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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2026

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from ------------to------------

Commission File Number: 000-54295

Sterling Real Estate Trust

d/b/a Sterling Multifamily Trust

(Exact name of registrant as specified in its charter)

North Dakota	90-0115411
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4340 18th Ave South, Suite 200, Fargo, North Dakota	58103
(Address of principal executive offices)	(Zip Code)

(701) 353-2720

(Registrant’s telephone number, including area code)

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act


Title of each class:		Trading Symbol		Name of each exchange on which registered:
Common Shares, par value $0.01 per share		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Class		Outstanding at May 6, 2026
Common Shares of Beneficial Interest, $0.01 par value per share		13,346,610

Table of Contents

STERLING REAL ESTATE TRUST

INDEX

	Page
	No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets – as of March 31, 2026 and December 31, 2025	3
Consolidated Statements of Operations and Other Comprehensive (Loss) Income – Three months ended March 31, 2026 and 2025	4
Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2026 and 2025	5
Consolidated Statements of Cash Flows – Three months ended March 31, 2026 and 2025	6
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	43
Signatures	44

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

as of March 31, 2026 (UNAUDITED) and December 31, 2025


	March 31,			December 31,
	2026			2025

	(in thousands)
ASSETS
Real estate investments
Land	$	156,014		$	152,561
Buildings and improvements		966,546			947,217
Furniture, fixtures and equipment		35,996			35,535
Construction in progress		30,851			24,026
Real estate investments		1,189,407			1,159,339
Less accumulated depreciation		(261,123)			(256,951)
Real estate investments, net		928,284			902,388
Cash and cash equivalents		5,337			7,764
Restricted deposits		10,323			9,812
Investment in unconsolidated affiliates		29,854			29,791
Notes receivable		1,500			1,500
Notes receivable, affiliates		2,315			2,315
Assets held for sale		4,552			2,832
Lease intangible assets, less accumulated amortization		1,743			1,998
Other assets, net		19,403			20,228

Total Assets	$	1,003,311		$	978,628

LIABILITIES
Mortgage notes payable, net	$	529,885		$	511,737
Mortgage notes payable, net, affiliates		53,203			53,797
Notes payable, affiliate		—			10,000
Lines of credit		29,496			16,579
Dividends payable		10,311			9,589
Tenant security deposits payable		9,161			8,670
Lease intangible liabilities, less accumulated amortization		144			177
Liabilities related to assets held for sale		4,230			4,243
Accrued expenses and other liabilities		25,857			28,244
Total Liabilities		662,287			643,036

COMMITMENTS and CONTINGENCIES - Note 14

SHAREHOLDERS' EQUITY
Beneficial interest		160,224			159,383
Noncontrolling interest
Operating partnership		161,614			159,935
Partially owned properties		12,476			9,849
Accumulated other comprehensive income		6,710			6,425
Total Shareholders' Equity		341,024			335,592

	$	1,003,311		$	978,628

See Notes to Consolidated Financial Statements

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED March 31, 2026 and 2025 (UNAUDITED)


	Three Months Ended
	March 31,
	2026			2025

	(in thousands, except per share data)
Income from rental operations
Real estate rental income	$	44,147		$	42,180
Expenses
Expenses from rental operations
Operating expenses		18,843			17,836
Real estate taxes		4,512			3,860
Depreciation and amortization		7,755			7,025
Interest		7,083			6,270
		38,193			34,991
Administration of REIT		1,601			1,500
Total expenses		39,794			36,491
Income from operations		4,353			5,689

Other income (loss)
Equity in losses of unconsolidated affiliates		845			(919)
Other income		333			137
Gain on involuntary conversion		239			—
Total other income (loss)		1,417			(782)
Net income	$	5,770		$	4,907
Net income (loss) attributable to noncontrolling interest:
Operating partnership		3,437			3,031
Partially owned properties		(61)			(230)
Net income attributable to Sterling Real Estate Trust	$	2,394		$	2,106

Net income attributable to Sterling Real Estate Trust per common share, basic and diluted	$	0.18		$	0.16

Comprehensive income
Net income	$	5,770		$	4,907
Other comprehensive (loss) income:
Gain on cash flow hedges		848			(1,994)
Cash flow hedge losses reclassified to earnings		(563)			(788)
Total other comprehensive gain		285			(2,782)
Total comprehensive income		6,055			2,125
Comprehensive income attributable to noncontrolling interest		3,545			1,159
Comprehensive income attributable to Sterling Real Estate Trust	$	2,510		$	966

Weighted average common shares outstanding, basic and diluted		13,253			12,900

See Notes to Consolidated Financial Statements

Table of Contents

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED March 31, 2026 and 2025 (UNAUDITED)


						Accumulated						Noncontrolling
						Distributions			Total			Interest						Accumulated
	Common		Paid-in			in Excess of			Beneficial			Operating			Partially Owned			Comprehensive
	Shares		Capital			Earnings			Interest			Partnership			Properties			Income (Loss)			Total

