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Financial Services

Sterling Real Estate Trust

11/04/2026 | Press release | Distributed by Public on 11/04/2026 11:51

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Certain statements included in this Quarterly Report on Form 10-Q and the documents incorporated into this document by reference contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements include statements regarding our plans and objectives, including, among other things, our future financial condition, anticipated capital expenditures, anticipated dividends and other matters. Forward-looking statements are typically identified by the use of terms such as "may," "will," "should," "expect," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology. These statements are only predictions and are not historical facts. Actual events or results may differ materially.

The forward-looking statements included herein are based on our current expectations, plans, estimates and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Any of the assumptions underlying the forward-looking statements contained herein could be inaccurate. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, we cannot assure readers that the forward-looking statements included in this filing will prove to be accurate. The accompanying information contained in this Quarterly Report on Form 10-Q, including, without limitation, the information set forth under the section entitled "Risk Factors" identifies important additional factors that could materially adversely affect actual results and performance. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of certain unanticipated events or changes to future operating results.

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission ("SEC") on March 11, 2026 and our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

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, which requires that 75% of the assets of a REIT consist of real estate assets and that 75% of its gross income be derived from real estate. The net income of the REIT is allocated in accordance with the stock ownership in the same fashion as a regular corporation. Our real estate portfolio consisted of 176 properties containing 12,425 apartment units and approximately 1,142,000 square feet of leasable commercial space as of September 30, 2026. The portfolio has a net book value of real estate investments (cost less accumulated depreciation) of $942,338, which includes construction in progress. Sterling's current acquisition strategy and focus is on multifamily apartment properties.

Critical Accounting Estimates

Below are accounting policies and estimates that management believes are critical to the preparation of the unaudited consolidated financial statements included in this Report. Certain accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this Report. A summary of significant accounting policies is also provided in the aforementioned notes to our consolidated financial statements (see Note 2 to the unaudited consolidated financial statements). These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management.

Impairment of Real Estate Investments

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. To assess potential impairment of the real estate portfolio, the Trust initially performs a screen test and reviews the net book value (NBV) of each property, compares the trailing twelve months (T12) net operating income (NOI) against the prior year's T12 NOI, and evaluates key assumptions, including the anticipated hold period and applicable capitalization rates, to determine whether any indicators of impairment exist.

Examples of situations considered to be impairment indicators include, but are not limited to:

●

A substantial decline or negative cash flows;

●

Continued low occupancy rates;

●

Continued difficulty in leasing space;

●

Significant financially troubled tenants;

●

A change in plan to sell a property prior to the end of its useful life or holding period;

●

A significant decrease in market price not in line with general market trends; and

●

Any other quantitative or qualitative events or factors deemed significant by the Trust's management or Board of Trustees.

If the presence of one or more impairment indicators as described above is identified with respect to an investment property, the asset is tested for recoverability by comparing its carrying value to the estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair value of an impaired investment property, the Trust makes complex or subjective assumptions which include, but are not limited to:

●

Projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength, demographics, holding period and property location;

●

Projected capital expenditures;

●

Projected cash flows from the eventual disposition of an operating property using a property specific capitalization rate;

●

Comparable selling prices; and

●

Property specific discount rates for fair value estimates as necessary.

To the extent impairment has occurred, the Trust will record an impairment charge calculated as the excess of the carrying value of the asset over its fair value. Based on our evaluation, there was no impairment loss during the three and nine months ended September 30, 2026 and one impairment loss of $735 during the three and nine months ended September 30, 2025.

There have been no material changes in our Critical Accounting Policies as disclosed in Note 2 to our financial statements for the nine months ended September 30, 2026 included elsewhere in this report.

Acquisition of Real Estate Investments

The Company allocates the purchase price of properties that meet the definition of an asset acquisition to net tangible and identified intangible assets acquired based on their relative fair values. In making estimates of relative fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Company also considered information obtained about each property as a result of its pre-acquisition due diligence, marketing, and leasing activities in estimating the relative fair value of the tangible and intangible assets acquired.

REIT Status

We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code. Under those sections, a REIT which distributes at least 90% of its REIT taxable income, excluding net capital gains, as a distribution to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We intend to distribute to our shareholders 100% of our taxable income. Therefore, no provision for Federal income taxes is required. If we fail to distribute the required amount of income to our shareholders, we would fail to qualify as a REIT and substantial adverse tax consequences may result.

