Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2023 | Aug. 07, 2023 | |
Document And Entity Information | ||
Document Type | 10-Q/A | |
Document Quarterly Report | true | |
Document Period End Date | Jun. 30, 2023 | |
Document Transition Report | false | |
Entity File Number | 000-54295 | |
Entity Registrant Name | Sterling Real Estate Trust | |
Entity Incorporation, State or Country Code | ND | |
Entity Tax Identification Number | 90-0115411 | |
Entity Address, Address Line One | 4340 18th Ave S., Suite 200 | |
Entity Address, City or Town | Fargo | |
Entity Address, State or Province | ND | |
Entity Address, Postal Zip Code | 58103 | |
City Area Code | 701 | |
Local Phone Number | 353-2720 | |
Title of 12(b) Security | Common Shares, par value $0.01 per share | |
No Trading Symbol Flag | true | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 11,162,323 | |
Entity Central Index Key | 0001412502 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2023 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | true | |
Amendment Description | Sterling Real Estate Trust d/b/a Sterling Multifamily Trust "Sterling", "the Trust" or ("the Company") is filing this Amendment No. 1 on Form 10-Q/A (this "Amendment No. 1") to amend its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (the "Original Form 10-Q") filed with the Securities and Exchange Commission (the "SEC") on August 9, 2023. Background of Restatement On November 1, 2023, the Company filed a Current Report on Form 8-K disclosing that the financial statements included in the Company's Quarterly Reports on Form 10-Q for the quarterly period ended June 30, 2023 (the "Original June 30, 2023 Financial Statements") should no longer be relied upon. While preparing the financial statements as of and for the quarter ended September 30, 2023, the Company discovered an error was made relating to the recording of the journal entry for the attributable portion of net income that related to the noncontrolling interest of the operating partnership. Further, we discovered that this error affected the quarterly period ended June 30, 2023. This did not have an impact on the total net income or the total funds from operations represented on the June 30, 2023 quarterly filing. The Company has concluded that because the controls surrounding the financial reporting process did not operate effectively and resulted in the failure to detect the misstatement, the deficiency is a material weakness in the Company's internal control over financial reporting, resulting in a material error in the Original June 30, 2023 Financial Statements. In this Amendment No. 1, the Company has restated the Original June 30, 2023 Financial Statements, including the notes thereto (collectively, the "Restatements") to correct the material errors described above in the Original June 30, 2023 Financial Statements. In addition to financial statement data related to the Original June 30, 2023 Financial Statements, Note 2 to the unaudited financial statements, Management Discussion and Analysis of Financial Condition and Results of Operations includes (i) restated Results of Operations for the three and nine months ended June 30, 2023 (ii) restated Reconciliation of Net Income Attributable to Sterling to FFO Applicable to Common Shares and Limited Partnership Units for the three and nine months ended June 30,2023. Internal Control Considerations In connection with the Restatements, management has concluded that the Company has a material weakness in its internal control over financial reporting as it was determined that our control to evaluate the accounting and disclosure of the attributable portion of net income relating to the noncontrolling interest of the operating partnership did not operate effectively and resulted in the failure to detect the misstatement. Items Amended in this Quarterly Report on Form 10-Q/A This Amendment No. 1 sets forth the Original Form 10-Q, as modified and superseded where necessary to reflect the Restatements and the related disclosure controls and procedures and internal control considerations. Accordingly, the following items included in the Original Form 10-Q have been amended: Part I, Item 1, Financial Statements Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations Part I, Item 4, Controls and Procedures Additionally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including with this Amendment No. 1 currently dated certifications from its Chief Executive Officer and its Chief Financial Officer. Except as described above, this Amendment No. 1 does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment No. 1 does not reflect events occurring after the Original Form 10-Q and does not modify or update the disclosures therein, except to reflect matters related to the Restatements. |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
ASSETS | ||
Land and land improvements | $ 128,029 | $ 129,682 |
Building and improvements | 835,533 | 834,356 |
Construction in progress | 7,921 | 7,110 |
Real estate investments | 971,483 | 971,148 |
Less accumulated depreciation | (205,653) | (194,849) |
Real estate investments, net | 765,830 | 776,299 |
Cash and cash equivalents | 6,182 | 3,257 |
Restricted deposits | 9,093 | 9,323 |
Investment in securities | 10,230 | 29,371 |
Investment in unconsolidated affiliates | 28,654 | 29,423 |
Notes receivable | 10,154 | 8,448 |
Lease intangible assets, less accumulated amortization | 3,304 | 5,290 |
Other assets, net | 26,461 | 27,312 |
Total Assets | 859,908 | 888,723 |
LIABILITIES | ||
Mortgage notes payable, net | 518,109 | 506,167 |
Notes payable | 26,500 | |
Lines of credit | 0 | 1,008 |
Dividends payable | 8,521 | 8,493 |
Tenant security deposits payable | 6,954 | 6,368 |
Lease intangible liabilities, less accumulated amortization | 544 | 646 |
Accrued expenses and other liabilities | 13,427 | 16,075 |
Total Liabilities | 547,555 | 565,257 |
COMMITMENTS and CONTINGENCIES - Note 13 | ||
SHAREHOLDERS' EQUITY | ||
Beneficial interest | 124,248 | 123,996 |
Operating partnership | 172,127 | 183,048 |
Partially owned properties | 2,551 | 2,640 |
Accumulated other comprehensive income | 13,427 | 13,782 |
Total Shareholders' Equity | 312,353 | 323,466 |
Total liabilities and shareholders' equity | $ 859,908 | $ 888,723 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2023 | Jun. 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
Income from rental operations | ||||
Real estate rental income | $ 35,550 | $ 33,817 | $ 70,730 | $ 66,734 |
Expenses from rental operations | ||||
Operating expenses | 16,352 | 13,157 | 34,473 | 27,846 |
Real estate taxes | 3,804 | 3,638 | 7,604 | 7,135 |
Depreciation and amortization | 6,484 | 5,963 | 13,036 | 11,745 |
Interest | 5,331 | 4,954 | 10,687 | 9,800 |
Total expenses from rental operations | 31,971 | 27,712 | 65,800 | 56,526 |
Administration of REIT | ||||
Administration of REIT | 1,140 | 1,400 | 2,451 | 2,617 |
Total expenses | 33,111 | 29,112 | 68,251 | 59,143 |
Income from operations | 2,439 | 4,705 | 2,479 | 7,591 |
Other income | ||||
Equity in (losses) of unconsolidated affiliates | (736) | (284) | (1,872) | (1,424) |
Other income | 340 | 152 | 747 | 442 |
Gain on sale or conversion of real estate investments | 2,596 | 2,012 | 2,597 | 3,340 |
Gain on involuntary conversion | 90 | 522 | 90 | 547 |
Total other income | 2,290 | 2,402 | 1,562 | 2,905 |
Net income | 4,729 | 7,107 | 4,041 | 10,496 |
Operating partnership | 3,007 | 4,531 | 2,599 | 6,676 |
Partially owned properties | (49) | 8 | (89) | 38 |
Net income attributable to Sterling Real Estate Trust | $ 1,771 | $ 2,568 | $ 1,531 | $ 3,782 |
Net income attributable to Sterling Real Estate Trust per common share, basic | $ 0.16 | $ 0.24 | $ 0.14 | $ 0.36 |
Net income attributable to Sterling Real Estate Trust per common share, diluted | $ 0.56 | $ 0.24 | $ 0.54 | $ 0.36 |
Comprehensive income: | ||||
Net income | $ 4,729 | $ 7,107 | $ 4,041 | $ 10,496 |
Other comprehensive gain (loss) - change in fair value of interest rate swaps | 2,023 | 3,815 | (355) | 10,339 |
Comprehensive income: | 6,752 | 10,922 | 3,686 | 20,835 |
Comprehensive (loss) income attributable to noncontrolling interest | 4,227 | 6,974 | 2,286 | 13,315 |
Comprehensive income attributable to Sterling Real Estate Trust | $ 2,525 | $ 3,948 | $ 1,400 | $ 7,520 |
Weighted average Common Shares outstanding, basic | 11,039,000 | 10,564,000 | 10,996,000 | 10,515,000 |
Weighted average Common Shares outstanding, diluted | 10,996,000 | 10,515,000 |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands | 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) | Common Shares | Total |
Beginning Balance at Dec. 31, 2021 | $ 148,562 | $ (31,706) | $ 116,856 | $ 176,954 | $ 2,657 | $ (950) | $ 295,517 | |
Beginning Balance (in shares) at Dec. 31, 2021 | 10,342 | |||||||
Contribution of assets in exchange for the issuance of noncontrolling interest shares | 10,180 | 10,180 | ||||||
Shares/units redeemed | (401) | (401) | (335) | (736) | ||||
Shares/units redeemed (in shares) | (18) | |||||||
Dividends and distributions declared | (3,007) | (3,007) | (5,359) | (8,366) | ||||
Dividends reinvested - stock dividend | 1,716 | 1,716 | 1,716 | |||||
Dividends reinvested - stock dividend (in shares) | 79 | |||||||
Issuance of shares under optional purchase plan | 1,313 | 1,313 | 1,313 | |||||
Issuance of shares under optional purchase plan (in shares) | 57 | |||||||
Change in fair value of interest rate swaps | 6,524 | 6,524 | ||||||
Net income | 1,214 | 1,214 | 2,145 | 30 | 3,389 | |||
Ending balance at Mar. 31, 2022 | 151,190 | (33,499) | 117,691 | 183,585 | 2,687 | 5,574 | 309,537 | |
Ending balance (in shares) at Mar. 31, 2022 | 10,460 | |||||||
Beginning Balance at Dec. 31, 2021 | 148,562 | (31,706) | 116,856 | 176,954 | 2,657 | (950) | 295,517 | |
Beginning Balance (in shares) at Dec. 31, 2021 | 10,342 | |||||||
Change in fair value of interest rate swaps | 10,339 | |||||||
Net income | 10,496 | |||||||
Ending balance at Jun. 30, 2022 | 153,487 | (33,968) | 119,519 | 182,621 | 2,695 | 9,389 | 314,224 | |
Ending balance (in shares) at Jun. 30, 2022 | 10,563 | |||||||
Beginning Balance at Mar. 31, 2022 | 151,190 | (33,499) | 117,691 | 183,585 | 2,687 | 5,574 | 309,537 | |
Beginning Balance (in shares) at Mar. 31, 2022 | 10,460 | |||||||
Shares/units redeemed | (386) | (386) | (138) | (524) | ||||
Shares/units redeemed (in shares) | (18) | |||||||
Dividends and distributions declared | (3,037) | (3,037) | (5,357) | (8,394) | ||||
Dividends reinvested - stock dividend | 1,877 | 1,877 | 1,877 | |||||
Dividends reinvested - stock dividend (in shares) | 86 | |||||||
Issuance of shares under optional purchase plan | 806 | 806 | 806 | |||||
Issuance of shares under optional purchase plan (in shares) | 35 | |||||||
Change in fair value of interest rate swaps | 3,815 | 3,815 | ||||||
Net income | 2,568 | 2,568 | 4,531 | 8 | 7,107 | |||
Ending balance at Jun. 30, 2022 | 153,487 | (33,968) | 119,519 | 182,621 | 2,695 | 9,389 | 314,224 | |
Ending balance (in shares) at Jun. 30, 2022 | 10,563 | |||||||
Beginning Balance at Dec. 31, 2022 | 159,003 | (35,007) | 123,996 | 183,048 | 2,640 | 13,782 | 323,466 | |
Beginning Balance (in shares) at Dec. 31, 2022 | 10,810 | |||||||
Shares/units redeemed | (181) | (181) | (915) | (1,096) | ||||
Shares/units redeemed (in shares) | (8) | |||||||
Dividends and distributions declared | (3,147) | (3,147) | (5,373) | (8,520) | ||||
Dividends reinvested - stock dividend | 1,962 | 1,962 | 1,962 | |||||
Dividends reinvested - stock dividend (in shares) | 90 | |||||||
Issuance of shares under optional purchase plan | 1,291 | 1,291 | 1,291 | |||||
Issuance of shares under optional purchase plan (in shares) | 56 | |||||||
Change in fair value of interest rate swaps | (2,378) | (2,378) | ||||||
Net income | (240) | (240) | (408) | (40) | (688) | |||
Ending balance at Mar. 31, 2023 | 162,075 | (38,394) | 123,681 | 176,352 | 2,600 | 11,404 | 314,037 | |
Ending balance (in shares) at Mar. 31, 2023 | 10,948 | |||||||
Beginning Balance at Dec. 31, 2022 | 159,003 | (35,007) | 123,996 | 183,048 | 2,640 | 13,782 | 323,466 | |
Beginning Balance (in shares) at Dec. 31, 2022 | 10,810 | |||||||
Change in fair value of interest rate swaps | (355) | |||||||
Net income | 4,041 | |||||||
Ending balance at Jun. 30, 2023 | 164,044 | (39,796) | 124,248 | 172,127 | 2,551 | 13,427 | 312,353 | |
Ending balance (in shares) at Jun. 30, 2023 | 11,035 | |||||||
Beginning Balance at Mar. 31, 2023 | 162,075 | (38,394) | 123,681 | 176,352 | 2,600 | 11,404 | 314,037 | |
Beginning Balance (in shares) at Mar. 31, 2023 | 10,948 | |||||||
Shares/units redeemed | (978) | (978) | (1,884) | (2,862) | ||||
Shares/units redeemed (in shares) | (45) | |||||||
Dividends and distributions declared | (3,173) | (3,173) | (5,348) | (8,521) | ||||
Dividends reinvested - stock dividend | 1,996 | 1,996 | 1,996 | |||||
Dividends reinvested - stock dividend (in shares) | 91 | |||||||
Issuance of shares under optional purchase plan | 951 | 951 | 951 | |||||
Issuance of shares under optional purchase plan (in shares) | 41 | |||||||
Change in fair value of interest rate swaps | 2,023 | 2,023 | ||||||
Net income | 1,771 | 1,771 | 3,007 | (49) | 4,729 | |||
Ending balance at Jun. 30, 2023 | $ 164,044 | $ (39,796) | $ 124,248 | $ 172,127 | $ 2,551 | $ 13,427 | $ 312,353 | |
Ending balance (in shares) at Jun. 30, 2023 | 11,035 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 | Jun. 30, 2022 | |
OPERATING ACTIVITIES | ||
Net income | $ 4,041 | $ 10,496 |
Adjustments to reconcile net income to net cash provided by operating activities | ||