	(in thousands)
BALANCE AT DECEMBER 31, 2024	12,829		$	205,020		$	(51,186)		$	153,834		$	154,353		$	9,290		$	11,461		$	328,938
Shares/units redeemed	(50)			(1,146)			—			(1,146)			(1,434)			—			—			(2,580)
Dividends and distributions declared ($0.3000 per share/unit)	—			—			(3,867)			(3,867)			(5,565)			—			—			(9,432)
Dividends reinvested - stock dividend	91			2,066			—			2,066			—			—			—			2,066
Issuance of shares under optional purchase plan	22			529			—			529			—			—			—			529
Owner Contribution	—			—			—			—			—			1,000			—			1,000
Total other comprehensive loss	—			—			—			—			—			—			(2,782)			(2,782)
Net income (loss)	—			—			2,106			2,106			3,031			(230)			—			4,907
BALANCE AT MARCH 31, 2025	12,892		$	206,469		$	(52,947)		$	153,522		$	150,385		$	10,060		$	8,679		$	322,646


				Accumulated				Noncontrolling
				Distributions		Total		Interest				Accumulated
	Common	Paid-in		in Excess of		Beneficial		Operating		Partially Owned		Comprehensive
	Shares	Capital		Earnings		Interest		Partnership		Properties		Income (Loss)		Total

	(in thousands)
BALANCE AT DECEMBER 31, 2025	13,140	$	212,282	$	(52,899)	$	159,383	$	159,935	$	9,849	$	6,425	$	335,592
Contribution of assets in exchange for UPREIT partnership units	-	-		-		-		8,551		-		-		8,551
Shares/units redeemed	(16)		(391)		-		(391)		(1,533)		-		-		(1,924)
Dividends and distributions declared ($0.3188 per share/unit)	-		-		(4,224)		(4,224)		(6,088)		-		-		(10,312)
Dividends reinvested - stock dividend	86		2,080		-		2,080		-		-		-		2,080
Issuance of shares under optional purchase plan	39		982		-		982		-		-		-		982
Owner contribution reclassification	-		-		-		-		(2,688)		2,688		-		-
Total other comprehensive income	-		-		-		-		-		-		285		285
Net income (loss)	-		-		2,394		2,394		3,437		(61)		-		5,770
BALANCE AT MARCH 31, 2026	13,249	$	214,953	$	(54,729)	$	160,224	$	161,614	$	12,476	$	6,710	$	341,024

See Notes to Consolidated Financial Statements

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED March 31, 2026 and 2025 (UNAUDITED)


	Three Months Ended
	March 31,
	2026		2025

	(in thousands)
OPERATING ACTIVITIES
Net income	$	5,770	$	4,907
Adjustments to reconcile net income to net cash provided by operating activities
Gain on involuntary conversion		(239)		—
Equity in loss of unconsolidated affiliates		(845)		919
Depreciation		6,709		6,613
Amortization		1,046		412
Amortization of debt issuance costs		180		131
Effects on operating cash flows due to changes in
Other assets		2,549		(6,056)
Tenant security deposits payable		491		309
Accrued expenses and other liabilities		(2,842)		(3,910)
NET CASH PROVIDED BY OPERATING ACTIVITIES		12,819		3,325
INVESTING ACTIVITIES
Purchase of real estate investment properties		(18,165)		—
Capital expenditures and tenant improvements		(8,952)		(4,469)
Payments from sale of real estate investments and non-real estate investments		(12)		(17)
Investment in unconsolidated affiliates		—		(567)
Distributions in excess of earnings received from unconsolidated affiliates		782		786
Notes receivable issued net of payments received		—		(904)
NET CASH USED IN INVESTING ACTIVITIES		(26,347)		(5,171)
FINANCING ACTIVITIES
Payments for financing, debt issuance		(219)		—
Principal payments on special assessments payable		(309)		(203)
Proceeds from issuance of mortgage notes payable, net of financing costs		29,630		—
Principal payments on mortgage notes payable		(11,955)		(6,528)
Draws on lines of credit		34,920		7,074
Payments on lines of credit		(22,003)		—
Proceeds from contributions received from noncontrolling interest - partially owned properties		—		1,000
Draws (payments) on notes payable		(10,000)		—
Proceeds on notes payable, affiliate		—		10,000
Proceeds from issuance of shares under optional purchase plan		982		529
Shares/units redeemed		(1,925)		(2,580)
Dividends/distributions paid		(7,509)		(6,973)
NET CASH PROVIDED BY FINANCING ACTIVITIES		11,612		2,319
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS		(1,916)		473
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF PERIOD		17,576		14,925
CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD	$	15,660	$	15,398

CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF PERIOD
Cash and cash equivalents	$	5,337	$	4,999
Restricted deposits		10,323		10,399
TOTAL CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS, END OF PERIOD	$	15,660	$	15,398