Principal Business Activity

Sterling currently owns 176 properties included in the consolidated financial statements. The Trust's 143 residential properties are located in North Dakota, Minnesota, Missouri, Nebraska, and Texas and are principally multifamily apartment buildings. The Trust owns 33 commercial properties primarily located in North Dakota with others located in Arkansas, Colorado, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska and Wisconsin. The commercial properties include retail, office, industrial, restaurant and medical properties. Presently, the Trust's mix of properties is 84.6% residential and 15.4% commercial (based on cost) with a total carrying value of $942,338 at September 30, 2026. Currently our focus is limited to multifamily apartment properties. We will consider unsolicited offers for purchase of commercial properties on a case-by-case basis.


Residential Property		Location		No. of Properties		Units
		North Dakota		121		7,977
		Minnesota		16		3,375
		Missouri		1		164
		Nebraska		4		639
		Texas		1		270
				143		12,425

Commercial Property		Location		No. of Properties		Sq. Ft
		North Dakota		15		456,000
		Arkansas		2		28,000
		Colorado		1		17,000
		Iowa		1		36,000
		Louisiana		1		15,000
		Michigan		1		12,000
		Minnesota		5		481,000
		Mississippi		1		15,000
		Nebraska		1		19,000
		Wisconsin		5		63,000
				33		1,142,000

Results of Operations

Management Highlights

●

Increased revenues from rental operations by $2,640 or 6.0% for the three months ended September 30, 2026, compared to the same three month period in 2025.

●

Increased revenues from rental operations by $7,718 or 6.0% for the nine months ended September 30, 2026, compared to same nine month period in 2025.

●

Increased Net Operating Income by $3,687 or 18.6% for the three months and $4,673 or 7.5% for the nine months ended September 30, 2026, compared to the same periods in 2025.

●

Declared dividends aggregating $0.9563 per common share for the nine months ended September 30, 2026.

Results of Operations for the Three Months Ended September 30, 2026 and 2025


		Three months ended September 30, 2026						Three months ended September 30, 2025
		Residential		Commercial		Total		Residential		Commercial		Total

		(unaudited)						(unaudited)
		(in thousands)						(in thousands)
Real Estate Revenues		$	41,652	$	4,718	$	46,370	$	38,764	$	4,966	$	43,730
Real Estate Expenses
Real Estate Taxes			3,846		365		4,211		4,233		449		4,682
Property Management			5,124		241		5,365		5,092		223		5,315
Utilities			3,027		326		3,353		2,836		310		3,146
Repairs and Maintenance			8,349		410		8,759		8,829		544		9,373
Insurance			1,142		33		1,175		1,359		35		1,394
Total Real Estate Expenses			21,488		1,375		22,863		22,349		1,561		23,910
Net Operating Income		$	20,164	$	3,343		23,507	$	16,415	$	3,405		19,820
Interest							7,370						6,828
Depreciation and amortization							7,093						7,592
Administration of REIT							1,430						1,391
Loss on impairment of property							-						735
Other expense							(953)						597
Net Income						$	8,567					$	2,677

Net Income Attributed to:
Noncontrolling Interest						$	5,013					$	1,570
Sterling Real Estate Trust						$	3,554					$	1,107
Dividends per share ⁽¹⁾						$	0.3188					$	0.3000
Earnings per share						$	0.26					$	0.08
Weighted average number of common shares							13,475						13,032

(1)	Does not take into consideration the amounts distributed by the Operating Partnership to limited partners.

Revenues

Property revenues of $46,370 for the three months ended September 30, 2026 increased $2,640 or 6.0% in comparison to the same period in 2025. Residential property revenues increased $2,888 and commercial property revenues decreased $ (248) for the three months ended September 30, 2026 in comparison to the same period in 2025.

The following table illustrates occupancy percentages for the three month periods indicated:


		September 30,		September 30,
		2026		2025
Residential		94.2	%	93.0	%
Commercial		85.7	%	90.0	%

Residential revenues for the three months ended September 30, 2026 increased $2,888 or 7.5% in comparison to the same period for 2025. Residential properties acquired since September 30, 2025 contributed approximately $540 of the increase in total residential revenues in the three months ended September 30, 2026. The remaining increase is due to increased rent charges at our stabilized properties. Residential revenues comprised 89.8% of total revenues for the three months ended September 30, 2026 compared to 88.6% of total revenues for the three months ended September 30, 2025.

For the three months ended September 30, 2026 total commercial revenues decreased $ (248) or 5.0% in comparison to the same period for 2025. The decrease is primarily attributed to lower commercial occupancy (85.7% at September 30, 2026, compared to 90.0% at September 30, 2025), lower common area maintenance reimbursements and the sale of Parkway Office Building in August 2026. Commercial revenues comprised 10.2% of the total revenues for the three months ended September 30, 2026 compared to 11.4% of total revenues for the three months ended September 30, 2025. As commercial properties are sold, commercial revenues are expected to continue declining as a percentage of total revenues.