Gain on sale of real estate investments | (2,596) | (3,340) |
Gain on involuntary conversion | (90) | (547) |
Change in fair value of securities | (228) | |
Equity in loss of unconsolidated affiliates | 1,872 | 1,424 |
Distributions of earnings of unconsolidated affiliates | 177 | |
Allowance for uncollectible accounts receivable | 98 | (380) |
Depreciation | 11,704 | 10,858 |
Amortization | 1,332 | 887 |
Amortization of debt issuance costs | 293 | 337 |
Effects on operating cash flows due to changes in | ||
Other assets | 169 | (1,422) |
Tenant security deposits payable | 586 | 942 |
Accrued expenses and other liabilities | (3,624) | (3,935) |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 13,557 | 15,497 |
INVESTING ACTIVITIES | ||
Proceeds from maturity of securities | 19,369 | |
Purchase of real estate investment properties | (26,131) | |
Capital expenditures and tenant improvements | (4,741) | (5,423) |
Proceeds from sale of real estate investments and non-real estate investments | 5,082 | 6,266 |
Proceeds from involuntary conversion | 111 | 733 |
Investment in unconsolidated affiliates | (2,546) | (7,749) |
Distributions in excess of earnings received from unconsolidated affiliates | 1,443 | 312 |
Notes receivable issued net of payments received | (1,706) | 2,034 |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 17,012 | (29,958) |
FINANCING ACTIVITIES | ||
Payments for financing, debt issuance | (158) | (201) |
Principal payments on special assessments payable | (59) | |
Proceeds from issuance of mortgage notes payable | 35,250 | 23,305 |
Principal payments on mortgage notes payable | (20,628) | (8,921) |
Payments on lines of credit | (1,008) | |
Payment on notes payable | (26,500) | |
Proceeds from issuance of shares under optional purchase plan | 2,242 | 2,119 |
Shares/units redeemed | (3,958) | (1,260) |
Dividends/distributions paid | (13,055) | (12,340) |
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (27,874) | 2,702 |
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS | 2,695 | (11,759) |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF PERIOD | 12,580 | 60,656 |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD | $ 15,275 | $ 48,897 |
CONSOLIDATED STATEMENTS OF CA_2
CONSOLIDATED STATEMENTS OF CASH FLOWS - Supplemental Disclosures - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 | Jun. 30, 2022 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD | ||
Cash and cash equivalents | $ 6,182 | $ 40,072 |
Restricted deposits | 9,093 | 8,825 |
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS, END OF PERIOD | 15,275 | 48,897 |
SCHEDULE OF CASH FLOW INFORMATION | ||
Cash paid during the period for interest, net of capitalized interest | 10,290 | 9,526 |
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Dividends reinvested | 3,958 | 3,593 |
Dividends declared and not paid | 3,173 | 3,037 |
UPREIT distributions declared and not paid | 5,348 | 5,357 |
Acquisition of assets in exchange for the issuance of noncontrolling interest units in UPREIT | 10,180 | |
Increase in land improvements due to increase in special assessments payable | 300 | 195 |
Unrealized (loss) gain on interest rate swaps | $ (355) | 10,339 |
Acquisition of assets through assumption of debt and liabilities | 36,311 | |
Capitalized interest and real estate taxes related to construction in progress | $ 46 |
ORGANIZATION
ORGANIZATION | 6 Months Ended |
Jun. 30, 2023 | |
ORGANIZATION | |
ORGANIZATION | Note 1 - Organization Sterling Real Estate Trust d/b/a Sterling Multifamily 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. Sterling previously established an Operating Partnership (“Sterling Properties, LLLP” or the “Operating Partnership”) and transferred all of its assets and liabilities to the Operating Partnership in exchange for general partnership units. As the general partner, Sterling has management responsibility for all activities of the Operating Partnership. As of June 30, 2023 and December 31, 2022, Sterling owned approximately 37.24% and 36.60%, respectively, of the Operating Partnership. |
PRINCIPAL ACTIVITY AND SIGNIFIC
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2023 | |
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, 2022, 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. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial statements as of and for the three and six months ended June 30, 2023. These adjustments are of a normal recurring nature. Principles of Consolidation The consolidated financial statements include the accounts of , Properties, LLLP, and wholly-owned limited liability companies. All significant intercompany transactions and balances have been eliminated in consolidation. As of June 30, 2023, the Trust owned approximately 37.24% of the partnership interests (“OP Units”) of the Operating Partnership. The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to the Operating Partnership in exchange for OP Units. Under the LLLP Agreement and the individual’s respective redemption plan, these persons have the right to request the Operating Partnership redeem their OP Units following a specified restricted period. All redemptions are at the sole discretion of the Trust, acting for itself or in its capacity as General Partner of the Operating Partnership, and further subject to the conditions and limitations of the LLLP Agreement and redemption plans, as the same may be amended or modified from time to time. If the Trust accepts a redemption request, the redemption of OP Units shall be made in cash in an amount equal to the fair value of an equivalent number of common shares of the Trust. In lieu of delivering cash, however, the Trust, as the Operating Partnership’s general partner, may, at its option and in its sole and absolute discretion, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units. If the Trust so chooses, its common shares will be exchanged for OP Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustment to prevent dilution. With each such exchange or redemption, the Trust’s percentage ownership in the Operating Partnership will increase. In addition, whenever the Trust issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Trust an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued. This structure is commonly referred to as an umbrella partnership REIT or “UPREIT.” 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. The Trust will consolidate the operations of a joint venture if the Trust determines that it is the primary beneficiary of a variable interest entity (VIE) and has substantial influence and control of the entity. In instances where the Trust determines that it is not the primary beneficiary of a VIE and the Trust does not control the joint venture but can exercise influence over the entity with respect to its operations and major decisions, the Trust will use the equity method of accounting. Under the equity method, the operations of a joint venture will not be consolidated with the Trust’s operations but instead its share of operations will be reflected as equity in earnings (losses) of unconsolidated affiliates on its consolidated statements of operations and comprehensive income. Additionally, the Trust’s net investment in the joint venture will be reflected as investment in unconsolidated entity on the consolidated balance sheets. See Note 5 for additional details regarding variable interest entities where the Trust uses the equity method of investing. The Operating Partnership meets the criteria as a variable interest entity (“VIE”). The Trust’s sole significant asset is its investment in the Operating Partnership. As a result, substantially all of the Trust’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Trust’s debt is an obligation of the Operating Partnership, and the Trust guarantees the unsecured debt obligations of the Operating Partnership. 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 relative fair value at acquisition date of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease intangibles, (iv) acquired above and below market lease intangibles, and (v) assumed financing that is determined to be above or below market, if any. Transaction costs related to acquisitions accounted for as asset acquisitions are capitalized as a cost of the property. 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. 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 expensed 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 The Trust’s investment properties are reviewed for potential impairment at the end of each reporting period or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, the Trust separately determines whether impairment indicators exist for each property. Based on evaluation, there were no impairment losses during the three and six months ended June 30, 2023 and 2022. 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. We follow FASB ASC Topic 740, Income Taxes, Revenue Recognition The Trust is the lessor for its residential and commercial leases. Leases are analyzed on an individual basis to determine lease classification. As of June 30, 2023, all leases analyzed under the Trust’s lease classification process were determined to be operating leases. 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 during the three and six months ended June 30, 2023 and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the six months ended June 30, 2023 and 2022, Sterling’s denominators for the basic and diluted earnings per common share were approximately 10,996,000 and 10,515,000 , respectively. Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements The Company is restating its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, included in this Amendment No. 1 on this Quarterly Report on Form 10-Q/A. The restatement reflects the correction of an error that made relating to the recording of the journal entry for the attributable portion of net income that related to the noncontrolling interest of the operating partnership. The following tables present the restated amounts, the adjustments made and the previously reported amounts to summarize the effect of the corrections on the previously reported condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 : Three months ended June 30, 2023 Six months ended June 30, 2023 Original Adjustment As restated Original Adjustment As restated Balance Sheet Shareholders' Equity Beneficial interest 128,615 (4,367) 124,248 Noncontrolling interest Operating partnership 167,760 4,367 172,127 Statement of Operations and Other Comprehensive Income Net (loss) income attributable to noncontrolling interest: Operating partnership (1,361) 4,368 3,007 (1,769) 4,368 2,599 Net income attributable to Sterling Real Estate Trust 6,139 (4,368) 1,771 5,899 (4,368) 1,531 Comprehensive income: Comprehensive (loss) income attributable to noncontrolling interest (141) 4,368 4,227 (2,082) 4,368 2,286 Comprehensive (loss) income attributable to Sterling Real Estate Trust 6,893 (4,368) 2,525 5,768 (4,368) 1,400 |
SEGMENT REPORTING
SEGMENT REPORTING | 6 Months Ended |
Jun. 30, 2023 | |
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 and six months ended June 30, 2023 and 2022, along with reconciliations to the consolidated financial statements. Segment assets are also reconciled to total assets as reported in the consolidated financial statements. Three months ended June 30, 2023 Three months ended June 30, 2022 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 30,574 $ 4,976 $ 35,550 $ 28,502 $ 5,315 $ 33,817 Expenses from rental operations 18,730 1,426 20,156 15,246 1,549 16,795 Net operating income $ 11,844 $ 3,550 $ 15,394 $ 13,256 $ 3,766 $ 17,022 Depreciation and amortization 6,484 5,963 Interest 5,331 4,954 Administration of REIT 1,140 1,400 Other income (2,290) (2,402) Net income $ 4,729 $ 7,107 Six months ended June 30, 2023 Six months ended June 30, 2022 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 60,494 $ 10,236 $ 70,730 $ 55,997 $ 10,737 $ 66,734 Expenses from rental operations 38,934 3,143 42,077 31,753 3,228 34,981 Net operating income $ 21,560 $ 7,093 $ 28,653 $ 24,244 $ 7,509 $ 31,753 Depreciation and amortization 13,036 11,745 Interest 10,687 9,800 Administration of REIT 2,451 2,617 Other income (1,562) (2,905) Net income $ 4,041 $ 10,496 Segment Assets and Accumulated Depreciation As of June 30, 2023 Residential Commercial Total (in thousands) Real estate investments $ 784,376 $ 187,107 $ 971,483 Accumulated depreciation (156,200) (49,453) (205,653) Total real estate investments, net $ 628,176 $ 137,654 $ 765,830 Lease intangible assets, less accumulated amortization — 3,304 3,304 Cash and cash equivalents 6,182 Restricted deposits 9,093 Investment in securities 10,230 Investment in unconsolidated affiliates 28,654 Notes receivable 10,154 Other assets, net 26,461 Total Assets $ 859,908 As of December 31, 2022 Residential Commercial Total (in thousands) Real estate investments $ 779,424 $ 191,724 $ 971,148 Accumulated depreciation (147,115) (47,734) (194,849) Total real estate investments, net $ 632,309 $ 143,990 $ 776,299 Lease intangible assets, less accumulated amortization 839 4,451 5,290 Cash and cash equivalents 3,257 Restricted deposits 9,323 Investment in securities 29,371 Investment in unconsolidated affiliates 29,423 Notes receivable 8,448 Other assets, net 27,312 Total Assets $ 888,723 |
RESTRICTED DEPOSITS AND FUNDED
RESTRICTED DEPOSITS AND FUNDED RESERVES | 6 Months Ended |
Jun. 30, 2023 | |
RESTRICTED DEPOSITS AND FUNDED RESERVES | |
