets acquired | 12,631 | ||
Equity/limited partnership unit consideration | (9,031) | ||
New loans | (3,225) | ||
Net cash consideration | $ 375 |
Subsequent Events - Additional
Subsequent Events - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands | Apr. 15, 2020 | Mar. 31, 2020 | Mar. 31, 2019 |
Subsequent Events | |||
Acquisition price | $ 12,066 | ||
Aggregate number of limited partnership units issued for acquisition | 469,000 | ||
Price per limited partnership unit issued for acquisition, price one | $ 19.25 | ||
Aggregate value of limited partnership units issued for acquisition | $ 9,031 | ||
Consideration in cash to pay for acquisitions | $ 375 | ||
Dividend or distribution paid | $ 0.2647 | $ 0.2613 | |
Repayments of mortgage notes | $ 9,129 | $ 3,150 | |
Subsequent Event | |||
Subsequent Events | |||
Dividend or distribution paid | $ 0.2647 | ||
Refinanced mortgage | $ 1,180 |