Expenses

Residential expenses from operations of $21,488 during the three months ended September 30, 2026 decreased ($861) or (3.9)% in comparison to the same period in 2025. The decrease is primarily attributed to decreases of $480 or 5.4%, $387 or 9.1% and $217 or 16.0% for repairs and maintenance, real estate taxes and insurance, respectively. These decreases were partially offset by an increase of $191 or 6.7% in utilities. The decrease in repairs and maintenance was primarily due to lower flooring, appliance and laundry, and plumbing costs and higher resident chargebacks, partially offset by higher maintenance staff and cooling system costs. Insurance expense decreased primarily due to more favorable renewal rates in the second quarter.

Commercial expenses from operations of $1,375 during the three months ended September 30, 2026 decreased $186 or 11.9% in comparison to the same period in 2025. The decrease is primarily attributed to decreases of $134 or 24.6% in repairs and maintenance and $84 or 18.7% in real estate taxes. The decrease is partially offset by increases of $18 or 8.1% in property management and $16 or 5.2% in utilities during the three months ended September 30, 2026.

Interest expense of $7,370 during the three months ended September 30, 2026 increased $542 or 7.9% in comparison to the same period in 2025. The increase in interest expense was primarily driven by elevated interest rates and increased mortgage balance for the three months ended September 30, 2026 as compared to the same period in 2025. The increase was partially offset by a $245 decrease in interest on our lines of credit. Interest expense as a percentage of total revenues for the three months ended September 30, 2026 and 2025 was 15.9% and 15.6%, respectively.

Depreciation and amortization expense of $7,093 during the three months ended September 30, 2026 decreased $ (499) or (6.6)% in comparison to the same period in 2025. The decrease is primarily due to a $722 decrease in amortization expense as lease intangibles became fully amortized, partially offset by a $273 increase in depreciation expense. Amortization expense will continue to decrease as lease intangibles become fully amortized but will increase upon acquisitions of intangible assets. Depreciation and amortization expense as a percentage of total revenues for the three months ended September 30, 2026 and 2025 was 15.3% and 17.4%, respectively.

REIT administration expenses of $1,430 during the three months ended September 30, 2026 increased $39 or 2.8% in comparison to the same period in 2025. The increase is primarily due to an increase in advisor fees of $87, which reflects the acquisitions of Falcon Apartments and Stonebridge Apartments offset by the disposition of Courtyard Apartments, partially offset by a decrease in legal and accounting fees of $29.

Other income of $953 during the three months ended September 30, 2026 compared to other expense of $597 in the same period in 2025, a favorable change of $1,550. The change is primarily attributable to a $1,082 gain on the sale of Parkway Office Building in August 2026 and a $620 improvement in results from operations of unconsolidated affiliates (a loss of $249 compared to a loss of $870 in the same period in 2025), partially offset by a $141 decrease in interest income.

Results of Operations for the Nine Months Ended September 30, 2026 and 2025


	Nine months ended September 30, 2026						Nine months ended September 30, 2025
	Residential		Commercial		Total		Residential		Commercial		Total

	(in thousands)						(in thousands)
Real Estate Revenues	$	122,088	$	14,540	$	136,628	$	114,102	$	14,808	$	128,910
Real Estate Expenses
Real Estate Taxes		11,852		1,279		13,131		11,375		1,389		12,764
Property Management		15,647		694		16,341		14,822		673		15,495
Utilities		10,387		835		11,222		9,531		810		10,341
Repairs and Maintenance		23,606		1,268		24,874		21,941		1,502		23,443
Insurance		3,835		101		3,936		4,309		107		4,416
Real Estate Expenses		65,327		4,177		69,504		61,978		4,481		66,459
Net Operating Income	$	56,761	$	10,363		67,124	$	52,124	$	10,327		62,451
Interest						21,885						19,469
Depreciation and amortization						22,246						21,313
Administration of REIT						4,514						4,335
Loss on impairment of property						-						735
Other (income) expense						(2,025)						2,101
Net Income					$	20,504					$	14,498

Net Income Attributed to:
Noncontrolling Interest					$	11,999					$	8,426
Sterling Real Estate Trust					$	8,505					$	6,072
Dividends per share ⁽¹⁾					$	0.9563					$	0.9000
Earnings per share					$	0.6400					$	0.4700
Weighted average number of common shares						13,359						12,970

(1)	Does not take into consideration the amounts distributed by the Operating Partnership to limited partners.