RESTRICTED DEPOSITS AND FUNDED RESERVES | NOTE 4 – Restricted deposits and FUNDED reserves The following table summarizes the Trust’s restricted deposits and funded reserves. As of June 30, As of December 31, 2023 2022 (in thousands) Tenant security deposits $ 6,746 $ 6,242 Real estate tax and insurance escrows 657 1,336 Replacement reserves 1,690 1,745 $ 9,093 $ 9,323 |
INVESTMENT IN UNCONSOLIDATED AF
INVESTMENT IN UNCONSOLIDATED AFFILIATES | 6 Months Ended |
Jun. 30, 2023 | |
INVESTMENT IN UNCONSOLIDATED AFFILIATES | |
INVESTMENT IN UNCONSOLIDATED AFFILIATES | NOTE 5 – Investment in unconsolidated affiliates The Company’s investments in unconsolidated real estate ventures, are summarized as follows (in thousands): Total Investment in Unconsolidated Affiliates at Unconsolidated Affiliates Date Acquired Trust Ownership Interest June 30, 2023 December 31, 2022 Banner Building 2007 66.67% $ (453) $ (614) Grand Forks INREIT, LLC 2003 50% 5,114 4,961 SE Savage, LLC 2019 60% 1,318 1,660 SE Maple Grove, LLC 2019 60% 1,105 1,836 SE Rogers, LLC 2020 60% 1,850 2,413 ST Oak Cliff, LLC 2021 70% 8,494 9,098 SE Brooklyn Park, LLC 2021 60% 2,017 2,914 SE Fossil Creek, LLC 2022 70% 9,209 7,155 $ 28,654 $ 29,423 The Operating Partnership owns a 66.67% interest as tenant in common in an office building in Fargo, North Dakota. The property is encumbered by a first mortgage with a balance at June 30, 2023 and December 31, 2022 of $6,814 and $6,951, respectively. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns 50% interest as tenant in common through 100% ownership in a limited liability company. The property is located in Grand Forks, North Dakota. The property is encumbered by a non-recourse first mortgage with a balance at June 30, 2023 and December 31, 2022 of $9,040 and $9,520, respectively. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is encumbered by a first mortgage with a balance of $30,517 and $30,726 at June 30, 2023 and December 31, 2022, respectively. The property is also encumbered by a second mortgage to Sterling Properties, LLLP with a balance of $654 and $1,397 at June 30, 2023 and December 31, 2022, respectively. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is encumbered by a construction mortgage with a balance at both June 30, 2023 and December 31, 2022 of $24,788. The property is also encumbered by a second mortgage to Sterling Properties, LLLP with a balance at both June 30, 2023 and December 31, 2022 of $3,643. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 60% interest in a limited liability company that is currently developing a multifamily property. The LLC holds land located in Rogers, Minnesota, with total assets of $32,427 and $32,864 at June 30, 2023 and December 31, 2022, respectively. The entity encumbered by a construction mortgage has a balance of $25,742 at both June 30, 2023 and December 31, 2022. The property is also encumbered by a second mortgage to Sterling Properties, LLLP with a balance at June 30, 2023 and December 31, 2022 of $3,390 and $2,938, respectively. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 70% interest in a limited liability company, with a related party. The entity is currently developing a multifamily property. As of both June 30, 2023 and December 31, 2022, the Operating Partnership has contributed $9,300 in cash to the entity. The entity holds land located in Dallas, Texas with total assets of $47,228 and $40,404 at June 30, 2023 and December 31, 2022, respectively. The entity is encumbered by a construction mortgage with a balance of $32,010 and $23,409 at June 30, 2023 and December 31, 2022, respectively. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 60% interest in a limited liability company, with an unrelated third party. The entity is currently developing a multifamily property. The entity is located in Brooklyn Park, Minnesota, with total assets of $30,761 and $30,490 at June 30, 2023 and December 31, 2022, respectively. The entity is encumbered by a construction mortgage that has a balance of $24,592 and $24,448 at June 30, 2023 and December 31, 2022, respectively. The entity is also encumbered by a second mortgage to Sterling Properties, LLLP with a balance at June 30, 2023 of $2,310. There was no balance outstanding related to the second mortgage at December 31, 2022. The Trust is jointly and severally liable for the full mortgage balance. The Operating Partnership owns a 70% interest in a limited liability company, with a related party. The entity is currently developing a multifamily property. As of June 30, 2023 and December 31, 2022, the Operating Partnership has contributed $9,275 and $7,190, respectively, in cash to the entity. The entity holds land located in Fort Worth, Texas with total assets of $29,218 and $11,083 at June 30, 2023 and December 31, 2022, respectively. The entity is encumbered by a construction mortgage with a balance outstanding related to the mortgage at June 30, 2023 of $12,274. There was no outstanding balance related to the construction mortgage at December 31, 2022. The Trust is jointly and severally liable for the full mortgage balance. The following is a summary of the financial position of the unconsolidated affiliates at June 30, 2023 and December 31, 2022. June 30, 2023 December 31, 2022 (in thousands) ASSETS Real estate investments $ 245,807 $ 218,747 Accumulated depreciation (21,385) (16,490) 224,422 202,257 Cash and cash equivalents 3,130 3,093 Restricted deposits 561 1,034 Intangible assets, less accumulated amortization 858 542 Other assets, net 496 827 Total Assets $ 229,467 $ 207,753 LIABILITIES Mortgage notes payable, net $ 174,782 $ 152,246 Tenant security deposits payable 301 192 Accrued expenses and other liabilities 9,115 8,217 Total Liabilities $ 184,198 $ 160,655 SHAREHOLDERS' EQUITY Total Shareholders' Equity $ 45,269 $ 47,098 Total liabilities and shareholders' equity $ 229,467 $ 207,753 The following is a summary of results of operations of the unconsolidated affiliates for the three and six months ended June 30, 2023 and 2022. Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 (in thousands) (in thousands) Income from rental operations $ 4,633 $ 2,076 $ 8,340 $ 3,806 Expenses from rental operations 1,717 682 3,495 1,494 Net operating income $ 2,916 $ 1,394 $ 4,845 $ 2,312 Depreciation and Amortization 2,441 1,187 4,933 3,014 Interest 1,448 665 2,792 1,677 Other expense 98 - 13 11 Net loss $ (1,071) $ (458) $ (2,893) $ (2,390) |
LEASE INTANGIBLES
LEASE INTANGIBLES | 6 Months Ended |
Jun. 30, 2023 | |
LEASE INTANGIBLES | |
LEASE INTANGIBLES | NOTE 6 - Lease intangibles The following table summarizes the net value of other intangible assets and liabilities and the accumulated amortization for each class of intangible: Lease Accumulated Lease As of June 30, 2023 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 14,113 $ (11,344) $ 2,769 Above-market leases 1,415 (880) 535 $ 15,528 $ (12,224) $ 3,304 Lease Intangible Liabilities Below-market leases $ (2,326) $ 1,782 $ (544) Lease Accumulated Lease As of December 31, 2022 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 15,528 $ (10,960) $ 4,568 Above-market leases 1,897 (1,175) 722 $ 17,425 $ (12,135) $ 5,290 Lease Intangible Liabilities Below-market leases $ (2,379) $ 1,733 $ (646) 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) 2023 (July 1, 2023 - December 31, 2023) $ 320 $ 74 2024 641 147 2025 641 147 2026 490 77 2027 381 38 Thereafter 831 61 $ 3,304 $ 544 |
LINES OF CREDIT
LINES OF CREDIT | 6 Months Ended |
Jun. 30, 2023 | |
LINES OF CREDIT | |
LINES OF CREDIT | NOTE 7 – LINES OF CREDIT We have a $4,915 variable rate (floating SOFR plus 2.00%) line of credit agreement with Bremer Bank, which expires in December 2026 December 2026 Certain lines of credit agreements include covenants that, in part, impose maintenance of certain debt service coverage and debt to net worth ratios. |
NOTES PAYABLE
NOTES PAYABLE | 6 Months Ended |
Jun. 30, 2023 | |
NOTES PAYABLE. | |
NOTES PAYABLE | NOTE 8 - NOTES PAYABLE On December 29, 2022, the Trust entered into a $26,500 note payable. The note payable was paid off on January 13, 2023, which effectively cancelled the promissory note. As of June 30, 2023, the Trust did not have any outstanding balance on notes payable. As of December 31, 2022, the balance on the note payable was $26,500. The following table summarizes the Trust’s mortgage notes payable. Principal Balance At June 30, December 31, 2023 2022 (in thousands) Fixed rate mortgage notes payable (a) $ 520,112 $ 508,305 Variable rate mortgage notes payable - - Mortgage notes payable 520,112 508,305 Less unamortized debt issuance costs 2,003 2,138 $ 518,109 $ 506,167 (a) Includes $104,648 and $106,033 of variable rate mortgage debt that was swapped to a fixed rate at June 30, 2023 and December 31, 2022, respectively. 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) 2023 (July 1, 2023 - December 31, 2023) $ 33,089 2024 22,250 2025 53,170 2026 70,688 2027 78,081 Thereafter 262,834 Total payments $ 520,112 |
DERIVATIVES AND HEDGING ACTIVIT
DERIVATIVES AND HEDGING ACTIVITIES | 6 Months Ended |
Jun. 30, 2023 | |
DERIVATIVES AND HEDGING ACTIVITIES | |
DERIVATIVES AND HEDGING ACTIVITIES | NOTE 9 – 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, the Trust makes fixed rate payments over the life of the agreement without exchange of the underlying notional amount. As of June 30, 2023, the Trust used 12 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 qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and are reclassified into interest expense as interest payments are made on the Trust’s variable rate debt. During the next twelve months, the Trust estimates that an additional $3,896 will be reclassified as a decrease to interest expense. The following table summarizes the Trust’s interest rate swaps as of June 30, 2023, which effectively convert one month floating rate LIBOR or 30-day average SOFR to a fixed rate: Fixed Effective Date Notional Interest Rate Maturity Date November 1, 2019 $ 6,470 3.15% November 1, 2029 November 1, 2019 $ 4,500 3.28% November 1, 2029 January 10, 2020 $ 2,933 3.39% January 10, 2030 December 2, 2020 $ 12,183 2.91% December 2, 2027 July 1, 2021 $ 25,346 2.99% July 1, 2031 November 10, 2021 $ 27,760 3.54% August 1, 2029 December 1, 2021 $ 10,665 3.32% December 1, 2031 August 15, 2022 $ 1,467 3.07% June 15, 2030 August 15, 2022 $ 2,843 3.07% June 15, 2030 August 15, 2022 $ 1,589 2.94% June 15, 2030 August 15, 2022 $ 4,204 2.94% June 15, 2030 May 10, 2023 $ 4,688 2.79% June 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 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 Interest rate swaps 12 12 $ 104,648 $ 106,033 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 10 to the consolidated financial statements. Derivatives designated as June 30, 2023 December 31, 2022 cash flow hedges: Balance Sheet Location Fair Value Balance Sheet Location Fair Value Interest rate swaps Other assets, net $ 13,427 Other assets, net $ 13,782 The carrying amounts 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 and 30-day average SOFR, resulted in reporting an asset 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 Trust’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive loss (income) for the three months ended June 30, 2023 and 2022: Location of Gain Amount of Gain 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 2023 2023 Interest rate swaps $ (2,023) Interest expense $ (917) 2022 2022 Interest rate swaps $ (3,814) Interest expense $ 257 The following table presents the effect of the Trust’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive loss (income) for the six months ended June 30, 2023 and 2022: 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 2023 2023 Interest rate swaps $ 355 Interest expense $ (1,682) 2022 2022 Interest rate swaps $ (10,339) Interest expense $ 618 Credit-risk-related Contingent Features 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. . |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | 6 Months Ended |
Jun. 30, 2023 | |
FAIR VALUE MEASUREMENT | |
FAIR VALUE MEASUREMENT | NOTE 10 - FAIR VALUE MEASUREMENT The following table presents the carrying value and estimated fair value of the Company’s financial instruments: June 30, 2023 December 31, 2022 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial assets: Investment in securities $ 10,230 $ 10,230 $ 29,371 $ 29,371 Notes receivable $ 10,154 $ 11,833 $ 8,448 $ 9,789 Derivative assets $ 13,427 $ 13,427 $ 13,782 $ 13,782 Financial liabilities: Mortgage notes payable $ 520,112 $ 480,614 $ 508,305 $ 466,245 ASC 820-10 established a three-level valuation hierarchy for fair value measurement. Management uses these valuation techniques to establish the fair value of the assets at the measurement date. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s assumptions. These two types of inputs create the following fair value hierarchy: ● Level 1 – Quoted prices for identical instruments in active markets; ● Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; ● Level 3 – Instruments whose significant inputs are unobservable. The guidance requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Recurring Fair Value Measurements The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table. Level 1 Level 2 Level 3 Total (in thousands) June 30, 2023 Derivative assets $ — $ 13,427 $ — $ 13,427 December 31, 2022 Derivative assets $ — $ 13,782 $ — $ 13,782 Derivatives: 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. Fair Value Disclosures The following table presents the Trust’s financial assets and liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which they fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table. Level 1 Level 2 Level 3 Total (in thousands) June 30, 2023 U.S. Treasury Bills $ 10,230 $ — $ — $ 10,230 Mortgage notes payable $ — $ — $ 480,614 $ 480,614 Notes receivable $ — $ — $ 11,833 $ 11,833 December 31, 2022 U.S. Treasury Bills $ 29,371 $ — $ — $ 29,371 Mortgage notes payable $ — $ — $ 466,245 $ 466,245 Notes receivable $ — $ — $ 9,789 $ 9,789 Mortgage notes payable: Notes receivable: |