(Continued)

See Notes to Consolidated Financial Statements

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED March 31, 2026 and 2025 (UNAUDITED) (Continued)


	Three Months Ended
	March 31,
	2026		2025

	(in thousands)
SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	6,821	$	6,032

SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends reinvested	$	2,080	$	2,066
Dividends declared and not paid		4,224		3,867
UPREIT distributions declared and not paid		6,089		5,565
Acquisition of assets in exchange for the issuance of noncontrolling interest units in UPREIT		8,551		—
Increase in land improvements due to increase in special assessments payable		25		3,320
Accrued capital expenditures		3,764		1,433
Total other comprehensive income (loss)		285		(2,782)
Acquisition of assets through assumption of debt and liabilities		63		—
Capitalized interest and real estate taxes related to construction in progress		100		68

See Notes to Consolidated Financial Statements

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

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 March 31, 2026 and December 31, 2025, Sterling owned approximately 40.96% and 41.11%, respectively, of the Operating Partnership.

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 2025, 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 months ended March 31, 2026. These adjustments are of a normal recurring nature.

Principles of Consolidation

The consolidated financial statements include the accounts of Sterling, Sterling Properties, LLLP, and wholly owned limited liability companies. All significant intercompany transactions and balances have been eliminated in consolidation.

As of March 31, 2026, the Trust owned approximately 40.96% 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 redemptions plans, 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

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

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 loss. Additionally, the Trust’s net investment in the joint venture will be reflected as investment in unconsolidated affiliates 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

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

lease intangibles, and (v) assumed financing that is determined to be above or below market, if any. Transaction costs related to acquisitions are accounted for as asset acquisitions and 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
Land Improvements		20 years
Furniture, fixtures and equipment		5-9 years

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 months ended March 31, 2026 and 2025.

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 ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of March 31, 2026 and December 31, 2025, we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We are no longer subject to Federal and State tax examinations by tax authorities for years before 2022.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

Reclassifications

Certain classifications considered necessary for a fair presentation have been made to the prior period financial statements in order to conform to the current year’s presentation. These reclassifications have not changed the results of operations or total shareholders’ equity.

During the three months ended March 31, 2026, the Trust recorded a reclassification of $2,688 from noncontrolling interest – operating partnership to noncontrolling interest – partially owned properties within owner contribution reclassification on the consolidated statement of shareholders’ equity . The reclassification did not affect total shareholders’ equity, net income, funds from operations, or previously reported cash flows.

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 March 31, 2026, 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 months ended March 31, 2026 and therefore, basic earnings per common share was equal to diluted earnings per common share for both periods.

For the three months ended March 31, 2026 and 2025, Sterling’s denominators for the basic and diluted earnings per common share were approximately 13,253,000 and 12,900,000, respectively.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement- Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires new tabular disclosures in the notes to consolidated financial statements, disaggregating certain cost and expense categories within relevant captions on the Consolidated Statements of Operations. The prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along with certain other expense disclosures already required by U.S. GAAP that would need to be integrated within the new tabular disaggregated expense disclosures. Additionally, the amendments also require the disclosure of total selling expenses and an entity's definition of those expenses. The amendments in ASU 2024-03 are effective for annual periods beginning after December 15, 2026, which for the Company would be applicable to fiscal year 2027, and for subsequent interim periods. Early adoption is permitted and the amendments should be applied on a prospective basis. Retrospective application is permitted. The Trust is currently evaluating the impact the new accounting standard will have on its expense disclosures in the notes to the consolidated financial statements.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

NOTE 3 – segment reporting

Segment information is presented in accordance with a “management approach,” which designates the internal reporting used by the Company's CODM for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s segments are organized in a manner consistent with which discrete financial information is available and evaluated regularly by the CODM in deciding how to allocate resources and assess performance.

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by the CODM. The CODM is the Company’s chief executive officer.

Each of the operating segments are directly responsible for revenue and expenses related to their operations, including direct segment general and administrative expenses. The CODM assesses the performance of each operating segment using information about operating income (loss) as the primary measure of performance but does not evaluate segments using discrete asset information. There were no material inter-segment transactions during the three months ended March 31, 2026 and 2025, and the Company does not allocate depreciation and amortization, interest, administration of REIT, loss on impairment of property or other income (loss) to the operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.

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, and medical properties. We assess and measure operating results based on net operating income (“NOI”), which we define as total real estate revenues less real estate expenses (which consist of real estate taxes, property management fees, utilities, repairs and maintenance, insurance and direct administrative costs). We believe NOI is an important measure of operating performance even though it should not be considered an alternative to net income or cash flow from operating activities.

Segment Revenues and Net Operating Income

The revenues and net operating income for the reportable segments (residential and commercial) are summarized as follows for the three months ended March 31, 2026 and 2025, along with reconciliations to the consolidated financial statements. Segment assets are also reconciled to Total Assets as reported in the consolidated financial statements.