Revenues

Property revenues of $136,628 for the nine months ended September 30, 2026 increased $7,718 or 6.0% in comparison to the same period in 2025. Residential property revenues increased $7,986 and commercial property revenues decreased $268 for the nine months ended September 30, 2026 from the prior year's comparable period.

The following table illustrates occupancy percentages for the nine month periods indicated:


		September 30,		September 30,
		2026		2025
Residential		94.0	%	93.2	%
Commercial		85.7	%	90.0	%

Residential revenues for the nine months ended September 30, 2026 increased $7,986 or 7.0% in comparison to the same period for 2025. Residential properties acquired since September 30, 2025 contributed approximately $2,755 of the increase in total residential revenues. The remainder of the increase is due to continued growth in rent charges at our stabilized properties. Residential revenues comprised 89.4% of total revenues for the nine months ended September 30, 2026 compared to 88.5% of total revenues for the nine months ended September 30, 2025.

For the nine months ended September 30, 2026, total commercial revenues decreased $ (268) or 1.8% in comparison to the same period for 2025. The decrease is attributed to the sale of three commercial buildings in 2025 and Parkway Office Building in August 2026. Commercial revenues comprised 10.6% of the total revenues for the nine months ended September 30, 2026 compared to 11.5% of total revenues for the nine months ended September 30, 2025.

Expenses

Residential expenses from operations of $65,327 during the nine months ended September 30, 2026 increased $3,349 or 5.4% in comparison to the same period in 2025. The increase is primarily attributed to increases of $1,665 or 7.6%, $856 or 9.0%, $825 or 5.6% and $477 or 4.2% for repairs and maintenance, utilities, property management fees and real estate taxes, respectively. The increase is offset by a decrease in insurance expense of $474 or 11.0%, during the nine months ended September 30, 2026. The increase in repairs and maintenance was primarily due to higher maintenance staff, interior painting, cooling systems and snow removal costs. The increase in utilities was primarily due to higher water and sewer, electricity and garbage removal costs. The decrease in insurance was primarily due to lower property insurance expense.

Commercial expenses from operations of $4,177 during the nine months ended September 30, 2026 decreased $304 or 6.8% in comparison to the same period in 2025. The decrease is primarily attributed to decreases of $234 or 15.6% in repairs and maintenance and $110 or 7.9% in real estate taxes during the nine months ended September 30, 2026.

Interest expense of $21,885 during the nine months ended September 30, 2026 increased $2,416 or 12.4% in comparison to the same period in 2025. The increase in interest expense was largely due to acquisitions closed since September 30, 2025. During the nine months ended September 30, 2026 and 2025, interest expense was 16.0% and 15.1% of total revenues, respectively.

Depreciation and amortization expense of $22,246 for the nine months ended September 30, 2026 increased $933 or 4.4% in comparison to the same period in 2025. The primary reason for the increase is attributed to additional depreciation of acquired properties. Depreciation and amortization expense as a percentage of total revenues for the nine months ended September 30, 2026 and 2025 was 16.3% and 16.5%, respectively.

REIT administration expenses of $4,514 for the nine months ended September 30, 2026 increased $179 or 4.1% in comparison to the same period in 2025. The increase is primarily due to an increase in advisor fees of $277. This is partially offset by decreases in legal and accounting fees of $87 and audit and tax related projects of $90.

Other income of $2,025 for the nine months ended September 30, 2026, compared to other expense of $2,101 for the same period in 2025, a favorable change of $4,126, or 196.4%. The change was primarily driven by $1,280 of income recognized during the first quarter resulting from the correction of depreciation expense that had been recorded using an incorrect methodology in prior periods. Management evaluated the cumulative impact of the depreciation error on previously issued financial statements and concluded that the effects on those prior periods were not material; accordingly, the cumulative correction was recorded in the period ending March 31, 2026. The Company also recognized a gain of $239 from an insurance claim during the first quarter, a gain of $1,082 from the sale of Parkway Office Building during the third quarter and a $181 favorable adjustment from the refund of previously accrued real estate taxes following the successful contest of valuations for certain properties. Each of the items described above was non-recurring in nature. The remainder of the favorable change was primarily attributable to improved results from operations of unconsolidated affiliates, partially offset by lower interest income.

Construction in Progress and Development Projects

The Trust capitalizes direct and certain indirect project costs incurred during the development period such as construction, insurance, architectural, legal, interest and other financing costs, and real estate taxes. At such time as the development is considered substantially complete, the capitalization of certain indirect costs such as real estate taxes, interest, and financing costs cease, and all project-related costs included in construction in process are reclassified to land and building and other improvements.