LEASES
LEASES | 6 Months Ended |
Jun. 30, 2023 | |
LEASES | |
LEASES | NOTE 11 – LEASES As of June 30, 2023, we derived 85.0% 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 June 30, 2023, we derived 15.0% 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 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. Lease income related to the Company’s operating leases is comprised of the following: Three months ended June 30, 2023 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 29,165 $ 3,920 $ 33,085 Lease income related to variable lease payments — 899 899 Other (a) (160) 86 (74) Lease Income (b) $ 29,005 $ 4,905 $ 33,910 Three months ended June 30, 2022 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 27,436 $ 4,115 $ 31,551 Lease income related to variable lease payments — 1,111 1,111 Other (a) (192) 68 (124) Lease Income (b) $ 27,244 $ 5,294 $ 32,538 (a) For the three months ended June 30, 2023 and 2022, “Other” is comprised of revenue adjustments related to changes in collectability and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the three months ended June 30, 2023 and 2022 of $1,640 and $1,279 , respectively, which is accounted for under the revenue recognition standard. Six months ended June 30, 2023 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 57,820 $ 7,864 $ 65,684 Lease income related to variable lease payments — 2,096 2,096 Other (a) (279) 181 (98) Lease Income (b) $ 57,541 $ 10,141 $ 67,682 Six months ended June 30, 2022 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 53,934 $ 8,182 $ 62,116 Lease income related to variable lease payments — 2,288 2,288 Other (a) (361) 163 (198) Lease Income (b) $ 53,573 $ 10,633 $ 64,206 (a) For the six months ended June 30, 2023 and 2022, “Other” is comprised of revenue adjustments related to changes in collectability and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the six months ended June 30, 2023 and 2022 of $3,048 and $2,528 , respectively, which is accounted for under the revenue recognition standard. As of June 30, 2023, non-cancelable commercial operating leases provide for future minimum rental income as follows. Residential leases are not included, as the terms are generally for one year or less. Years ending December 31, Amount (in thousands) 2023 (July 1, 2023 - December 31, 2023) $ 7,565 2024 14,805 2025 14,379 2026 12,986 2027 11,554 Thereafter 43,364 $ 104,653 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2023 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 12 – RELATED PARTY TRANSACTIONS Effective January 1, 2021, Trustmark Enterprises, Inc. was formed to act as the holding company for Sterling Management, LLC and GOLDMARK Property Management, Inc. In connection with this restructuring transaction, the owners of Trustmark Enterprises, Inc. indirectly own Sterling Management, LLC and GOLDMARK Property Management, Inc. Trustmark Enterprises, Inc. is owned in part by the Trust’s Chief Executive Officer and Trustee Mr. Kenneth P. Regan, by Trustee Mr. James S. Wieland, and by President Joel S. Thomsen. In addition, Mr. Regan serves as the Executive Chairman of the Advisor, and Messrs. Wieland, and Thomsen serve on the Board of Governors of both the Advisor and GOLDMARK Property Management, Inc. Sterling Management, LLC (the “Advisor”), is a North Dakota limited liability company formed in November 2002. The Advisor is responsible for managing day-to-day affairs, overseeing capital projects, and identifying, acquiring, and disposing investments on behalf of the Trust. GOLDMARK Property Management, Inc., is a North Dakota corporation formed in 1981. GOLDMARK Property Management, Inc. performs property management services for the Trust. We have a historical and ongoing relationship with Bell Bank. Bell Bank has provided the Trust certain financial services throughout the relationship. Mr. Wieland, a Trustee, also serves as a Board Member of Bell Bank. Mr. Wieland could have an indirect material interest in any such engagement and related transactions. The Trust has a historical and ongoing relationship with Trumont Group and Trumont Construction. Trumont Group provides development services for current joint venture projects in which the Operating Partnership is an investor. Trumont Construction has been engaged to construct the properties associated with these joint ventures. Mr. Regan, Chief Executive Officer and Trustee, is a partner in both Trumont Group and Trumont Construction and has a direct material interest in any engagement or related transaction, the Trust enters into, with these entities. Property Management Fees During the six months ended June 30, 2023 and 2022, we paid fees to GOLDMARK Property Management, Inc. related to the management of properties, on-site staff costs and other miscellaneous fees required to run the property of $5,917, and $6,879, respectively. Management fees paid during the six months ended June 30, 2023 and 2022 approximated 5% of net collected rent. In addition, during the six months ended June 30, 2023 and 2022, we paid repair and maintenance expenses, and payroll related expenses to GOLDMARK Property Management, Inc. totaling $4,916 and $3,523, respectively. 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 23, 2023, and is effective until March 31, 2024. The below table summarizes the fees incurred to our Advisor. Six Months ended June 30, 2023 2022 (in thousands) Fee: Advisory $ 1,901 $ 1,807 Acquisition $ - $ 876 Disposition $ 204 $ 226 Financing $ 68 $ 47 Project Management $ 249 $ 253 The below table summarizes the fees payable to our Advisor. Payable at June 30, December 31, 2023 2022 (in thousands) Fee: Advisory $ 316 $ 632 Acquisition $ - $ 387 Disposition $ - $ 72 Financing $ 11 $ - Project Management $ - $ 12 Operating Partnership Units Issued in Connection with Acquisitions During the six months ended June 30, 2023, there were no Operating Partnership units issued. During the six months ended June 30, 2022, 443,000 Operating Partnerships units were issued 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 $10,180. Commissions During the six months ended June 30, 2023, there were no real estate commissions paid to GOLDMARK Commercial Real Estate. During the six months ended June 30, 2022, we incurred real estate commissions of $278 to GOLDMARK Commercial Real Estate, Inc., in which Messrs. Regan and Wieland jointly own a controlling interest. As of June 30, 2023, there were no commissions payable to Goldmark Commercial Real Estate. As of December 31, 2022, there were commissions of $183 payable to GOLDMARK Commercial Real Estate. During the six months ended June 30, 2023, there were no commission paid to GOLDMARK Property Management. During the six months ended June 30, 2022, we incurred real estate commissions of $260, to GOLDMARK Property Management. June 30, 2023, there were no unpaid commissions to GOLDMARK Commercial Real Estate. As of December 31, 2022, there were commissions of $92 payable to GOLDMARK Property Management. Rental Income During the six months ended June 30, 2023 and 2022, we received rental income of $135 and $132, respectively, under an operating lease agreement with GOLDMARK Property Management, Inc. During the six months ended June 30, 2023 and 2022, we received rental income of $66 and $64, respectively, under an operating lease agreement with our Advisor. During the six months ended June 30, 2023 and 2022, we received rental income of $465 and $422, respectively, under operating lease agreements with Bell Bank. Other operational costs During the six months ended June 30, 2023 and 2022, the Trust incurred $91 and $111, respectively, for general costs related to business operations as well as capital expenditures related to construction in progress that were paid to related parties. At June 30, 2023 and December 31, 2022, there were no operational outstanding liabilities. Debt Financing At June 30, 2023 and December 31, 2022, the Trust had $61,399 and $64,123, respectively, of outstanding principal on loans entered into with Bell Bank. During the six months ended June 30, 2023 and 2022, the Trust incurred interest expense on debt held with Bell Bank of $1,208 and $1,238, respectively. Accrued interest as of June 30, 2023 and December 31, 2022 related to this debt was $118 and $130, respectively. Mezzanine Financing The Trust offers mezzanine financing to joint ventures, see note 5 for investment in unconsolidated affiliates. At June 30, 2023 and December 31, 2022, Sterling issued $9,998 and $5,854 respectively, in second mortgage financing to related entries. During the six months ended June 30, 2023 and 2022, the Trust earned interest income of $288 and $171 respectively, related to the second mortgage financing. Insurance Services The Trust retains insurance services from Bell Insurance. Policies provided by these services provide insurance coverage for the Trust’s Commercial and Residential Segment as well as Director and Officer general and liability coverage. For the six months ended June 30, 2023, total premiums incurred for this policy were $131. No premiums were incurred during the six months ended June 30, 2022. Development Arrangements During the six months ended June 30, 2023 and 2022, the Trust incurred $- and $409 , respectively, in development fees to Trumont Group. At June 30, 2023 and December 31, 2022, the Trust had no costs owed for development fees to Trumont Group. During the six months ended June 30, 2023 and 2022, the Trust incurred $276 and $429 , respectively, in construction fees to Trumont Construction. At June 30, 2023 and December 31, 2022, the Trust owed $- and $71 , respectively for construction fees to Trumont Construction. During the six months ended June 30, 2023 and 2022, the Trust incurred $186 and $204 , respectively, in general construction costs to Trumont Construction. At June 30, 2023 and December 31, 2022, the Trust owed $- and $81 , respectively, for general construction costs. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2023 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 13 - COMMITMENTS AND CONTINGENCIES Environmental Matters Federal law (and the laws of some states in which we own or may acquire properties) imposes liability on a landowner for the presence on the premises of hazardous substances or wastes (as defined by present and future federal and state laws and regulations). This liability is without regard to fault or knowledge of the presence of such substances and may be imposed jointly and severally upon all succeeding landowners. If such hazardous substance is discovered on a property acquired by us, we could incur liability for the removal of the substances and the cleanup of the property. There can be no assurance that we would have effective remedies against prior owners of the property. In addition, we may be liable to tenants and may find it difficult or impossible to sell the property either prior to or following such a cleanup. Risk of Uninsured Property Losses We maintain property damage, fire loss, and liability insurance. However, there are certain types of losses (generally of a catastrophic nature) which may be either uninsurable or not economically insurable. Such excluded risks may include war, earthquakes, tornados, certain environmental hazards, and floods. Should such events occur, (i) we might suffer a loss of capital invested, (ii) tenants may suffer losses and may be unable to pay rent for the spaces, and (iii) we may suffer a loss of profits which might be anticipated from one or more properties. Litigation The Trust 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 Trust. |
DISPOSITIONS
DISPOSITIONS | 6 Months Ended |
Jun. 30, 2023 | |
DISPOSITIONS | |
DISPOSITIONS | NOTE 14 – DISPOSITIONS During the six months ended June 30, 2023, the Operating Partnership disposed of two properties. One property located in Coon Rapids, Minnesota was disposed of for $3,448 with a recognized gain of $1,531 . The other property was located in White Bear Lake, Minnesota was disposed of for $4,710 with a recognized gain of $1,066 . During the six months ended June 30, 2022 the Operating Partnership disposed of two properties for a total of $9,100 and recognized gain of $3,340 . |
ACQUISITIONS
ACQUISITIONS | 6 Months Ended |
Jun. 30, 2023 | |
ACQUISITIONS | |
ACQUISITIONS | NOTE 15 – ACQUISITIONS The Trust had no acquisitions during the six months ended June 30, 2023. The Trust had five acquisitions during the six months ended June 30, 2022. Date Property Name Location Property Type Units/ Square Footage/ Acres Purchase Price 2/28/22 Deer Park Hutchinson, MN Apartment Complex 138 units $ 15,073 5/31/22 Desoto Estates Grand Forks, ND Apartment Complex 68 units 5,863 5/31/22 Desoto Townhomes Grand Forks, ND Townhomes 24 units 3,226 5/31/22 Desoto Apartments East Grand Forks, MN Apartment Complex 24 units 1,230 6/10/22 Diamond Bend Mandan, ND Apartment Complex 78 units 10,919 $ 36,311 Total consideration given for acquisitions through June 30, 2022 was completed through issuing approximately 443,000 limited partnership units of the Operating Partnership valued at $23.00 per unit for an aggregate consideration of approximately $10,180. 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. Six months ended June 30, 2023 2022 Real estate investment acquired $ - $ 35,953 Acquired lease intangible assets - 619 Assumed Assets - 3 Total Assets Acquired $ - $ 36,575 Other liabilities - (264) Net assets acquired - 36,311 Equity/limited partnership unit consideration - (10,180) Net cash consideration $ - $ 26,131 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2023 | |