	Three months ended March 31, 2026						Three months ended March 31, 2025
	Residential		Commercial		Total		Residential		Commercial		Total

	(in thousands)						(in thousands)
Income from rental operations	$	39,299	$	4,848	$	44,147	$	37,191	$	4,989	$	42,180
Real Estate Expenses
Real Estate Taxes		4,053		459		4,512		3,394		466		3,860
Property Management		5,165		229		5,394		4,915		235		5,150
Utilities		4,111		274		4,385		3,721		282		4,003
Repairs and Maintenance		7,161		423		7,584		6,599		524		7,123
Insurance		1,444		36		1,480		1,527		33		1,560
Expenses from rental operations		21,934		1,421		23,355		20,156		1,540		21,696
Net operating income	$	17,365	$	3,427	$	20,792	$	17,035	$	3,449	$	20,484
Depreciation and amortization ¹						7,755						7,025
Interest ¹						7,083						6,270
Administration of REIT ¹						1,601						1,500
Other income (expense) ¹						(1,417)						782
Net income					$	5,770					$	4,907

¹The financial information provided to the CODM for these expense categories are not reflected by segment to evaluate performance of our reportable segments.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

Segment Assets and Accumulated Depreciation


As of March 31, 2026	Residential		Commercial		Total

	(in thousands)
Real estate investments	$	1,023,021	$	166,386	$	1,189,407
Accumulated depreciation		(207,896)		(53,227)		(261,123)
Total real estate investments, net	$	815,125	$	113,159	$	928,284
Lease intangible assets, less accumulated amortization		238		1,505		1,743
Cash and cash equivalents						5,337
Restricted deposits						10,323
Investment in unconsolidated affiliates						29,854
Notes receivable						1,500
Notes receivable, affiliates						2,315
Assets held for sale						4,552
Other assets, net						19,403
Total Assets					$	1,003,311


As of December 31, 2025	Residential		Commercial		Total

	(in thousands)
Real estate investments	$	989,224	$	170,115	$	1,159,339
Accumulated depreciation		(202,714)		(54,237)		(256,951)
Total real estate investments, net	$	786,510	$	115,878	$	902,388
Lease intangible assets, less accumulated amortization		365		1,633		1,998
Cash and cash equivalents						7,764
Restricted deposits						9,812
Investment in unconsolidated affiliates						29,791
Notes receivable						1,500
Notes receivable, affiliates						2,315
Assets held for sale						2,832
Other assets, net						20,228
Total Assets					$	978,628

NOTE 4 – restricted deposits and funded reserves

The following table summarizes the Trust’s restricted deposits and funded reserves.


		As of March 31,		As of December 31,
		2026		2025

		(in thousands)
Tenant security deposits		$	8,692	$	8,272
Real estate tax and insurance escrows			1,265		1,198
Replacement reserves			366		342
		$	10,323	$	9,812

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

NOTE 5 – CONSOLIDATED VARIABLE INTEREST ENTITIES




			Total Assets in Consolidated Affiliates at				Total Liabilities of Consolidated Affiliates at
Consolidated Affiliates	Date Acquired	Trust Ownership Interest	March 31, 2026			December 31, 2025	March 31, 2026		December 31, 2025
Sterling Northland, LLC	2015	70%	$	36,027	$	35,822	$	29,081	$	29,056
SRENOR1, LLC & SRENOR2, LLC	2024	60%		68,608		68,704		51,733		51,403
SE Rosemount, LLC	2025	75%		17,159		13,038		6,500		2,348
			$	121,794	$	117,564	$	87,314	$	82,807

Sterling Northland, LLC – the Operating Partnership owns a 70% interest as limited liability company in an office building in Bloomington, Minnesota. The property is encumbered by a mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

SRENOR1, LLC & SRENOR2, LLC – the Operating Partnership owns a 60% interest as limited liability company in a multifamily property in Circle Pines, Minnesota. The property is encumbered by a mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

SE Rosemount, LLC – the Operating Partnership owns a 75% interest as limited liability company in a multifamily development in Rosemount, Minnesota. The property is encumbered by a mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

The following is a summary of the financial position of the consolidated variable interest entities at March 31, 2026 and December 31, 2025.


	March 31, 2026		December 31, 2025

	(in thousands)
ASSETS
Real estate investments	$	134,374	$	130,741
Accumulated depreciation		(18,902)		(18,751)
Total Real Estate Investments, net		115,472		111,990
Cash and cash equivalents		3,006		2,669
Restricted deposits		933		726
Financing and lease costs, net		886		584
Other assets, net		1,497		1,595
Total Assets	$	121,794	$	117,564

LIABILITIES
Mortgage notes payable, net	$	83,441	$	80,216
Tenant security deposits payable		580		547
Accrued expenses and other liabilities		3,293		2,044
Total Liabilities		87,314		82,807
SHAREHOLDERS' EQUITY
Total Shareholders' Equity		34,480		34,757

Total liabilities and shareholders' equity	$	121,794	$	117,564

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

The following is a summary of results of operations of the consolidated variable interest entities for the three months ended March 31, 2026 and 2025.