Construction in progress as of September 30, 2026, consists primarily of construction at residential properties located in North Dakota, Missouri and Minnesota. Rosedale Estates in Roseville, Minnesota has a parking lot project with a budget of $6,031, of which $5,991 has been incurred as of September 30, 2026. Quail Creek in Springfield, Missouri has a project to replace a building destroyed by fire, with a budget of $6,000, of which $1,367 has been incurred as of September 30, 2026. Remaining construction in progress primarily relates to parking lot replacements, property rehabilitations, window and patio replacements, roof upgrades, CCTV camera installations, and other property improvements across multiple residential properties.

Funds From Operations (FFO)

Funds From Operations (FFO) applicable to common shares and limited partnership units means net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.

Historical cost accounting for real estate assets implicitly assumes the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. FFO was created to address this problem. It was intended to be a standard supplemental measure of REIT operating performance that excluded historical cost depreciation from - or "added back" to - GAAP net income.

Our management believes this non-GAAP measure is useful to investors because it provides supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses this non-GAAP measure to evaluate our financial results, develop budgets and manage expenditures. The method used to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Management encourages the review of the reconciliation of this non-GAAP financial measure to the comparable GAAP results.

Since the introduction of the definition of FFO, the term has come to be widely used by REITs. In the view of National Association of Real Estate Investment Trusts ("NAREIT"), the use of the definition of FFO (combined with the primary GAAP presentations required by the Securities and Exchange Commission) has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making it easier to compare the results of one REIT with another.

While FFO applicable to common shares and limited partnership units are widely used by REITs as performance metrics, all REITs do not use the same definition of FFO or calculate FFO in the same way. The FFO reconciliation presented here is not necessarily comparable to FFO presented by other real estate investment trusts. FFO should also not be considered as an alternative to net income as determined in accordance with GAAP as a measure of a real estate investment trust's performance, but rather should be considered as an additional, supplemental measure, and should be viewed in conjunction with net income as presented in the consolidated financial statements included in this report. FFO applicable to common shares and limited partnership units does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of sufficient cash flow to fund a real estate investment trust's needs or its ability to service indebtedness or to pay dividends to shareholders.

The following tables include calculations of FFO, and the reconciliations to net income, for the three and nine months ended September 30, 2026 and 2025, respectively. We believe these calculations are the most comparable GAAP financial measure (in thousands):

Reconciliation of Net Income Attributable to Sterling to FFO Applicable to Common Shares and Limited Partnership Units


	Three months ended September 30, 2026			Three months ended September 30, 2025
			Weighted Avg			Weighted Avg
			Shares and			Shares and
	Amount		Units	Amount		Units

	(unaudited)
	(in thousands, except per share data)
Net Income attributable to Sterling Real Estate Trust	$	3,554	13,475	$	1,107	13,032

Adjustments:
Noncontrolling Interest - Operating Partnership Units		5,055	19,129		1,622	18,904
Depreciation & Amortization from continuing operations (1)		6,768			7,254
Pro rata share of unconsolidated affiliate depreciation and amortization		1,726			2,233
Loss on impairment of real estate investments		-			735
Subtract:
Gain on sales of land, depreciable real estate, investment in equity method investee, and change in control of real estate investments		(1,082)			-
Funds from operations applicable to common shares and limited partnership units (FFO)	$	16,021	32,604	$	12,951	31,936

(1)

Excludes the portion allocated to noncontrolling interest in the amount of $325 and $338 for the three months ended September 30, 2026 and 2025, respectively.


	Nine months ended September 30, 2026			Nine months ended September 30, 2025
			Weighted Avg			Weighted Avg
			Shares and			Shares and
	Amount		Units	Amount		Units

	(in thousands, except per share data)
Net Income attributable to Sterling Real Estate Trust	$	8,505	13,359	$	6,072	12,970

Adjustments:
Noncontrolling Interest - Operating Partnership Units		12,151	19,075		8,735	18,666
Depreciation & Amortization from continuing operations (1)		21,260			20,231
Pro rata share of unconsolidated affiliate depreciation and amortization		4,054			6,741
Loss on impairment of real estate investments		-			735
Subtract:
Gain on sale of depreciable real estate		(1,082)			-
Funds from operations applicable to common shares and limited partnership units (FFO)	$	44,888	32,434	$	42,514	31,636

(1)

Excludes the portion allocated to noncontrolling interest in the amount of $986 and $1,082 for the nine months ended September 30, 2026 and 2025, respectively.