SUBSEQUENT EVENTS. | |
SUBSEQUENT EVENTS | NOTE 16 - SUBSEQUENT EVENTS On July 7, 2023, the Trust obtained financing on a residential property for $6,000. On July 17, 2023, we paid a dividend or distribution of $0.2875 per share on our common shares of beneficial interest or limited partnership units, respectively, to common shareholders and limited partnership unit holders of record on June 30, 2023. 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) | 6 Months Ended |
Jun. 30, 2023 | |
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, 2022, 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. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial statements as of and for the three and six months ended June 30, 2023. These adjustments are of a normal recurring nature. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of , Properties, LLLP, and wholly-owned limited liability companies. All significant intercompany transactions and balances have been eliminated in consolidation. As of June 30, 2023, the Trust owned approximately 37.24% of the partnership interests (“OP Units”) of the Operating Partnership. The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to the Operating Partnership in exchange for OP Units. Under the LLLP Agreement and the individual’s respective redemption plan, these persons have the right to request the Operating Partnership redeem their OP Units following a specified restricted period. All redemptions are at the sole discretion of the Trust, acting for itself or in its capacity as General Partner of the Operating Partnership, and further subject to the conditions and limitations of the LLLP Agreement and redemption plans, as the same may be amended or modified from time to time. If the Trust accepts a redemption request, the redemption of OP Units shall be made in cash in an amount equal to the fair value of an equivalent number of common shares of the Trust. In lieu of delivering cash, however, the Trust, as the Operating Partnership’s general partner, may, at its option and in its sole and absolute discretion, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units. If the Trust so chooses, its common shares will be exchanged for OP Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustment to prevent dilution. With each such exchange or redemption, the Trust’s percentage ownership in the Operating Partnership will increase. In addition, whenever the Trust issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Trust an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued. This structure is commonly referred to as an umbrella partnership REIT or “UPREIT.” 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. The Trust will consolidate the operations of a joint venture if the Trust determines that it is the primary beneficiary of a variable interest entity (VIE) and has substantial influence and control of the entity. In instances where the Trust determines that it is not the primary beneficiary of a VIE and the Trust does not control the joint venture but can exercise influence over the entity with respect to its operations and major decisions, the Trust will use the equity method of accounting. Under the equity method, the operations of a joint venture will not be consolidated with the Trust’s operations but instead its share of operations will be reflected as equity in earnings (losses) of unconsolidated affiliates on its consolidated statements of operations and comprehensive income. Additionally, the Trust’s net investment in the joint venture will be reflected as investment in unconsolidated entity on the consolidated balance sheets. See Note 5 for additional details regarding variable interest entities where the Trust uses the equity method of investing. The Operating Partnership meets the criteria as a variable interest entity (“VIE”). The Trust’s sole significant asset is its investment in the Operating Partnership. As a result, substantially all of the Trust’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Trust’s debt is an obligation of the Operating Partnership, and the Trust guarantees the unsecured debt obligations of the Operating Partnership. |
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 relative fair value at acquisition date of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease intangibles, (iv) acquired above and below market lease intangibles, and (v) assumed financing that is determined to be above or below market, if any. Transaction costs related to acquisitions accounted for as asset acquisitions are capitalized as a cost of the property. 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. 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 expensed 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 The Trust’s investment properties are reviewed for potential impairment at the end of each reporting period or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, the Trust separately determines whether impairment indicators exist for each property. Based on evaluation, there were no impairment losses during the three and six months ended June 30, 2023 and 2022. |
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. We follow FASB ASC Topic 740, Income Taxes, |
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. As of June 30, 2023, all leases analyzed under the Trust’s lease classification process were determined to be operating leases. |
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 during the three and six months ended June 30, 2023 and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods. For the six months ended June 30, 2023 and 2022, Sterling’s denominators for the basic and diluted earnings per common share were approximately 10,996,000 and 10,515,000 , respectively. |
PRINCIPAL ACTIVITY AND SIGNIF_3
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |
Summary of Estimated Useful Life | Buildings and improvements 40 years Furniture, fixtures and equipment 5 |
Schedule of effect of the corrections | Three months ended June 30, 2023 Six months ended June 30, 2023 Original Adjustment As restated Original Adjustment As restated Balance Sheet Shareholders' Equity Beneficial interest 128,615 (4,367) 124,248 Noncontrolling interest Operating partnership 167,760 4,367 172,127 Statement of Operations and Other Comprehensive Income Net (loss) income attributable to noncontrolling interest: Operating partnership (1,361) 4,368 3,007 (1,769) 4,368 2,599 Net income attributable to Sterling Real Estate Trust 6,139 (4,368) 1,771 5,899 (4,368) 1,531 Comprehensive income: Comprehensive (loss) income attributable to noncontrolling interest (141) 4,368 4,227 (2,082) 4,368 2,286 Comprehensive (loss) income attributable to Sterling Real Estate Trust 6,893 (4,368) 2,525 5,768 (4,368) 1,400 |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
SEGMENT REPORTING | |
Summary of Segment Revenues and Net Operating Income | Three months ended June 30, 2023 Three months ended June 30, 2022 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 30,574 $ 4,976 $ 35,550 $ 28,502 $ 5,315 $ 33,817 Expenses from rental operations 18,730 1,426 20,156 15,246 1,549 16,795 Net operating income $ 11,844 $ 3,550 $ 15,394 $ 13,256 $ 3,766 $ 17,022 Depreciation and amortization 6,484 5,963 Interest 5,331 4,954 Administration of REIT 1,140 1,400 Other income (2,290) (2,402) Net income $ 4,729 $ 7,107 Six months ended June 30, 2023 Six months ended June 30, 2022 Residential Commercial Total Residential Commercial Total (in thousands) (in thousands) Income from rental operations $ 60,494 $ 10,236 $ 70,730 $ 55,997 $ 10,737 $ 66,734 Expenses from rental operations 38,934 3,143 42,077 31,753 3,228 34,981 Net operating income $ 21,560 $ 7,093 $ 28,653 $ 24,244 $ 7,509 $ 31,753 Depreciation and amortization 13,036 11,745 Interest 10,687 9,800 Administration of REIT 2,451 2,617 Other income (1,562) (2,905) Net income $ 4,041 $ 10,496 |
Summary of Segment Assets and Accumulated Depreciation | As of June 30, 2023 Residential Commercial Total (in thousands) Real estate investments $ 784,376 $ 187,107 $ 971,483 Accumulated depreciation (156,200) (49,453) (205,653) Total real estate investments, net $ 628,176 $ 137,654 $ 765,830 Lease intangible assets, less accumulated amortization — 3,304 3,304 Cash and cash equivalents 6,182 Restricted deposits 9,093 Investment in securities 10,230 Investment in unconsolidated affiliates 28,654 Notes receivable 10,154 Other assets, net 26,461 Total Assets $ 859,908 As of December 31, 2022 Residential Commercial Total (in thousands) Real estate investments $ 779,424 $ 191,724 $ 971,148 Accumulated depreciation (147,115) (47,734) (194,849) Total real estate investments, net $ 632,309 $ 143,990 $ 776,299 Lease intangible assets, less accumulated amortization 839 4,451 5,290 Cash and cash equivalents 3,257 Restricted deposits 9,323 Investment in securities 29,371 Investment in unconsolidated affiliates 29,423 Notes receivable 8,448 Other assets, net 27,312 Total Assets $ 888,723 |
RESTRICTED DEPOSITS AND FUNDE_2
RESTRICTED DEPOSITS AND FUNDED RESERVES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
RESTRICTED DEPOSITS AND FUNDED RESERVES | |
Schedule of restricted deposits | As of June 30, As of December 31, 2023 2022 (in thousands) Tenant security deposits $ 6,746 $ 6,242 Real estate tax and insurance escrows 657 1,336 Replacement reserves 1,690 1,745 $ 9,093 $ 9,323 |
INVESTMENT IN UNCONSOLIDATED _2
INVESTMENT IN UNCONSOLIDATED AFFILIATES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
INVESTMENT IN UNCONSOLIDATED AFFILIATES | |
Schedule of investments in unconsolidated real estate ventures | Total Investment in Unconsolidated Affiliates at Unconsolidated Affiliates Date Acquired Trust Ownership Interest June 30, 2023 December 31, 2022 Banner Building 2007 66.67% $ (453) $ (614) Grand Forks INREIT, LLC 2003 50% 5,114 4,961 SE Savage, LLC 2019 60% 1,318 1,660 SE Maple Grove, LLC 2019 60% 1,105 1,836 SE Rogers, LLC 2020 60% 1,850 2,413 ST Oak Cliff, LLC 2021 70% 8,494 9,098 SE Brooklyn Park, LLC 2021 60% 2,017 2,914 SE Fossil Creek, LLC 2022 70% 9,209 7,155 $ 28,654 $ 29,423 |
Schedule of financial information of unconsolidated entities | The following is a summary of the financial position of the unconsolidated affiliates at June 30, 2023 and December 31, 2022. June 30, 2023 December 31, 2022 (in thousands) ASSETS Real estate investments $ 245,807 $ 218,747 Accumulated depreciation (21,385) (16,490) 224,422 202,257 Cash and cash equivalents 3,130 3,093 Restricted deposits 561 1,034 Intangible assets, less accumulated amortization 858 542 Other assets, net 496 827 Total Assets $ 229,467 $ 207,753 LIABILITIES Mortgage notes payable, net $ 174,782 $ 152,246 Tenant security deposits payable 301 192 Accrued expenses and other liabilities 9,115 8,217 Total Liabilities $ 184,198 $ 160,655 SHAREHOLDERS' EQUITY Total Shareholders' Equity $ 45,269 $ 47,098 Total liabilities and shareholders' equity $ 229,467 $ 207,753 The following is a summary of results of operations of the unconsolidated affiliates for the three and six months ended June 30, 2023 and 2022. Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 (in thousands) (in thousands) Income from rental operations $ 4,633 $ 2,076 $ 8,340 $ 3,806 Expenses from rental operations 1,717 682 3,495 1,494 Net operating income $ 2,916 $ 1,394 $ 4,845 $ 2,312 Depreciation and Amortization 2,441 1,187 4,933 3,014 Interest 1,448 665 2,792 1,677 Other expense 98 - 13 11 Net loss $ (1,071) $ (458) $ (2,893) $ (2,390) |
LEASE INTANGIBLES (Tables)
LEASE INTANGIBLES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
LEASE INTANGIBLES | |
Schedule of Intangible Assets, Liabilities and Accumulated Amortization | Lease Accumulated Lease As of June 30, 2023 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 14,113 $ (11,344) $ 2,769 Above-market leases 1,415 (880) 535 $ 15,528 $ (12,224) $ 3,304 Lease Intangible Liabilities Below-market leases $ (2,326) $ 1,782 $ (544) Lease Accumulated Lease As of December 31, 2022 Intangibles Amortization Intangibles, net Lease Intangible Assets (in thousands) In-place leases $ 15,528 $ (10,960) $ 4,568 Above-market leases 1,897 (1,175) 722 $ 17,425 $ (12,135) $ 5,290 Lease Intangible Liabilities Below-market leases $ (2,379) $ 1,733 $ (646) |
Schedule of Estimated Aggregate Amortization Expense | Intangible Intangible Years ending December 31, Assets Liabilities (in thousands) 2023 (July 1, 2023 - December 31, 2023) $ 320 $ 74 2024 641 147 2025 641 147 2026 490 77 2027 381 38 Thereafter 831 61 $ 3,304 $ 544 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
NOTES PAYABLE. | |
Schedule of Mortgage Notes Payable | Principal Balance At June 30, December 31, 2023 2022 (in thousands) Fixed rate mortgage notes payable (a) $ 520,112 $ 508,305 Variable rate mortgage notes payable - - Mortgage notes payable 520,112 508,305 Less unamortized debt issuance costs 2,003 2,138 $ 518,109 $ 506,167 (a) Includes $104,648 and $106,033 of variable rate mortgage debt that was swapped to a fixed rate at June 30, 2023 and December 31, 2022, respectively. |
Scheduled Maturities of Mortgage Notes Payable | Years ending December 31, Amount (in thousands) 2023 (July 1, 2023 - December 31, 2023) $ 33,089 2024 22,250 2025 53,170 2026 70,688 2027 78,081 Thereafter 262,834 Total payments $ 520,112 |