	Three months ended March 31,
	2026		2025

	(in thousands)
Income from rental operations	$	3,615	$	3,530
Expenses from rental operations		1,663		1,683
Net operating income		1,952		1,847
Depreciation and amortization		964		1,145
Interest		1,125		1,175
Other (income) expense		(19)		92
Net loss	$	(118)	$	(565)

NOTE 6 – 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				Total Assets in Unconsolidated Affiliates at				Total Liabilities of Unconsolidated Affiliates at
Unconsolidated Affiliates	Date Acquired	Trust Ownership Interest	March 31, 2026		December 31, 2025		March 31, 2026			December 31, 2025	March 31, 2026		December 31, 2025
Banner Building	2007	66.67%	$	1,357	$	1,347	$	8,434	$	8,470	$	6,455	$	6,505
Grand Forks INREIT, LLC	2003	50%		5,318		5,417		19,285		19,848		8,651		9,015
SE Savage, LLC	2019	60%		(923)		(575)		28,268		28,783		29,806		30,274
SE Maple Grove, LLC	2019	60%		251		553		25,946		26,394		26,374		26,545
SE Rogers, LLC	2020	60%		(63)		40		27,482		28,040		27,712		28,210
ST Oak Cliff, LLC	2021	70%		5,775		5,930		44,587		45,608		36,200		37,073
SE Brooklyn Park, LLC	2021	60%		(21)		144		26,287		26,535		26,314		26,398
ST Fossil Creek, LLC	2022	70%		6,357		5,333		46,536		46,131		37,956		39,013
SHG Emory North Liberty, LLC	2024	99%		10,797		11,027		12,175		12,241		654		482
			$	28,848	$	29,216	$	239,000	$	242,050	$	200,122	$	203,515

Negative investments presented in accrued expenses and other liabilities				1,006		575

Total investment in unconsolidated affiliates			$	29,854	$	29,791

Banner Building - 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 the Trust acting as a guarantor on the outstanding indebtedness.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

Grand Forks INREIT, LLC - the Operating Partnership is a 50% owner of a 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 first mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

SE Savage, LLC - the Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is located in Savage, Minnesota. The property is encumbered by a first mortgage.

SE Maple Grove, LLC - the Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is located in Maple Grove, Minnesota. The property is encumbered by a first mortgage. During 2025, the first mortgage was refinanced. As part of the refinancing process, a portion of the existing second mortgage payable to Sterling Properties, LLLP was repaid. The new senior lender did not permit subordinate debt; therefore, the remaining balance of the second mortgage was converted into a preferred equity interest in the entity.

SE Rogers, LLC - the Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is located in Rogers, Minnesota. The property is encumbered by a first mortgage. During 2025, the first mortgage was refinanced and the second mortgage to Sterling Properties, LLLP was satisfied.

ST Oak Cliff, LLC - the Operating Partnership owns a 70% interest in a limited liability company, with a related party multifamily property. The entity is located in Dallas, Texas. The property is encumbered by a first mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

SE Brooklyn Park, LLC - the Operating Partnership owns a 60% interest in a limited liability company that holds a multifamily property. The entity is located in Brooklyn Park, Minnesota. The property is encumbered by a first mortgage, with the Trust acting as a guarantor on the outstanding indebtedness. The property is also encumbered by a second mortgage to Sterling Properties, LLLP with a balance of $2,294 and $2,294 at March 31, 2026 and December 31, 2025, respectively. The note is included in Notes receivable, affiliates on the consolidated balance sheet at March 31, 2026 and December 31, 2025.

ST Fossil Creek, LLC - the Operating Partnership owns a 70% interest in a limited liability company, with a related party multifamily property. The entity is located in Fort Worth, Texas. The property is encumbered by a first mortgage, with the Trust acting as a guarantor on the outstanding indebtedness.

SHG Emory North Liberty, LLC - the Operating Partnership owns a 99% interest in SHG Emory North Liberty, LLC (“SHG”), a limited liability company. Sterling determined that it does not control the key decision-making rights of SHG and is not the primary beneficiary of the entity. Accordingly, SHG is not consolidated in Sterling’s financial statements and is accounted for as an unconsolidated affiliate under the equity method of accounting from the date of acquisition.

●

SHG owns a 50% interest in Emory North Liberty, LC (“ENL”), a limited company that is developing a multifamily property located in North Liberty, Iowa. SHG has determined that it does not control the key decision-making rights of ENL and is not the primary beneficiary of the entity. Accordingly, EBL is not consolidated by SHG and is also accounted for as an unconsolidated affiliated under the equity method from the date of acquisition.

●

Sterling’s investment in ENL is indirect and is reflected solely through its equity method investment in SHG. Accordingly, ENL is not presented separately in the Company’s unconsolidated affiliate tables. However, the Company considers the underlying activities of ENL to be meaningful to an understanding of its investment in SHG. As of March 31, 2026, ENL had total assets of approximately $55,225 and total liabilities of approximately $33,308, consisting primarily of project-level development and construction financing.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

The following is a summary of the financial position of the unconsolidated affiliates at March 31, 2026 and December 31, 2025.


	March 31, 2026		December 31, 2025

	(in thousands)
ASSETS
Real estate investments	$	272,104	$	272,102
Accumulated depreciation		(52,126)		(51,086)
Total Real Estate Investments, net		219,978		221,016
Cash and cash equivalents		3,782		6,130
Restricted deposits		2,203		1,451
Investment in unconsolidated affiliates		11,691		11,758
Financing and lease costs, net		689		710
Other assets, net		657		985
Total Assets	$	239,000	$	242,050

LIABILITIES
Mortgage notes payable, net	$	195,971	$	196,774
Tenant security deposits payable		422		428
Accrued expenses and other liabilities		3,729		6,313
Total Liabilities		200,122		203,515
SHAREHOLDERS' EQUITY
Total Shareholders' Equity		38,878		38,535

Total liabilities and shareholders' equity	$	239,000	$	242,050

The following is a summary of results of operations of the unconsolidated affiliates for the three months ended March 31, 2026 and 2025.


	Three months ended March 31,
	2026		2025

	(in thousands)
Income from rental operations	$	7,296	$	7,380
Expenses from rental operations		3,259		3,237
Net operating income		4,037		4,143
Depreciation and amortization		1,062		3,352
Interest		1,820		1,850
Other income (expense)		19		(162)
Net income (loss)	$	1,174	$	(1,221)

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

NOTE 7 - Lease intangibles

The following table summarizes the net value of other intangible assets and liabilities and the accumulated amortization for each class of intangible:


		Lease			Accumulated			Lease
As of March 31, 2026		Intangibles			Amortization			Intangibles, net

Lease Intangible Assets		(in thousands)
In-place leases		$	16,274		$	(14,815)		$	1,459
Above-market leases			1,378			(1,094)			284
		$	17,652		$	(15,909)		$	1,743
Lease Intangible Liabilities
Below-market leases		$	(1,309)		$	1,165		$	(144)


		Lease			Accumulated			Lease
As of December 31, 2025		Intangibles			Amortization			Intangibles, net

Lease Intangible Assets		(in thousands)
In-place leases		$	16,744		$	(15,051)		$	1,693
Above-market leases			1,377			(1,072)			305
		$	18,121		$	(16,123)		$	1,998
Lease Intangible Liabilities
Below-market leases		$	(2,107)		$	1,930		$	(177)

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)
2026 (April - December)	$	540	$	44
2027		375		38
2028		308		19
2029		207		17
2030		101		12
Thereafter		212		14
	$	1,743	$	144

NOTE 8 – LINES OF CREDIT

The trust maintains a $4,915 variable rate (floating SOFR plus 2.00%) line of credit agreement with Old National Bank (formerly Bremer Bank), which expires in December 2026 and a $3,500 variable rate (floating SOFR plus 2.00%) line of credit agreement with Old National Bank (formerly Bremer Bank), which expires December 2026. We also have a $20,000 variable rate (Prime minus 0.75%) line of credit agreement with Gate City Bank, which expires in November 2028 and a $20,000 variable rate (Prime minus 1.50%) line of credit agreement with Gate City Bank, which expires in November 2028. The lines of credit are secured by specific properties. At March 31, 2026, the lines of credit have $48,415 available and an unused balance of $18,919 under the agreements. These operating lines are designed to enhance treasury management activities and more effectively manage cash balances. As of March 31, 2026, and December 31, 2025, there was an outstanding balance of $29,496, and $16,579, respectively. The Trust anticipates it will hold it as a cash resource to the Trust.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

Certain lines of credit agreements include covenants that, in part, impose maintenance of certain debt service coverage, debt to net worth ratios, and debt yield ratios.

NOTE 9 - NOTES PAYABLE

The following table summarizes the Trust’s mortgage notes payable.


	Principal Balance At
	March 31,		December 31,
	2026		2025
	(in thousands)
Mortgage notes payable, net (a)	$	532,142	$	513,947
Mortgage notes payable, net, affiliates		53,203		53,797
Less unamortized debt issuance costs		2,257		2,210
	$	583,088	$	565,534

(a)	Includes $134,996 and $123,120 of variable rate mortgage debt that was swapped to a fixed rate at March 31, 2026 and December 31, 2025, 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)
2026 (April - December)		$	75,479
2027			80,141
2028			47,971
2029			92,323
2030			86,326
Thereafter			200,848
Total payments		$	583,088

NOTE 10 – DERIVATIVES AND HEDGING ACTIVITIES

As part of our interest rate risk management strategy, we have used derivative instruments to manage our exposure to interest rate movements and add stability to interest expense. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Trust making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.

As of March 31, 2026, the Trust used 17 interest rate swaps to hedge the variable cash flows associated with variable rate debt. Changes in fair value of the derivatives that are designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss and are reclassified into interest expense as interest payments are made on the Trust’s variable rate debt. During the next 12 months, the Trust estimates that an additional $2,109 will be reclassified as a decrease to interest expense.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

The following table summarizes the Trust’s interest rate swaps as of March 31, 2026, which effectively convert on month floating rate LIBOR to a fixed rate:


			Fixed
Effective Date		Notional	Interest Rate	Maturity Date
November 1, 2019	$	5,866	3.15%	November 1, 2029
November 1, 2019	$	4,083	3.28%	November 1, 2029
January 10, 2020	$	2,672	3.39%	January 10, 2030
December 2, 2020	$	11,148	2.91%	December 2, 2027
July 1, 2021	$	23,418	2.99%	July 1, 2031
November 10, 2021	$	26,104	3.54%	August 1, 2029
December 1, 2021	$	9,810	3.32%	December 1, 2031
August 15, 2022	$	1,334	3.07%	June 15, 2030
August 15, 2022	$	2,585	3.07%	June 15, 2030
August 15, 2022	$	1,442	2.94%	June 15, 2030
August 15, 2022	$	3,816	2.94%	June 15, 2030
May 10, 2023	$	4,368	2.79%	June 10, 2030
April 15, 2024	$	9,163	3.57%	May 15, 2032
April 15, 2024	$	3,577	3.57%	May 15, 2032
April 15, 2024	$	12,727	3.57%	May 15, 2032
January 6, 2026	$	8,554	5.88%	December 23, 2030
January 21, 2026	$	4,329	5.85%	January 15, 2031

The following table summarizes the Trust’s interest rate swaps that were designated as cash flow hedges of interest rate risk:


	Number of Instruments			Notional
Interest Rate Derivatives	March 31, 2026	December 31, 2025		March 31, 2026		December 31, 2025
Interest rate swaps	17	15	$	134,996	$	123,120

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.


	March 31, 2026			December 31, 2025
Derivatives designated as
cash flow hedges:	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Interest rate swaps	Other assets, net	$	9,113	Other assets, net	$	8,949

The carrying amount of the swaps have been adjusted to their fair value at the end of the quarter, which because of changes in forecasted levels of SOFR, resulted in reporting an asset and liability for the fair value of the future net payments forecasted under the swap. The interest rate swap is accounted for as an effective hedge in accordance with ASC 815-20 whereby it is recorded at fair value and changes in fair value are recorded to comprehensive income.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

The following table presents the effect of the Company’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive loss (income) for the quarter ended March 31, 2026 and 2025:


			Location of Gain
			Reclassified from
Derivatives in			Accumulated other		Amount of Gain (Loss)
Cash Flow Hedging		Total Comprehensive	Comprehensive Income		Reclassified from
Relationships		(Loss) Income	(AOCI) into Income		AOCI into Income
		2026			2026
Interest rate swaps	$	285	Interest expense	$	(564)
		2025			2025
Interest rate swaps	$	2,782	Interest expense	$	(789)

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. As of March 31, 2026, the termination value of derivatives in an asset position was $9,113. As of March 31, 2026, the Trust has pledged the properties related to the loans which are hedged as collateral.

NOTE 11 - FAIR VALUE MEASUREMENT

The following table presents the carrying value and estimated fair value of the Company’s financial instruments:


	March 31, 2026				December 31, 2025
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value

	(in thousands)
Financial assets:
Notes receivable	$	1,500	$	1,487	$	1,500	$	1,500
Notes receivable, affiliates	$	2,315	$	2,216	$	2,315	$	2,192
Derivative assets	$	9,113	$	9,113	$	8,949	$	8,949


Financial liabilities:
Lines of Credit	$	29,496	$	29,496	$	16,579	$	16,579
Mortgage notes payable	$	532,142	$	482,347	$	513,947	$	471,230
Mortgage notes payable, affiliates	$	53,203	$	52,016	$	53,797	$	54,548
Derivative liabilities	$	145	$	145	$	153	$	153

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.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

These two types of inputs create the following fair value hierarchy:

●

Level 1 – Quoted prices for identical instruments in active markets.

●

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable.

●

Level 3 – Instruments whose significant inputs are unobservable.

The guidance requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.


	Level 1		Level 2		Level 3		Total

	(in thousands)
March 31, 2026
Derivative assets	$	—	$	9,113	$	—	$	9,113
Derivative liabilities	$	—	$	145	$	—	$	145

December 31, 2025
Derivative assets	$	—	$	8,949	$	—	$	8,949
Derivative liabilities	$	—	$	153	$	—	$	153

Derivatives: The fair value of interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of the derivative.

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.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

Fair Value Disclosures

The following table presents the Company’s financial assets and liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which they fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.


	Level 1		Level 2		Level 3		Total

	(in thousands)
March 31, 2026
Lines of Credit	$	—	$	—	$	29,496	$	29,496
Mortgage notes payable	$	—	$	—	$	482,347	$	482,347
Mortgage notes payable, affiliate	$	—	$	—	$	52,016	$	52,016
Notes receivable	$	—	$	—	$	1,487	$	1,487
Notes receivable, affiliate	$	—	$	—	$	2,216	$	2,216

December 31, 2025
Lines of Credit	$	—	$	—	$	16,579	$	16,579
Mortgage notes payable	$	—	$	—	$	471,230	$	471,230
Mortgage notes payable, affiliate	$	—	$	—	$	54,548	$	54,548
Notes receivable	$	—	$	—	$	1,500	$	1,500
Notes receivable, affiliate	$	—	$	—	$	2,192	$	2,192

Mortgage notes payable: The Trust estimates the fair value of its mortgage notes payable by discounting the future cash flows of each instrument at rates currently offered to the Trust for similar debt instruments of comparable maturities by the Trust’s lenders. The rates used ranged from 5.95% to 5.95% at March 31, 2026 and ranged from 5.75% to 5.75% at December 31, 2025.

Notes receivable: The Trust estimates the fair value of its notes receivable by discounting future cash flows of each instrument at rates currently offered to the Trust for similar note instruments of comparable maturities by the Trust’s lenders. The rate used was 12.00% at March 31, 2026 and December 31, 2025.

NOTE 12 – LEASES

As of March 31, 2026, we derived 89.0% 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 March 31, 2026, we derived 11.0% 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.

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

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 March 31, 2026
	Residential		Commercial		Total

	(in thousands)
Lease income related to fixed lease payments	$	37,536	$	3,889	$	41,425
Lease income related to variable lease payments		—		1,126		1,126
Other (a)		(939)		(232)		(1,171)
Lease Income (b)	$	36,597	$	4,783	$	41,380

(a)

For the three months ended March 31, 2026, “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 March 31, 2026 of $2,768, which is accounted for under the revenue recognition standard.


	Three months ended March 31, 2025
	Residential		Commercial		Total

	(in thousands)
Lease income related to fixed lease payments	$	34,961	$	3,936	$	38,897
Lease income related to variable lease payments		—		1,106		1,106
Other (a)		(220)		(77)		(297)
Lease Income (b)	$	34,741	$	4,965	$	39,706

(c)

For the three months ended March 31, 2025, “Other” is comprised of revenue adjustments related to changes in collectability and amortization of above and below market lease intangibles and lease inducements.

(d)

Excludes other rental income for the three months ended March 31, 2025 of $2,473 respectively, which is accounted for under the revenue recognition standard.

As of March 31, 2026, non-cancelable commercial operating leases provide for future minimum rental income as follows. Apartment leases are not included as the terms are generally for one year or less.


Years ending December 31,		Amount
		(in thousands)
2026 (April - December)		$	13,326
2027			13,314
2028			12,509
2029			11,468
2030			9,556
Thereafter			18,699
		$	78,872

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STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

NOTE 13 – 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 Kenneth P. Regan, by Trustee James S. Wieland, by the Trust’s President and Chief Financial Officer, Megan E. Schreiner, by the Trust’s General Counsel and Secretary Michael P. Carlson, by the Trust’s Chief Investment Officer Luke B. Swenson, and by the Trust’s Vice President David F. Perkins. Messrs. Regan, Carlson, Swenson, and Perkins and Mmes. Schreiner all serve as officers of the Advisor. Messrs. Regan, Carlson, Swenson, and Perkins and Mmes. Schreiner all serve on the Advisor’s Board of Governors and the Board of Directors of 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 Fee

We paid fees to GOLDMARK Property Management, Inc. related to the management of various properties, including on-site staff costs and other miscellaneous fees required to manage to such properties. Management fees paid approximated 5% of net collected rent. In addition, we paid repair and maintenance expenses, and payroll related expenses to GOLDMARK Property Management, Inc.


	Three Months ended March 31,
	2026		2025

	(in thousands)

Onsite staff costs, and other misc.	$	4,935	$	4,680
Goldmark Management fees	$	1,863	$	1,678
R&M related payroll and payroll related expenses	$	2,497	$	2,475
Sterling Management fees	$	29	$	26

Table of Contents

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 and 2025 (UNAUDITED)

(Dollar amounts in thousands, except share and per share data)

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 19, 2026, and is effective until March 31, 2027.

The below table summarizes the fees incurred to our Advisor.

Sterling Real Estate Trust 10-Q