Liquidity and Capital Resources

Evaluation of Liquidity

We continually evaluate our liquidity and ability to fund future operations, debt obligations, and any repurchase requests. As part of our analysis, we consider, among other items, the credit quality of tenants, current lease terms, and projected expiration dates.

Our principal demands for funds are for:
(i) acquisition of real estate and real estate-related investments,
(ii) payment of acquisition-related expenses and operating expenses,
(iii) payment of dividends/distributions,
(iv) payment of principal and interest on current and any future outstanding indebtedness,
(v) redemptions of our securities under our redemption plans, and
(vi) capital improvements, development projects, and property-related expenditures.

Generally, we expect to meet cash needs for operating expenses and interest on outstanding indebtedness from cash flow from operations. We expect to pay dividends/distributions and any repurchase requests to our shareholders and the unit holders of our Operating Partnership from cash flow from operations.

As of September 30, 2026, our unrestricted cash resources consisted of cash and cash equivalents totaling $4,599. Our unrestricted cash reserves can be used for working capital needs and other commitments. In addition, we had unencumbered properties with a gross book value of $40,770, which could potentially be used as collateral to secure additional financing in future periods.

Credit Facilities

The Trust maintains two variable rate lines of credit with Old National Bank: a $4,915 facility and a $3,500 facility, each bearing interest at a variable rate (floating SOFR plus 2.00%) and expiring in December 2026. Management expects to renew both facilities upon expiration. The Trust also maintains two variable rate lines of credit with Gate City Bank, each expiring in November 2028: a $20,000 facility bearing interest at a variable rate (Prime minus 1.50%) and a $20,000 facility bearing interest at a variable rate (Prime minus 0.75%).

At September 30, 2026, the lines of credit had $48,415 available and an unused balance of $48,415 under the agreements. The lines of credit are secured by specific properties. The Trust anticipates it will hold the lines of credit as cash resources to the Trust.

Capital and Equity

The sale of our securities and issuance of limited partnership units of the Operating Partnership in exchange for property acquisitions and sale of additional common or preferred shares is also expected to be a source of long-term capital for the Trust.

During the nine months ended September 30, 2026, we did not sell any common shares in private placement. During the nine months ended September 30, 2026, we issued 280,000 and 115,000 common shares under the dividend reinvestment plan and optional share purchases, respectively, which raised gross proceeds of $9,544. During the nine months ended September 30, 2025, we did not sell any common shares in private placement. During the nine months ended September 30, 2025, we issued 277,000 and 87,000 common shares under the dividend reinvestment plan and as optional share purchases, respectively, which raised gross proceeds of $8,400.

Additionally, to reduce our cash investment and liquidity needs, the Trust utilizes the UPREIT structure whereby we can acquire property in whole or in part by issuing partnership units in lieu of cash payments. During the nine months ended September 30, 2026, the Trust issued approximately 394,000 limited partnership units of the Operating Partnership valued at $25.50 per unit of an aggregate consideration of approximately $10,045 for the purchase of real estate investments. During the nine months ended September 30, 2025, the Trust issued approximately 438,000 limited partnership units of the Operating Partnership valued at $24.00 per unit of an aggregate consideration of approximately $10,518 for the purchase of real estate investments.

The Board of Trustees, acting as general partner for the Operating Partnership, determined an estimate of fair value for the limited partnership units exchanged through the UPREIT structure. In determining this value, the Board relied upon their experience with, and knowledge about, the Trust's real estate portfolio and debt obligations. The Board typically determines the fair value on an annual basis. The Trustees determine the fair value, in their sole discretion and use data points to guide their determination which is typically based on a consensus of opinion. Thus, the Trust does not employ

any specific valuation methodology or formula. Rather, the Board looks to available data and information, which is often adjusted and weighted to comport more closely with the assets held by the Trust at the time of valuation. The principal valuation methodology utilized is the net asset value ("NAV") calculation/direct capitalization method. The information made available to the Board is assembled by the Trust's Advisor. In addition, the Board considers how the price chosen will affect existing share and unit values, redemption prices, dividend coverage ratios, yield percentages, dividend reinvestment factors, and future UPREIT transactions, among other considerations and information. The fair value was not determined based on, nor intended to comply with, fair value standards under US GAAP and the value may not be indicative of the price we would get for selling our assets in their current condition. At this time, no shares are held in street name accounts and the Trust is not subject to FINRA's specific pricing requirements set out in Rule 2340 or otherwise.

As with any valuation methodology, the methodologies utilized by the Board in reaching an estimate of the value of the shares and limited partnership units are based upon a number of estimates, assumptions, judgments, or opinions that may, or may not, prove to be correct. The use of different estimates, assumptions, judgments, or opinions would likely have resulted in significantly different estimates of the value of the shares and limited partnership units. In addition, the Board's estimate of share and limited partnership unit value is not based on the book values of our real estate, as determined by GAAP, as our book value for most real estate is based on the amortized cost of the property, subject to certain adjustments.

Liquidity Outlook

Cash on hand, together with cash from operations and access to the lines of credit, is expected to provide sufficient capital to meet the Company's needs for at least the next 12 months. As appropriate, we will use cash flows from operations, net proceeds from share offerings, debt proceeds, and proceeds from the disposition of real estate investments to meet long-term liquidity demands.

Credit Quality of Tenants

We are exposed to credit risk within our tenant portfolio, which can reduce our results of operations and cash flow from operations if our tenants are unable to pay their rent. Tenants experiencing financial difficulties may become delinquent on their rent or default on their leases and, if they file for bankruptcy protection, may reject our lease in bankruptcy court, resulting in reduced cash flow. This may negatively impact net asset values and require us to incur impairment charges. Even if a default has not occurred and a tenant is continuing to make the required lease payments, we may restructure or renew leases on less favorable terms, or the tenant's credit profile may deteriorate, which could affect the value of the leased asset and could in turn require us to incur impairment charges.

To mitigate credit risk on commercial properties, we have historically looked to invest in assets that we believe are critically important to our tenants' operations and have attempted to diversify our portfolio by tenant, tenant industry and geography. We also monitor all of our properties' performance through review of rent delinquencies as a precursor to a potential default, meetings with tenant management and review of tenants' financial statements and compliance with financial covenants. When necessary, our asset management process includes restructuring transactions to meet the evolving needs of tenants, refinancing debt and selling properties, as well as protecting our rights when tenants default or enter into bankruptcy.

Lease Expirations and Occupancy

Our residential leases are for a term of one year or less. The Advisor, with the assistance of our property managers, actively manages our real estate portfolio and begins discussing options with tenants in advance of scheduled lease expirations. In certain cases, we may obtain lease renewals from our tenants; however, tenants may elect to move out at the end of their term. In the cases where tenants elect not to renew, we may seek replacement tenants or try to sell the property.

Cash Flow Analysis

Our objectives are to generate sufficient cash flow over time to provide shareholders with increasing dividends and to seek investments with potential for strong returns and capital appreciation throughout varying economic cycles. We have funded

100% of the dividends from operating cash flows. In setting a dividend rate, we focus primarily on expected returns from investments we have already made to assess the sustainability of a particular dividend rate over time.


	Nine Months Ended
	September 30,
	2026		2025

	(in thousands)
Net cash flows provided by operating activities	$	51,238	$	37,828
Net cash flows used in investing activities	$	(54,453)	$	(26,333)
Net cash flows provided by financing activities	$	5,462	$	(9,099)

Operating Activities

Our real estate properties generate cash flow in the form of rental revenues, which is reduced by interest payments, direct lease costs and property-level operating expenses. Property-level operating expenses consist primarily of property management fees including salaries and wages of property management personnel, utilities, cleaning, repairs, insurance, security, building maintenance costs, and real estate taxes. Additionally, we incur general and administrative expenses, advisory fees, acquisition and disposition expenses, and financing fees.

Net cash provided by operating activities was $51,238 and $37,828 for the nine months ended September 30, 2026 and 2025, respectively, which consists primarily of net income from property operations adjusted for non-cash depreciation and amortization.

Investing Activities

Our investing activities generally consist of real estate-related transactions (purchases and sales of properties) and payments of capitalized property-related costs such as intangible assets and reserve escrows.

Net cash used in investing activities was $ (54,453) and $(26,333) for the nine months ended September 30, 2026 and 2025, respectively (this does not include the value of UPREIT units issued in connection with investing activities). For the nine months ended September 30, 2026 and 2025, cash flows used in investing activities related specifically to the acquisition of properties and capital expenditures were $56,913 and $27,207, respectively. Cash outlays related to investments in unconsolidated affiliates were $(1,532) and $(4,540) for the nine months ended September 30, 2026 and 2025, respectively. During the nine months ended September 30, 2026 and 2025, there were no proceeds from the maturity of securities. Proceeds from the sale of real estate investments during the nine months ended September 30, 2026 and 2025, were $2,228 and $-, respectively.

Financing Activities

Our financing activities generally consist of funding property purchases by raising proceeds and securing mortgage notes payable as well as paying dividends, paying syndication costs and making principal payments on mortgage notes payable.

Net cash provided by financing activities was $5,462 for the nine months ended September 30, 2026. Net cash used in financing was $9,099 for the nine months ended September 30, 2025. During the nine months ended September 30, 2026, we paid $23,781 in dividends and distributions, redeemed $3,715 of shares and units, received $116,585 from new mortgage notes payable and made mortgage principal payments of $74,299. For the nine months ended September 30, 2025, we paid $21,572 in dividends and distributions, redeemed $7,677 of shares and units, received $30,354 from new mortgage notes payable, and made mortgage principal payments of $27,513.

Dividends and Distributions

Common Stock

We declared cash dividends to our shareholders during the period from January 1, 2026 to September 30, 2026 totaling $12,771 or $0.9563 per share, of which $5,801 were cash dividends and $6,970 were reinvested through the dividend reinvestment plan. The cash dividends were paid from our $51,238 of cash flows from operations.

We declared cash dividends to our shareholders during the period from January 1, 2025 to September 30, 2025 totaling $11,649 or $0.9000 per share, of which $5,311 were cash dividends and $6,338 were reinvested through the dividend reinvestment plan. The cash dividends were paid from our $37,828 of cash flows from operations.

The Amended and Restated Dividend Reinvestment Plan, effective January 1, 2025, permits us to provide eligible shareholders with a simple and convenient way to invest dividends as well as additional cash in additional shares of the Trust's Common Shares. The Plan is intended to be used as a vehicle for long-term investment in the Trust's common shares of beneficial interest. The number of common shares of the Trust issuable under the plan is 10,000,000. The cap on the quarterly dividend reinvestments and quarterly optional cash purchases, in each case, is $25,000. The Annual cap on purchases under the Dividend Reinvestment Plan is $100,000 and provides participants the ability to exceed such cap with approval of the Trust.

We continue to provide cash dividends to our shareholders from cash generated by our operations. The following chart summarizes the sources of our cash used to pay dividends. Our primary source of cash is cash flow provided by operating activities from our investments as presented in our cash flow statement. We also include distributions from unconsolidated affiliates to the extent that the underlying real estate operations in these entities generate cash flow and the gain on sale of properties relates to net profits from the sale of certain properties. Our presentation is not intended to be an alternative to our consolidated statement of cash flows and does not present all sources and uses of our cash.

The following table presents certain information regarding our dividend coverage:


	Nine Months Ended
	September 30,
	2026		2025

	(in thousands)
Cash flows provided by operations (net income of $20,504 and $14,498, respectively)	$	51,238	$	37,828
Distributions in excess of earnings received from unconsolidated affiliates		1,662		970
Proceeds from sale of real estate investments and non-real estate investments		2,228		83
Dividends declared		(12,771)		(11,649)
Excess	$	42,357	$	27,232

Limited Partnership Units

The Operating Partnership agreement provides that our Operating Partnership will distribute to the partners (subject to certain limitations) cash from operations on a quarterly basis (or more frequently, if we so elect) in accordance with the percentage interests of the partners. We determine the amounts of such distributions in our sole discretion.

For the nine months ended September 30, 2026, the Operating Partnership declared distributions totaling $18,285 to holders of limited partnership units in our Operating Partnership, which we paid on April 15; July 15; and October 15 2026. Declared distributions are included in dividends payable on the balance sheet. Distributions were paid at a rate of $0.3188 per unit per quarter, which is equal to the per share distribution rate paid to the common shareholders.

For the nine months ended September 30, 2025, we declared quarterly distributions totaling $16,781 to holders of limited partnership units in our Operating Partnership, which we paid on April 15; July 15; and October 15, 2025 . Distributions were paid at a rate of $0.3000 per unit per quarter, which is equal to the per share distribution rate paid to the common shareholders.

Sources of Dividends and Distributions

For the nine months ended September 30, 2026, we paid aggregate dividends of $12,420, of which $5,742 were paid with cash flows provided by operating activities and $6,675 were reinvested. Our FFO for the nine months ended September 30, 2026 was $44,888. Therefore, our management believes our distribution policy is sustainable over time. For the nine months ended September 30, 2025, we paid aggregate dividends of $11,433, of which $5,106 were paid with cash flows provided by operating activities and $6,327 were reinvested. Our FFO was $42,514 for the nine months ended September 30, 2025. For a further discussion of FFO, including a reconciliation of FFO to net income, see "Funds from Operations" above.

Sterling Real Estate Trust published this content on November 04, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 04, 2026 at 17:51 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]

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