DERIVATIVES AND HEDGING ACTIV_2
DERIVATIVES AND HEDGING ACTIVITIES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
DERIVATIVES AND HEDGING ACTIVITIES | |
Schedule of interest rate swaps | The following table summarizes the Trust’s interest rate swaps as of June 30, 2023, which effectively convert one month floating rate LIBOR or 30-day average SOFR to a fixed rate: Fixed Effective Date Notional Interest Rate Maturity Date November 1, 2019 $ 6,470 3.15% November 1, 2029 November 1, 2019 $ 4,500 3.28% November 1, 2029 January 10, 2020 $ 2,933 3.39% January 10, 2030 December 2, 2020 $ 12,183 2.91% December 2, 2027 July 1, 2021 $ 25,346 2.99% July 1, 2031 November 10, 2021 $ 27,760 3.54% August 1, 2029 December 1, 2021 $ 10,665 3.32% December 1, 2031 August 15, 2022 $ 1,467 3.07% June 15, 2030 August 15, 2022 $ 2,843 3.07% June 15, 2030 August 15, 2022 $ 1,589 2.94% June 15, 2030 August 15, 2022 $ 4,204 2.94% June 15, 2030 May 10, 2023 $ 4,688 2.79% June 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 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 Interest rate swaps 12 12 $ 104,648 $ 106,033 |
Schedule of the estimated fair value of derivatives | Derivatives designated as June 30, 2023 December 31, 2022 cash flow hedges: Balance Sheet Location Fair Value Balance Sheet Location Fair Value Interest rate swaps Other assets, net $ 13,427 Other assets, net $ 13,782 |
Schedule of the effect of the derivatives | Location of Gain Amount of Gain 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 2023 2023 Interest rate swaps $ (2,023) Interest expense $ (917) 2022 2022 Interest rate swaps $ (3,814) Interest expense $ 257 The following table presents the effect of the Trust’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive loss (income) for the six months ended June 30, 2023 and 2022: 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 2023 2023 Interest rate swaps $ 355 Interest expense $ (1,682) 2022 2022 Interest rate swaps $ (10,339) Interest expense $ 618 |
FAIR VALUE MEASUREMENT (Tables)
FAIR VALUE MEASUREMENT (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
FAIR VALUE MEASUREMENT | |
Carrying Value and Estimated Fair Value of Company's Financial Instruments | June 30, 2023 December 31, 2022 Carrying Carrying Value Fair Value Value Fair Value (in thousands) Financial assets: Investment in securities $ 10,230 $ 10,230 $ 29,371 $ 29,371 Notes receivable $ 10,154 $ 11,833 $ 8,448 $ 9,789 Derivative assets $ 13,427 $ 13,427 $ 13,782 $ 13,782 Financial liabilities: Mortgage notes payable $ 520,112 $ 480,614 $ 508,305 $ 466,245 |
Schedule of Fair Value of Liabilities on Recurring Basis | Level 1 Level 2 Level 3 Total (in thousands) June 30, 2023 Derivative assets $ — $ 13,427 $ — $ 13,427 December 31, 2022 Derivative assets $ — $ 13,782 $ — $ 13,782 |
Fair Value of Company's Financial Assets and Liabilities | Level 1 Level 2 Level 3 Total (in thousands) June 30, 2023 U.S. Treasury Bills $ 10,230 $ — $ — $ 10,230 Mortgage notes payable $ — $ — $ 480,614 $ 480,614 Notes receivable $ — $ — $ 11,833 $ 11,833 December 31, 2022 U.S. Treasury Bills $ 29,371 $ — $ — $ 29,371 Mortgage notes payable $ — $ — $ 466,245 $ 466,245 Notes receivable $ — $ — $ 9,789 $ 9,789 |
LEASES (Tables)
LEASES (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
LEASES | |
Schedule of lease Income related to the Company's operating leases | Lease income related to the Company’s operating leases is comprised of the following: Three months ended June 30, 2023 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 29,165 $ 3,920 $ 33,085 Lease income related to variable lease payments — 899 899 Other (a) (160) 86 (74) Lease Income (b) $ 29,005 $ 4,905 $ 33,910 Three months ended June 30, 2022 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 27,436 $ 4,115 $ 31,551 Lease income related to variable lease payments — 1,111 1,111 Other (a) (192) 68 (124) Lease Income (b) $ 27,244 $ 5,294 $ 32,538 (a) For the three months ended June 30, 2023 and 2022, “Other” is comprised of revenue adjustments related to changes in collectability and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the three months ended June 30, 2023 and 2022 of $1,640 and $1,279 , respectively, which is accounted for under the revenue recognition standard. Six months ended June 30, 2023 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 57,820 $ 7,864 $ 65,684 Lease income related to variable lease payments — 2,096 2,096 Other (a) (279) 181 (98) Lease Income (b) $ 57,541 $ 10,141 $ 67,682 Six months ended June 30, 2022 Residential Commercial Total (in thousands) Lease income related to fixed lease payments $ 53,934 $ 8,182 $ 62,116 Lease income related to variable lease payments — 2,288 2,288 Other (a) (361) 163 (198) Lease Income (b) $ 53,573 $ 10,633 $ 64,206 (a) For the six months ended June 30, 2023 and 2022, “Other” is comprised of revenue adjustments related to changes in collectability and amortization of above and below market lease intangibles and lease inducements. (b) Excludes other rental income for the six months ended June 30, 2023 and 2022 of $3,048 and $2,528 , respectively, which is accounted for under the revenue recognition standard. |
Schedule of future minimum rental income | Years ending December 31, Amount (in thousands) 2023 (July 1, 2023 - December 31, 2023) $ 7,565 2024 14,805 2025 14,379 2026 12,986 2027 11,554 Thereafter 43,364 $ 104,653 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
RELATED PARTY TRANSACTIONS | |
Schedule of fees incurred and payable to Advisor | Six Months ended June 30, 2023 2022 (in thousands) Fee: Advisory $ 1,901 $ 1,807 Acquisition $ - $ 876 Disposition $ 204 $ 226 Financing $ 68 $ 47 Project Management $ 249 $ 253 Payable at June 30, December 31, 2023 2022 (in thousands) Fee: Advisory $ 316 $ 632 Acquisition $ - $ 387 Disposition $ - $ 72 Financing $ 11 $ - Project Management $ - $ 12 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 6 Months Ended |
Jun. 30, 2023 | |
ACQUISITIONS | |
Schedule of acquisitions | Date Property Name Location Property Type Units/ Square Footage/ Acres Purchase Price 2/28/22 Deer Park Hutchinson, MN Apartment Complex 138 units $ 15,073 5/31/22 Desoto Estates Grand Forks, ND Apartment Complex 68 units 5,863 5/31/22 Desoto Townhomes Grand Forks, ND Townhomes 24 units 3,226 5/31/22 Desoto Apartments East Grand Forks, MN Apartment Complex 24 units 1,230 6/10/22 Diamond Bend Mandan, ND Apartment Complex 78 units 10,919 $ 36,311 |
Schedule of acquisition date fair values, before prorations recorded in conjunction with acquisitions | Six months ended June 30, 2023 2022 Real estate investment acquired $ - $ 35,953 Acquired lease intangible assets - 619 Assumed Assets - 3 Total Assets Acquired $ - $ 36,575 Other liabilities - (264) Net assets acquired - 36,311 Equity/limited partnership unit consideration - (10,180) Net cash consideration $ - $ 26,131 |
ORGANIZATION - Additional Infor
ORGANIZATION - Additional Information (Details) | Jun. 30, 2023 | Dec. 31, 2022 |
ORGANIZATION | ||
Ownership in operating partnership (as a percent) | 37.24% | 36.60% |
PRINCIPAL ACTIVITY AND SIGNIF_4
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES - Principles of Consolidation (Details) | Jun. 30, 2023 | Dec. 31, 2022 |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | ||
Ownership in operating partnership (as a percent) | 37.24% | 36.60% |
PRINCIPAL ACTIVITY AND SIGNIF_5
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES - Real Estate Investments (Details) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2023 USD ($) | Jun. 30, 2023 USD ($) | |
Real Estate Investments | ||
Loss on impairment of property | $ 0 | $ 0 |
Building and improvements | ||
Real Estate Investments | ||
Estimated useful life | 40 years | 40 years |
Furniture and fixtures | Minimum | ||
Real Estate Investments | ||
Estimated useful life | 5 years | 5 years |
Furniture and fixtures | Maximum | ||
Real Estate Investments | ||
Estimated useful life | 9 years | 9 years |
PRINCIPAL ACTIVITY AND SIGNIF_6
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES - Federal Income Taxes (Details) $ in Thousands | 6 Months Ended |
Jun. 30, 2023 USD ($) | |
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES | |
Taxable income to be distributed | 90% |
Retainable taxable income | 10% |
Provisions or liabilities for income taxes | $ 0 |
PRINCIPAL ACTIVITY AND SIGNIF_7
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES - Earnings Per Common Share (Details) - shares | 3 Months Ended | 6 Months Ended | 9 Months Ended | |||||
Sep. 30, 2023 | Jun. 30, 2023 | Sep. 30, 2022 | Jun. 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Earnings per Common Share | ||||||||
Dilutive potential common shares | 0 | 0 | ||||||
Weighted average common shares outstanding, basic | 11,039,000 | 10,564,000 | 10,996,000 | 10,515,000 | 10,515,000 | |||
Weighted average common shares outstanding, diluted | 11,039,000 | 10,564,000 | 10,996,000 | 10,515,000 | 10,996,000 |
PRINCIPAL ACTIVITY AND SIGNIF_8
PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES- Restatement (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2023 | Jun. 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | Dec. 31, 2022 | |
Error Corrections and Prior Period Adjustments Restatement [Line Items] | |||||
Beneficial interest | $ 124,248 | $ 124,248 | $ 123,996 | ||
Noncontrolling interest, operating partnership | 172,127 | 172,127 | $ 183,048 | ||
Net (loss) income attributable to noncontrolling interest, operating partnership | 3,007 | $ 4,531 | 2,599 | $ 6,676 | |
Net income attributable to Sterling Real Estate Trust | 1,771 | 2,568 | 1,531 | 3,782 | |
Comprehensive (loss) income attributable to noncontrolling interest | 4,227 | 6,974 | 2,286 | 13,315 | |
Comprehensive (loss) income attributable to Sterling Real Estate Trust | 2,525 | $ 3,948 | 1,400 | $ 7,520 | |
Previously Reported | |||||
Error Corrections and Prior Period Adjustments Restatement [Line Items] | |||||
Beneficial interest | 128,615 | 128,615 | |||
Noncontrolling interest, operating partnership | 167,760 | 167,760 | |||
Net (loss) income attributable to noncontrolling interest, operating partnership | (1,361) | (1,769) | |||
Net income attributable to Sterling Real Estate Trust | 6,139 | 5,899 | |||
Comprehensive (loss) income attributable to noncontrolling interest | (141) | (2,082) | |||
Comprehensive (loss) income attributable to Sterling Real Estate Trust | 6,893 | 5,768 | |||
Error Correction Relating to Attributable Portion of Net Income, Noncontrolling Interest Operating Partnership | Adjustment | |||||
Error Corrections and Prior Period Adjustments Restatement [Line Items] | |||||
Beneficial interest | (4,367) | (4,367) | |||
Noncontrolling interest, operating partnership | 4,367 | 4,367 | |||
Net (loss) income attributable to noncontrolling interest, operating partnership | 4,368 | 4,368 | |||
Net income attributable to Sterling Real Estate Trust | (4,368) | (4,368) | |||
Comprehensive (loss) income attributable to noncontrolling interest | 4,368 | 4,368 | |||
Comprehensive (loss) income attributable to Sterling Real Estate Trust | $ (4,368) | $ (4,368) |
SEGMENT REPORTING - Additional
SEGMENT REPORTING - Additional Information (Details) | 6 Months Ended |
Jun. 30, 2023 segment | |
SEGMENT REPORTING | |
Number of reportable segments | 2 |
SEGMENT REPORTING - Summary of
SEGMENT REPORTING - Summary of Segment Revenues and Net Operating Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2023 | Mar. 31, 2023 | Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
SEGMENT REPORTING | ||||||
Income from rental operations | $ 35,550 | $ 33,817 | $ 70,730 | $ 66,734 | ||
Expenses from rental operations | 20,156 | 16,795 | 42,077 | 34,981 | ||
Net operating income | 15,394 | 17,022 | 28,653 | 31,753 | ||
Depreciation and amortization | 6,484 | 5,963 | 13,036 | 11,745 | ||
Interest | 5,331 | 4,954 | 10,687 | 9,800 | ||
Administration of REIT | 1,140 | 1,400 | 2,451 | 2,617 | ||
Other income | (2,290) | (2,402) | (1,562) | (2,905) | ||
Net income | 4,729 | $ (688) | 7,107 | $ 3,389 | 4,041 | 10,496 |
Residential | ||||||
SEGMENT REPORTING | ||||||
Income from rental operations | 30,574 | 28,502 | 60,494 | 55,997 | ||
Expenses from rental operations | 18,730 | 15,246 | 38,934 | 31,753 | ||
Net operating income | 11,844 | 13,256 | 21,560 | 24,244 | ||
Commercial | ||||||
SEGMENT REPORTING | ||||||
Income from rental operations | 4,976 | 5,315 | 10,236 | 10,737 | ||
Expenses from rental operations | 1,426 | 1,549 | 3,143 | 3,228 | ||
Net operating income | $ 3,550 | $ 3,766 | $ 7,093 | $ 7,509 |
SEGMENT REPORTING - Summary o_2
SEGMENT REPORTING - Summary of Segment Assets and Accumulated Depreciation (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 | Jun. 30, 2022 |
SEGMENT REPORTING | |||
Real estate investments | $ 971,483 | $ 971,148 | |
Accumulated depreciation | (205,653) | (194,849) | |
Total real estate investments, net | 765,830 | 776,299 | |
Lease intangible assets, less accumulated amortization | 3,304 | 5,290 | |
Cash and cash equivalents | 6,182 | 3,257 | $ 40,072 |
Restricted deposits | 9,093 | 9,323 | $ 8,825 |
Investment in securities | 10,230 | 29,371 | |
Investment in unconsolidated affiliates | 28,654 | 29,423 | |
Notes receivable | 10,154 | 8,448 | |
Other assets, net | 26,461 | 27,312 | |
Total Assets | 859,908 | 888,723 | |
Unconsolidated Affiliates | |||
SEGMENT REPORTING | |||
Real estate investments | 245,807 | 218,747 | |
Accumulated depreciation | (21,385) | (16,490) | |
Total real estate investments, net | 224,422 | 202,257 | |
Lease intangible assets, less accumulated amortization | 858 | 542 | |
Cash and cash equivalents | 3,130 | 3,093 | |
Restricted deposits | 561 | 1,034 | |
Other assets, net | 496 | 827 | |
Total Assets | 229,467 | 207,753 | |
Residential | |||
SEGMENT REPORTING | |||
Real estate investments | 784,376 | 779,424 | |
Accumulated depreciation | (156,200) | (147,115) | |
Total real estate investments, net | 628,176 | 632,309 | |
Lease intangible assets, less accumulated amortization | 839 | ||
Commercial | |||
SEGMENT REPORTING | |||
Real estate investments | 187,107 | 191,724 | |
Accumulated depreciation | (49,453) | (47,734) | |
Total real estate investments, net | 137,654 | 143,990 | |
Lease intangible assets, less accumulated amortization | $ 3,304 | $ 4,451 |
RESTRICTED DEPOSITS AND FUNDE_3
RESTRICTED DEPOSITS AND FUNDED RESERVES - Summary of Restricted Deposits and Funded Reserves (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 | Jun. 30, 2022 |
RESTRICTED DEPOSITS AND FUNDED RESERVES | |||
Tenant security deposits | $ 6,746 | $ 6,242 | |
Real estate tax and insurance escrows | 657 | 1,336 | |
Replacement reserves | 1,690 | 1,745 | |
Restricted deposits, Total | $ 9,093 | $ 9,323 | $ 8,825 |
INVESTMENT IN UNCONSOLIDATED _3
INVESTMENT IN UNCONSOLIDATED AFFILIATES - Total investments (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Investment in Unconsolidated Affiliates | ||
Investment in unconsolidated affiliates | $ 28,654 | $ 29,423 |
Operating Partnership | ||
Investment in Unconsolidated Affiliates | ||
Investment in unconsolidated affiliates | $ 28,654 | 29,423 |
Operating Partnership | Banner Building | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 66.67% | |
Investment in unconsolidated affiliates | $ (453) | (614) |
Operating Partnership | Grand Forks Market Place Retail Center | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 50% | |
Investment in unconsolidated affiliates | $ 5,114 | 4,961 |
Operating Partnership | SE Savage, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Investment in unconsolidated affiliates | $ 1,318 | 1,660 |
Operating Partnership | SE Maple Grove, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Investment in unconsolidated affiliates | $ 1,105 | 1,836 |
Operating Partnership | SE Rogers | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Investment in unconsolidated affiliates | $ 1,850 | 2,413 |
Operating Partnership | ST Oak Cliff, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 70% | |
Investment in unconsolidated affiliates | $ 8,494 | 9,098 |
Operating Partnership | SE Brooklyn Park, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Investment in unconsolidated affiliates | $ 2,017 | 2,914 |
Operating Partnership | SE Fossil Creek, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 70% | |
Investment in unconsolidated affiliates | $ 9,209 | $ 7,155 |
INVESTMENT IN UNCONSOLIDATED _4
INVESTMENT IN UNCONSOLIDATED AFFILIATES - Additional Information (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2023 | Dec. 31, 2022 | |
Banner Building | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | $ 6,814 | $ 6,951 |
Grand Forks Market Place Retail Center | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 9,040 | 9,520 |
SE Savage, LLC | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 30,517 | 30,726 |
SE Savage, LLC | Second Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 654 | 1,397 |
SE Maple Grove, LLC | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 24,788 | 24,788 |
SE Maple Grove, LLC | Second Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 3,643 | 3,643 |
SE Rogers | ||
Investment in Unconsolidated Affiliates | ||
Assets of unconsolidated investee | 32,427 | 32,864 |
SE Rogers | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 25,742 | 25,742 |
SE Rogers | Second Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 3,390 | 2,938 |
ST Oak Cliff, LLC | ||
Investment in Unconsolidated Affiliates | ||
Assets of unconsolidated investee | 47,228 | 40,404 |
Mortgage balance | 32,010 | 23,409 |
ST Oak Cliff, LLC | First Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 24,592 | 24,448 |
SE Brooklyn Park, LLC | ||
Investment in Unconsolidated Affiliates | ||
Assets of unconsolidated investee | 30,761 | 30,490 |
SE Brooklyn Park, LLC | Second Mortgage | ||
Investment in Unconsolidated Affiliates | ||
Mortgage balance | 2,310 | 0 |
SE Fossil Creek, LLC | ||
Investment in Unconsolidated Affiliates | ||
Assets of unconsolidated investee | 29,218 | 11,083 |
Mortgage balance | $ 12,274 | 0 |
Operating Partnership | Banner Building | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 66.67% | |
Operating Partnership | Grand Forks Market Place Retail Center | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 50% | |
Percentage of interest | 100% | |
Operating Partnership | SE Savage, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Operating Partnership | SE Maple Grove, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Operating Partnership | SE Rogers | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Operating Partnership | ST Oak Cliff, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 70% | |
Operating Partnership | SE Brooklyn Park, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 60% | |
Operating Partnership | Sterling Properties LLLP | ||
Investment in Unconsolidated Affiliates | ||
Cash contribution | $ 9,300 | 9,300 |
Operating Partnership | SE Fossil Creek, LLC | ||
Investment in Unconsolidated Affiliates | ||
Ownership interest (as a percent) | 70% | |
Cash contribution | $ 9,275 | $ 7,190 |
INVESTMENT IN UNCONSOLIDATED _5
INVESTMENT IN UNCONSOLIDATED AFFILIATES - Summary of financial position (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Mar. 31, 2023 | Dec. 31, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 |
ASSETS | ||||||
Real estate investments | $ 971,483 | $ 971,148 | ||||
Accumulated depreciation | (205,653) | (194,849) | ||||
Total real estate investments, net | 765,830 | 776,299 | ||||
Cash and cash equivalents | 6,182 | 3,257 | $ 40,072 | |||
Restricted deposits | 9,093 | 9,323 | 8,825 | |||
Intangible assets, less accumulated amortization | 3,304 | 5,290 | ||||
Other assets, net | 26,461 | 27,312 | ||||
Total Assets | 859,908 | 888,723 | ||||
LIABILITIES | ||||||
Tenant security deposits payable | 6,954 | 6,368 | ||||
Accrued expenses and other liabilities | 13,427 | 16,075 | ||||
Total Liabilities | 547,555 | 565,257 | ||||
SHAREHOLDERS' EQUITY | ||||||
Total Shareholders' Equity | 312,353 | $ 314,037 | 323,466 | $ 314,224 | $ 309,537 | $ 295,517 |
Total liabilities and shareholders' equity | 859,908 | 888,723 | ||||
Unconsolidated Affiliates | ||||||
ASSETS | ||||||
Real estate investments | 245,807 | 218,747 | ||||
Accumulated depreciation | (21,385) | (16,490) | ||||
Total real estate investments, net | 224,422 | 202,257 | ||||
Cash and cash equivalents | 3,130 | 3,093 | ||||
Restricted deposits | 561 | 1,034 | ||||
Intangible assets, less accumulated amortization | 858 | 542 | ||||
Other assets, net | 496 | 827 | ||||
Total Assets | 229,467 | 207,753 | ||||
LIABILITIES | ||||||
Mortgage notes payable, net | 174,782 | 152,246 | ||||
Tenant security deposits payable | 301 | 192 | ||||
Accrued expenses and other liabilities | 9,115 | 8,217 | ||||
Total Liabilities | 184,198 | 160,655 | ||||
SHAREHOLDERS' EQUITY | ||||||
Total Shareholders' Equity | 45,269 | 47,098 | ||||
Total liabilities and shareholders' equity | $ 229,467 | $ 207,753 |
INVESTMENT IN UNCONSOLIDATED _6
INVESTMENT IN UNCONSOLIDATED AFFILIATES - Summary of results of operations (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2023 | Mar. 31, 2023 | Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
Investment in Unconsolidated Affiliates | ||||||
Income from rental operations | $ 35,550 | $ 33,817 | $ 70,730 | $ 66,734 | ||
Expenses from rental operations | 31,971 | 27,712 | 65,800 | 56,526 | ||
Income from operations | 2,439 | 4,705 | 2,479 | 7,591 | ||
Depreciation and amortization | 6,484 | 5,963 | 13,036 | 11,745 | ||
Interest | 5,331 | 4,954 | 10,687 | 9,800 | ||
Other Income | 340 | 152 | 747 | 442 | ||
Net income | 4,729 | $ (688) | 7,107 | $ 3,389 | 4,041 | 10,496 |
Unconsolidated Affiliates | ||||||
Investment in Unconsolidated Affiliates | ||||||
Income from rental operations | 4,633 | 2,076 | 8,340 | 3,806 | ||
Expenses from rental operations | 1,717 | 682 | 3,495 | 1,494 | ||
Income from operations | 2,916 | 1,394 | 4,845 | 2,312 | ||
Depreciation and amortization | 2,441 | 1,187 | 4,933 | 3,014 | ||
Interest | 1,448 | 665 | 2,792 | 1,677 | ||
Other expense | 98 | 13 | 11 | |||
Net income | $ (1,071) | $ (458) | $ (2,893) | $ (2,390) |
LEASE INTANGIBLES - Schedule of
LEASE INTANGIBLES - Schedule of Intangible Assets and Liabilities and Accumulated Amortization (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Intangible Assets | ||
Lease Intangibles | $ 15,528 | $ 17,425 |
Accumulated Amortization | (12,224) | (12,135) |
Total | 3,304 | 5,290 |
Intangible Liabilities | ||
Below-market lease | (2,326) | (2,379) |
Below-market lease, accumulated amortization | 1,782 | 1,733 |
Below-market lease, net | (544) | (646) |
In-place leases | ||
Intangible Assets | ||
Lease Intangibles | 14,113 | 15,528 |
Accumulated Amortization | (11,344) | (10,960) |
Total | 2,769 | 4,568 |
Above-market leases | ||
Intangible Assets | ||
Lease Intangibles | 1,415 | 1,897 |
Accumulated Amortization | (880) | (1,175) |
Total | $ 535 | $ 722 |
LEASE INTANGIBLES - Schedule _2
LEASE INTANGIBLES - Schedule of Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Intangible Assets | ||
2023 (July 1, 2023 - December 31, 2023) | $ 320 | |
2024 | 641 | |
2025 | 641 | |
2026 | 490 | |
2027 | 381 | |
Thereafter | 831 | |
Total | 3,304 | $ 5,290 |
Intangible Liabilities | ||
2023 (July 1, 2023 - December 31, 2023) | 74 | |
2024 | 147 | |
2025 | 147 | |
2026 | 77 | |
2027 | 38 | |
Thereafter | 61 | |
Total | $ 544 | $ 646 |
LINES OF CREDIT - Additional In
LINES OF CREDIT - Additional Information (Details) $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 USD ($) item | Dec. 31, 2022 USD ($) | |
Lines of Credit | ||
Line of credit outstanding | $ 0 | $ 1,008 |
Bremer Bank | ||
Lines of Credit | ||
Number of letters of credit secured | item | 1 | |
Letters of credit total | $ 50 | |
Unused line of credit | 9,865 | |
Bremer Bank Agreement One | ||
Lines of Credit | ||
Agreed line of credit | $ 4,915 | |
Expiration date | Dec. 01, 2026 | |
Bremer Bank Agreement One | SOFR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2% | |
Bremer Bank Agreement Two | ||
Lines of Credit | ||
Agreed line of credit | $ 5,000 | |
Expiration date | Dec. 01, 2026 | |
Bremer Bank Agreement Two | SOFR | ||
Lines of Credit | ||
Variable interest rate of line of credit | 2% |
NOTES PAYABLE - Summary (Detail
NOTES PAYABLE - Summary (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2023 | Dec. 31, 2022 | Dec. 29, 2022 | |
MORTGAGE NOTES PAYABLE | |||
Long-term debt, gross | $ 520,112 | ||
Mortgage Notes Payable | |||
MORTGAGE NOTES PAYABLE | |||
Long-term debt, gross | 520,112 | $ 508,305 | |
Less unamortized debt issuance costs | 2,003 | 2,138 | |
Long-term debt, net | 518,109 | 506,167 | |
Notes Payable to Banks | |||
MORTGAGE NOTES PAYABLE | |||
Face amount of debt | $ 26,500 | ||
Long-term debt, net | 0 | 26,500 | |
Fixed rate mortgage notes payable | Mortgage Notes Payable | |||
MORTGAGE NOTES PAYABLE | |||
Long-term debt, gross | 520,112 | 508,305 | |
Debt swapped from variable to fixed rate | $ 104,648 | $ 106,033 |
NOTES PAYABLE - Scheduled Matur
NOTES PAYABLE - Scheduled Maturities of Mortgage Notes Payable (Details) $ in Thousands | Jun. 30, 2023 USD ($) |
NOTES PAYABLE. | |
2023 (July 1, 2023 - December 31, 2023) | $ 33,089 |
2024 | 22,250 |
2025 | 53,170 |
2026 | 70,688 |
2027 | 78,081 |
Thereafter | 262,834 |
Total payments | $ 520,112 |
DERIVATIVES AND HEDGING ACTIV_3
DERIVATIVES AND HEDGING ACTIVITIES - Other (Details) - Interest rate swap $ in Thousands | Jun. 30, 2023 USD ($) instrument | Dec. 31, 2022 instrument |
Derivatives and Hedging Activities | ||
Estimated amount to be reclassified over the next 12 months, as a increase to interest expense | $ | $ 3,896 | |
Designated as Hedging Instrument | Cash Flow Hedging | ||
Derivatives and Hedging Activities | ||
Number of instruments | instrument | 12 | 12 |
DERIVATIVES AND HEDGING ACTIV_4
DERIVATIVES AND HEDGING ACTIVITIES - Summary (Details) - Designated as Hedging Instrument - Cash Flow Hedging $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 USD ($) instrument | Dec. 31, 2022 USD ($) instrument | |
Interest rate swap | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 104,648 | $ 106,033 |
Number of instruments | instrument | 12 | 12 |
Interest Rate Swap, one, November 2029 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 6,470 | |
Fixed interest rate (as a percent) | 3.15% | |
Derivative maturity date | Nov. 01, 2029 | |
Interest Rate Swap, two, November 2029 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 4,500 | |
Fixed interest rate (as a percent) | 3.28% | |
Derivative maturity date | Nov. 01, 2029 | |
Interest Rate Swap, January 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 2,933 | |
Fixed interest rate (as a percent) | 3.39% | |
Derivative maturity date | Jan. 10, 2030 | |
Interest Rate Swap, one, June 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 1,467 | |
Fixed interest rate (as a percent) | 3.07% | |
Derivative maturity date | Jun. 15, 2030 | |
Interest Rate Swap, December 2027 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 12,183 | |
Fixed interest rate (as a percent) | 2.91% | |
Derivative maturity date | Dec. 02, 2027 | |
Interest Rate Swap, July 2031 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 25,346 | |
Fixed interest rate (as a percent) | 2.99% | |
Derivative maturity date | Jul. 01, 2031 | |
Interest Rate Swap, August 2029 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 27,760 | |
Fixed interest rate (as a percent) | 3.54% | |
Derivative maturity date | Aug. 01, 2029 | |
Interest Rate Swap, Dec 2031 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 10,665 | |
Fixed interest rate (as a percent) | 3.32% | |
Derivative maturity date | Dec. 01, 2031 | |
Interest Rate Swap, two, June 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 2,843 | |
Fixed interest rate (as a percent) | 3.07% | |
Derivative maturity date | Jun. 15, 2030 | |
Interest Rate Swap, three, June 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 1,589 | |
Fixed interest rate (as a percent) | 2.94% | |
Derivative maturity date | Jun. 15, 2030 | |
Interest Rate Swap, four, June 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 4,204 | |
Fixed interest rate (as a percent) | 2.94% | |
Derivative maturity date | Jun. 15, 2030 | |
Interest Rate Swap, five, June 2030 | ||
Derivatives and Hedging Activities | ||
Notional amount | $ 4,688 | |
Fixed interest rate (as a percent) | 2.79% | |
Derivative maturity date | Jun. 10, 2030 |
DERIVATIVES AND HEDGING ACTIV_5
DERIVATIVES AND HEDGING ACTIVITIES - Fair Value (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Other assets, net | ||
Derivatives and Hedging Activities | ||
Fair value, derivative assets | $ 13,427 | $ 13,782 |
DERIVATIVES AND HEDGING ACTIV_6
DERIVATIVES AND HEDGING ACTIVITIES - Gain-Loss (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2023 | Mar. 31, 2023 | Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
Derivatives and Hedging Activities | ||||||
Amount of (Gain)/Loss Recognized in Other Comprehensive Income on Derivatives | $ (2,023) | $ 2,378 | $ (3,815) | $ (6,524) | $ 355 | $ (10,339) |
Interest expense | ||||||
Derivatives and Hedging Activities | ||||||
Amount of (Gain)/Loss Recognized in Other Comprehensive Income on Derivatives | (917) | 257 | (1,682) | 618 | ||
Interest rate swap | ||||||
Derivatives and Hedging Activities | ||||||
Amount of (Gain)/Loss Recognized in Other Comprehensive Income on Derivatives | $ (2,023) | $ (3,814) | $ 355 | $ (10,339) |
DERIVATIVES AND HEDGING ACTIV_7
DERIVATIVES AND HEDGING ACTIVITIES - Credit-Risk Related Contingent Features (Details) $ in Thousands | Jun. 30, 2023 USD ($) |
Credit-risk-related Contingent Features | |
Termination value of interest rate derivatives in asset position | $ 13,427 |
FAIR VALUE MEASUREMENT - Carryi
FAIR VALUE MEASUREMENT - Carrying Value and Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Financial assets: | ||
Derivative Asset, Statement of Financial Position [Extensible Enumeration] | Other Assets, Net Amount | Other Assets, Net Amount |
Carrying Value | ||
Financial assets: | ||
Investment in securities | $ 10,230 | $ 29,371 |
Notes receivable | 10,154 | 8,448 |
Derivative assets | 13,427 | 13,782 |
Financial liabilities: | ||
Mortgage notes payable | 520,112 | 508,305 |
Fair Value | ||
Financial assets: | ||
Investment in securities | 10,230 | 29,371 |
Notes receivable | 11,833 | 9,789 |
Derivative assets | 13,427 | 13,782 |
Financial liabilities: | ||
Mortgage notes payable | $ 480,614 | $ 466,245 |
FAIR VALUE MEASUREMENT - Schedu
FAIR VALUE MEASUREMENT - Schedule of Fair Value of Assets on Recurring Basis (Details) - Recurring - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Fair Value Measurements | ||
Derivative assets | $ 13,427 | $ 13,782 |
Level 2 | ||
Fair Value Measurements | ||
Derivative assets | $ 13,427 | $ 13,782 |
FAIR VALUE MEASUREMENT - Fair V
FAIR VALUE MEASUREMENT - Fair Value of Company's Financial Assets and Liabilities (Details) - Fair Value - USD ($) $ in Thousands | Jun. 30, 2023 | Dec. 31, 2022 |
Fair Value Measurements | ||
U.S. Treasury Bills | $ 10,230 | $ 29,371 |
Mortgage notes payable | 480,614 | 466,245 |
Notes receivable | 11,833 | 9,789 |
Level 1 | ||
Fair Value Measurements | ||
U.S. Treasury Bills | 10,230 | 29,371 |
Level 3 | ||
Fair Value Measurements | ||
Mortgage notes payable | 480,614 | 466,245 |
Notes receivable | $ 11,833 | $ 9,789 |
FAIR VALUE MEASUREMENT - Additi
FAIR VALUE MEASUREMENT - Additional Information (Details) - Measurement Input, Discount Rate | Jun. 30, 2023 | Dec. 31, 2022 |
Fair Value Disclosures | ||
Discount rates used to estimate fair value of notes receivable | 0.0725 | |
Minimum | ||
Fair Value Disclosures | ||
Discount rates used to estimate fair value of mortgages and notes payable | 0.0585 | 0.0575 |
Discount rates used to estimate fair value of notes receivable | 0.0325 | |
Maximum | ||
Fair Value Disclosures | ||
Discount rates used to estimate fair value of mortgages and notes payable | 0.0590 | 0.0600 |
Discount rates used to estimate fair value of notes receivable | 0.0725 |
LEASES- Other (Details)
LEASES- Other (Details) | Jun. 30, 2023 |
Residential | |
Revenue from leases | |
Percentage of revenue from leases that are generally for terms of one year or less | 85% |
Commercial | |
Revenue from leases | |
Percentage of revenue from leases primarily under long-term lease agreements | 15% |
LEASES- Lease Income (Details)
LEASES- Lease Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2023 | Jun. 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
Lease income: | ||||
Lease income related to fixed lease payments | $ 33,085 | $ 31,551 | $ 65,684 | $ 62,116 |
Lease income related to variable lease payments | 899 | 1,111 | 2,096 | 2,288 |
Other (a) | (74) | (124) | (98) | (198) |
Lease Income (b) | $ 33,910 | $ 32,538 | $ 67,682 | $ 64,206 |
Operating Lease, Lease Income, Statement of Income or Comprehensive Income [Extensible Enumeration] | Real Estate Revenue Net | Real Estate Revenue Net | Real Estate Revenue Net | Real Estate Revenue Net |
Rental income accounted for under revenue recognition standard: | ||||
Other rental income | $ 1,640 | $ 1,279 | $ 3,048 | $ 2,528 |
Residential | ||||
Lease income: | ||||
Lease income related to fixed lease payments | 29,165 | 27,436 | 57,820 | 53,934 |
Other (a) | (160) | (192) | (279) | (361) |
Lease Income (b) | 29,005 | 27,244 | 57,541 | 53,573 |
Commercial | ||||
Lease income: | ||||
Lease income related to fixed lease payments | 3,920 | 4,115 | 7,864 | 8,182 |
Lease income related to variable lease payments | 899 | 1,111 | 2,096 | 2,288 |
Other (a) | 86 | 68 | 181 | 163 |
Lease Income (b) | $ 4,905 | $ 5,294 | $ 10,141 | $ 10,633 |
LEASES- Future minimum rental i
LEASES- Future minimum rental income (Details) $ in Thousands | Jun. 30, 2023 USD ($) |
Future minimum rental income: | |
2023 (July 1, 2023 - December 31, 2023) | $ 7,565 |
2024 | 14,805 |
2025 | 14,379 |
2026 | 12,986 |
2027 | 11,554 |
Thereafter | 43,364 |
Total | $ 104,653 |
RELATED PARTY TRANSACTIONS - Pr
RELATED PARTY TRANSACTIONS - Property Management and Board of Trustee Fees (Details) - GOLDMARK Property Management - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 | Jun. 30, 2022 | |
Related Party Transactions | ||
Management fee, amount paid | $ 5,917 | $ 6,879 |
Management fees paid expressed as a percentage of net collected rents | 5% | 5% |
Repair and maintenance related payroll and payroll related expenses | $ 4,916 | $ 3,523 |
RELATED PARTY TRANSACTIONS - Ad
RELATED PARTY TRANSACTIONS - Advisory Agreement and Other (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2023 USD ($) | Jun. 30, 2022 USD ($) | Jun. 30, 2023 USD ($) employee shares | Jun. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) | |
Related Party Transactions | |||||
Number of paid employees | employee | 0 | ||||
Rental income | $ 33,085 | $ 31,551 | $ 65,684 | $ 62,116 | |
Costs and expenditures incurred due to construction in progress | 91 | 111 | |||
Operational liabilities outstanding | 0 | 0 | $ 0 | ||
Mezzanine Financing | |||||
Related Party Transactions | |||||
Loan to related party | 9,998 | 5,854 | |||
Interest income | 288 | 171 | |||
Sterling Management, LLC | |||||
Related Party Transactions | |||||
Advisory management fees | 1,901 | 1,807 | |||
Advisory management fees outstanding | 316 | 316 | 632 | ||
Acquisition fees | 876 | ||||
Acquisition fees outstanding | 387 | ||||
Disposition fees | 204 | 226 | |||
Disposition fees outstanding | 72 | ||||
Financing fees | 68 | 47 | |||
Financing fees outstanding | 11 | 11 | |||
Project management fee | 249 | 253 | |||
Project management fee outstanding | 12 | ||||
Rental income | 66 | 64 | |||
GOLDMARK Property Management | |||||
Related Party Transactions | |||||
Real estate commissions | 0 | 260 | |||
Real estate commissions outstanding | 0 | 0 | 92 | ||
Rental income | 135 | 132 | |||
GOLDMARK Commercial Real Estate | |||||
Related Party Transactions | |||||
Real estate commissions | 0 | 278 | |||
Real estate commissions outstanding | 0 | $ 0 | 183 | ||
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 | 443,000 | ||||
Value of operating partnership (OP) units issued in connection with the acquisition of various properties | $ 10,180 | ||||
Trumont Group, LLC | |||||
Related Party Transactions | |||||
Development fee | 409 | ||||
Development fees outstanding | 0 | 0 | 0 | ||
Trumont Construction, LLC | |||||
Related Party Transactions | |||||
Construction fees | 276 | 429 | |||
Construction fees payable | 71 | ||||
General construction costs | 186 | 204 | |||
General construction costs payable | 81 | ||||
Bell Bank | |||||
Related Party Transactions | |||||
Rental income | 465 | 422 | |||
Outstanding on principal loans | 61,399 | 61,399 | 64,123 | ||
Interest expense incurred | 1,208 | 1,238 | |||
Accrued interest | $ 118 | 118 | $ 130 | ||
Total premiums paid | $ 131 | $ 0 | |||
Affiliated Entities | |||||
Related Party Transactions | |||||
Number of operating partnership (OP) units issued in connection with the acquisition of various properties | shares | 0 |
DISPOSITIONS (Details)
DISPOSITIONS (Details) $ in Thousands | 6 Months Ended | |
Jun. 30, 2023 USD ($) property | Jun. 30, 2022 USD ($) property | |
Dispositions | ||
Number of dispositions | property | 2 | 2 |
Sale price | $ 9,100 | |
Gain on sale of real estate | $ 2,596 | $ 3,340 |
Coon Rapids, Minnesota | Disposed of by Sale | ||
Dispositions | ||
Sale price | 3,448 | |
Gain on sale of real estate | 1,531 | |
White Bear Lake, Minnesota | Disposed of by Sale | ||
Dispositions | ||
Sale price | 4,710 | |
Gain on sale of real estate | $ 1,066 |
ACQUISITIONS- Purchases (Detail
ACQUISITIONS- Purchases (Details) $ / shares in Units, $ in Thousands | 6 Months Ended | ||||
Jun. 10, 2022 USD ($) item | May 31, 2022 USD ($) item | Feb. 28, 2022 USD ($) item | Jun. 30, 2023 property | Jun. 30, 2022 USD ($) property $ / shares shares | |
Acquisitions | |||||
Number of acquisitions | property | 0 | 5 | |||
Real Estate Property Acquisitions 2022 | |||||
Acquisitions | |||||
Acquisition price | $ 36,311 | ||||
Aggregate number of limited partnership units issued for acquisition | shares | 443,000 | ||||
Price per limited partnership unit issued for acquisition, price one | $ / shares | $ 23 | ||||
Aggregate value of limited partnership units issued for acquisition | $ 10,180 | ||||
Consideration in cash to pay for acquisitions | $ 26,131 | ||||
Deer Park, Hutchinson, MN | |||||
Acquisitions | |||||
Units acquired | item | 138 | ||||
Acquisition price | $ 15,073 | ||||
Desota Estates, Grand Forks, ND | |||||
Acquisitions | |||||
Units acquired | item | 68 | ||||
Acquisition price | $ 5,863 | ||||
Desota Townhomes, Grand Forks, ND | |||||
Acquisitions | |||||
Units acquired | item | 24 | ||||
Acquisition price | $ 3,226 | ||||
Desota Apartments, East Grand Forks, MN | |||||
Acquisitions | |||||
Units acquired | item | 24 | ||||
Acquisition price | $ 1,230 | ||||
Diamond Bend, Mandan, ND | |||||
Acquisitions | |||||
Units acquired | item | 78 | ||||
Acquisition price | $ 10,919 |
ACQUISITIONS- Summary of Acquis
ACQUISITIONS- Summary of Acquisition Date Fair Values (Details) - USD ($) $ in Thousands | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2023 | Dec. 31, 2022 | |
Acquisition date fair values | |||
Real estate investment acquired | $ 765,830 | $ 776,299 | |
Acquired lease intangible assets | 3,304 | 5,290 | |
Net assets acquired | $ 859,908 | $ 888,723 | |
Real Estate Property Acquisitions 2022 | |||
Acquisition date fair values | |||
Real estate investment acquired | $ 35,953 | ||
Acquired lease intangible assets | 619 | ||
Assumed assets | 3 | ||
Net assets acquired | 36,575 | ||
Other liabilities | (264) | ||
Net assets acquired | 36,311 | ||
Equity/limited partnership unit consideration | (10,180) | ||
Net cash consideration | $ 26,131 |
SUBSEQUENT EVENTS - Additional
SUBSEQUENT EVENTS - Additional Information (Details) - Subsequent Event - USD ($) $ / shares in Units, $ in Thousands | Jul. 17, 2023 | Jul. 07, 2023 |
Subsequent Events | ||
Dividend or distribution paid | $ 0.2875 | |
Residential Property Financing | ||
Subsequent Events | ||
Residential property financing value | $ 6,000 |
Pay vs Performance Disclosure
Pay vs Performance Disclosure - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2023 | Jun. 30, 2022 | Jun. 30, 2023 | Jun. 30, 2022 | |
Pay vs Performance Disclosure | ||||
Net Income (Loss) | $ 1,771 | $ 2,568 | $ 1,531 | $ 3,782 |
Insider Trading Arrangements
Insider Trading Arrangements | 3 Months Ended |
Jun. 30, 2023 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |