EX-99.2 4 sret-20141223ex992061549.htm EX-99.2 sret_Ex99-2

Exhibit 99.2

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA FINANCIAL INFORMATION

(Unaudited)

 

INTRODUCTION

 

As previously announced, on December 19, 2014, Sterling Real Estate Trust (“Sterling”) through its operating partnership, Sterling Properties, LLLP, acquired seven multi-family apartment communities consisting of 1,494 units located in the greater Minneapolis/St. Paul Metropolitan area (the “Acquisition”).  The properties were owned by six separate limited liability companies under common control and are referred to as the “Properties.”  The consideration for the Properties consists of (i) a new secured loan from Transamerica Life Insurance Company with an aggregate principal amount of $45.9 and an average interest rate of 4.00% which matures on December 1, 2029, (ii) a new secured loan from Transamerica Life Insurance Company with an aggregate principal amount of $16.7 million and an average interest rate of 3.72% which matures on December 1, 2024, (iii) a new secured loan from Bell State Bank & Trust with an aggregate principal amount of $4.9 million and an average interest rate of 3.44% which matures on January 10, 2022, and (iv) cash.

 

The accompanying unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2014 reflects the Acquisition of the Properties as if the purchase had occurred on September 30, 2014. The unaudited Pro Forma Statement of Operations and other Comprehensive Income for the quarter ended September 30, 2014 and the year ended December 31, 2013 reflects the Acquisition as if the purchase had occurred on January 1, 2013. The unaudited Pro Forma Consolidated Balance Sheet and unaudited Consolidated Statement of Operations and other Comprehensive Income for the nine months ended September 30, 2014 of Sterling, prior to the Acquisition has been derived from the unaudited Consolidated Balance Sheet and unaudited Consolidated Statement of Operations and Other Comprehensive Income included in Sterling’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2014, filed with the SEC on November 13, 2014. The accompanying unaudited Pro Forma Consolidated Statement of Operations and Other Comprehensive Income for the year ended December 31, 2013 of Sterling, prior to the Acquisition was derived from the Consolidated Statement of Operations and other Comprehensive Income for the year ended December 31, 2013 included in Sterling’s filing on Form 10‑K filed with the SEC on March 28, 2014.

 

Pro forma information is intended to provide investors with information about the impact of transactions by showing how specific transactions might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical financial information give effect to events that are directly attributable to the acquisition of the property and are factually supportable. The Unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Article 11 of Regulation S‑X.

 

The Unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there can be no assurance that Sterling’s results would not have differed significantly from those set forth below if the acquisition had actually occurred on January 1, 2013. Accordingly, the Unaudited Pro Forma Consolidated Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the acquisition of the property occurred on the date indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and Sterling makes no representations regarding the information set forth below or its ultimate performance compared to it. The Unaudited Pro Forma Consolidated Financial Statements exclude any non‑recurring charges or credits directly attributable to the acquisition.

1

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2014 (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Sterling Real

    

 

 

    

 

 

 

 

 

Estate Trust

 

Pro Forma

 

Pro Forma

 

 

 

September 30, 2014

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Real estate investments

 

$
422,113 

 

$
103,371 

(1)

$
525,484 

 

Cash and cash equivalents

 

 
9,634 

 

 
(3,902)

(2)

 
5,732 

 

Restricted deposits and funded reserves

 

 
6,426 

 

 
132 

(1)

 
6,558 

 

Investment in unconsolidated affiliates

 

 
9,032 

 

 

—  

 

 
9,032 

 

Due from related party

 

 
5 

 

 

—  

 

 
5 

 

Receivables

 

 
2,914 

 

 
14 

(1)

 
2,928 

 

Prepaid expenses

 

 
219 

 

 

—  

 

 
219 

 

Notes receivable

 

 
600 

 

 

—  

 

 
600 

 

Investment in marketable securities

 

 
7,682 

 

 
(7,682)

(3)

 

 —

 

Financing and lease costs, less accumulated amortization of $2,709 in 2014

 

 
2,750 

 

 
845 

(4)

 
3,595 

 

Intangible assets, less accumulated amortization of $4,567 in 2014

 

 
9,521 

 

 

—  

 

 
9,521 

 

Other assets

 

 
107 

 

 
11 

(4)

 
118 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$
471,003 

 

$
92,789 

 

$
563,792 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Lines of credit

 

$

—  

 

$
23,975 

(2)

$
23,975 

 

Mortgage notes payable

 

 
247,786 

 

 
67,477 

(5)

 
315,263 

 

Special assessments payable

 

 
940 

 

 
5 

(1)

 
945 

 

Dividends payable

 

 
4,525 

 

 

—  

 

 
4,525 

 

Due to related party

 

 
184 

 

 
2,809 

(6)

 
2,993 

 

Tenant security deposits payable

 

 
2,540 

 

 
564 

(1)

 
3,104 

 

Investment certificates

 

 
367 

 

 

—  

 

 
367 

 

Unfavorable leases, less accumulated amortization of $536 in 2014

 

 
842 

 

 

—  

 

 
842 

 

Accounts payable - trade

 

 
1,005 

 

 
62 

(6)

 
1,067 

 

Retainage payable

 

 
427 

 

 

—  

 

 
427 

 

Fair value of interest rate swaps

 

 
268 

 

 

—  

 

 
268 

 

Deferred insurance proceeds

 

 
120 

 

 

—  

 

 
120 

 

Accrued expenses and other liabilities

 

 
4,765 

 

 
578 

(1)

 
5,343 

 

Total Liabilities

 

 
263,769 

 

 
95,470 

 

 
359,239 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS and CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in operating partnership

 

 
152,311 

 

 
(1,935)

(6)

 
150,376 

 

Beneficial interest

 

 
55,191 

 

 
(746)

(6)

 
54,445 

 

Accumulated comprehensive loss

 

 
(268)

 

 

—  

 

 
(268)

 

Total Shareholders' Equity

 

 
207,234 

 

 
(2,681)

 

 
204,553 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$
471,003 

 

$
92,789 

 

$
563,792 

 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

2

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER

COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (UNAUDITED)

 (in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Sterling Real

    

 

 

    

 

 

    

 

 

 

 

 

Estate Trust

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months

 

 

 

 

Pro Forma

 

Pro Forma

 

 

 

Ended 9/30/14

 

Portfolio (7)

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from rental operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate rental income

 

$
50,468 

 

$
11,754 

 

$

 -

 

$
62,222 

 

Tenant reimbursements

 

 
1,629 

 

 

—  

 

 

—  

 

 
1,629 

 

 

 

 
52,097 

 

 
11,754 

 

 

—  

 

 
63,851 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses from rental operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 
9,197 

 

 

—  

 

 
2,165 

(8)

 
11,362 

 

Depreciation and amortization

 

 
10,216 

 

 

—  

 

 
1,890 

(9)

 
12,106 

 

Real estate taxes

 

 
3,880 

 

 
1,181 

 

 

—  

 

 
5,061 

 

Property management fees

 

 
4,873 

 

 

—  

 

 
578 

(10)

 
5,451 

 

Utilities

 

 
4,285 

 

 
1,235 

 

 

—  

 

 
5,520 

 

Repairs and maintenance

 

 
8,388 

 

 
1,622 

 

 

—  

 

 
10,010 

 

Insurance

 

 
1,219 

 

 
414 

 

 

—  

 

 
1,633 

 

Administrative

 

 

—  

 

 
567 

 

 

—  

 

 
567 

 

Payroll and related

 

 

—  

 

 
1,817 

 

 

—  

 

 
1,817 

 

 

 

 
42,058 

 

 
6,836 

 

 
4,633 

 

 
53,527 

 

Administration of REIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 
224 

 

 

—  

 

 

—  

 

 
224 

 

Advisory fees

 

 
1,356 

 

 

—  

 

 

—  

 

 
1,356 

 

Acquisition and disposition expenses

 

 
1,244 

 

 

—  

 

 

—  

 

 
1,244 

 

Development fee

 

 
166 

 

 

—  

 

 

—  

 

 
166 

 

Trustee fees

 

 
35 

 

 

—  

 

 

—  

 

 
35 

 

Legal and accounting

 

 
306 

 

 

—  

 

 

—  

 

 
306 

 

 

 

 
3,331 

 

 

—  

 

 

—  

 

 
3,331 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 
45,389 

 

 
6,836 

 

 
4,633 

 

 
56,858 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 
6,708 

 

 
4,918 

 

 
(4,633)

 

 
6,993 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in income of unconsolidated affiliates

 

 
785 

 

 

—  

 

 

—  

 

 
785 

 

Dividend and interest income

 

 
291 

 

 

—  

 

 

—  

 

 
291 

 

Gain on disposal of real estate investments

 

 
69 

 

 

—  

 

 

—  

 

 
69 

 

Gain on involuntary conversion

 

 
24 

 

 

—  

 

 

—  

 

 
24 

 

Gain (loss) on marketable securities

 

 
463 

 

 

—  

 

 

—  

 

 
463 

 

 

 

 
1,632 

 

 

—  

 

 

—  

 

 
1,632 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 
8,340 

 

 
4,918 

 

 
(4,633)

 

 
8,625 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$
8,340 

 

$
4,918 

 

$
(4,633)

 

$
8,625 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

 
6,028 

 

 
3,546 

 

 
(3,344)

(11)

 
6,230 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Sterling Real Estate Trust

 

$
2,312 

 

$
1,372 

 

$
(1,289)

 

$
2,395 

 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

3

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER

COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (UNAUDITED)

(in thousands, except per share data)

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Sterling Real

    

 

 

    

 

 

    

 

 

 

 

 

Estate Trust

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months

 

 

 

 

Pro Forma

 

Pro Forma

 

 

 

Ended 9/30/14

 

Portfolio (7)

 

Adjustments

 

Combined

 

Earnings per common share, basic and diluted: (12)

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued operations

 

$
0.42 

 

 

 

 

 

 

 

$
0.44 

 

Discontinued operations

 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share, basic and diluted

 

$
0.42 

 

 

 

 

 

 

 

$
0.44 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$
8,340 

 

$
4,918 

 

$
(4,633)

 

$
8,625 

 

Other comprehensive income  - change in fair value of interest rate swaps

 

 
41 

 

 

—  

 

 

—  

 

 
41 

 

Comprehensive income

 

 
8,381 

 

 
4,918 

 

 
(4,633)

 

 
8,666 

 

Comprehensive income attributable to noncontrolling interest

 

 
6,057 

 

 
3,546 

 

 
(3,344)

 

 
6,259 

 

Comprehensive income attributable to Sterling Real Estate Trust

 

$
2,324 

 

$
1,372 

 

$
(1,289)

 

$
2,407 

 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

4

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER

COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013 (UNAUDITED)

 (in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Sterling Real

    

 

 

    

 

 

    

 

 

 

 

 

Estate Trust 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

Pro Forma

 

Pro Forma

 

 

 

12/31/2013

 

Portfolio (7)

 

Adjustments

 

Combined

 

Income from rental operations

 

(in thousands)

 

Real estate rental income

 

$
58,211 

 

$
15,113 

 

$

 -

 

$
73,324 

 

Tenant reimbursements

 

 
3,732 

 

 

-

 

 

-

 

 
3,732 

 

 

 

 
61,943 

 

 
15,113 

 

 

-

 

 
77,056 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses from rental operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 
11,222 

 

 

-

 

 
2,894 

(8)

 
14,116 

 

Depreciation and amortization

 

 
12,219 

 

 

-

 

 
2,501 

(9)

 
14,720 

 

Real estate taxes

 

 
5,677 

 

 
1,553 

 

 

-

 

 
7,230 

 

Property management fees

 

 
5,241 

 

 

-

 

 
771 

(10)

 
6,012 

 

Utilities

 

 
4,373 

 

 
1,388 

 

 

-

 

 
5,761 

 

Repairs and maintenance

 

 
6,851 

 

 
2,145 

 

 

-

 

 
8,996 

 

Insurance

 

 
1,248 

 

 
618 

 

 

-

 

 
1,866 

 

Administrative

 

 

-

 

 
873 

 

 

-

 

 
873 

 

Payroll and related

 

 

-

 

 
2,482 

 

 

-

 

 
2,482 

 

Loss on lease terminations

 

 
203 

 

 

-

 

 

-

 

 
203 

 

Loss on impairment of property

 

 
226 

 

 

-

 

 

-

 

 
226 

 

 

 

 
47,260 

 

 
9,059 

 

 
6,166 

 

 
62,485 

 

Administration of REIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 
253 

 

 

-

 

 

-

 

 
253 

 

Advisory fees

 

 
1,633 

 

 

-

 

 

-

 

 
1,633 

 

Acquisition expenses

 

 
3,116 

 

 

-

 

 

-

 

 
3,116 

 

Trustee fees

 

 
51 

 

 

-

 

 

-

 

 
51 

 

Legal and accounting

 

 
553 

 

 

-

 

 

-

 

 
553 

 

 

 

 
5,606 

 

 

-

 

 

-

 

 
5,606 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 
52,866 

 

 
9,059 

 

 
6,166 

 

 
68,091 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 
9,077 

 

 
6,054 

 

 
(6,166)

 

 
8,965 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on involuntary conversion

 

 
2 

 

 

-

 

 

-

 

 
2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in income of unconsolidated affiliates

 

 
757 

 

 

-

 

 

-

 

 
757 

 

Interest income

 

 
31 

 

 

-

 

 

-

 

 
31 

 

Other income

 

 
100 

 

 

-

 

 

-

 

 
100 

 

 

 

 
888 

 

 

-

 

 

-

 

 
888 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 
9,967 

 

 
6,054 

 

 
(6,166)

 

 
9,855 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 
3,350 

 

 

-

 

 

-

 

 
3,350 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$
13,317 

 

$
6,054 

 

$
(6,166)

 

$
13,205 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

 
9,355 

 

 
4,234 

 

 
(4,313)

(11)

 
9,276 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Sterling Real Estate Trust

 

$
3,962 

 

$
1,820 

 

$
(1,853)

 

$
3,929 

 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

 

5

 

STERLING REAL ESTATE TRUST AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER

COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013 (UNAUDITED)

(in thousands, except per share data)

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Sterling Real

    

 

 

    

 

 

    

 

 

 

 

 

Estate Trust 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

Pro Forma

 

Pro Forma

 

 

 

12/31/2013

 

Portfolio (7)

 

Adjustments

 

Combined

 

Earnings per common share, basic and diluted: (12)

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued operations

 

$
0.56 

 

 

 

 

 

 

 

$
0.55 

 

Discontinued operations

 

 
0.19 

 

 

 

 

 

 

 

 
0.19 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share, basic and diluted

 

$
0.75 

 

 

 

 

 

 

 

$
0.74 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$
13,317 

 

$
6,054 

 

$
(6,166)

 

$
13,205 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)  - change in fair value of interest rate swap

 

 
183 

 

 

-

 

 

-

 

 
183 

 

Comprehensive income

 

 
13,500 

 

 
6,054 

 

 
(6,166)

 

 
13,388 

 

Comprehensive income attributable  to noncontrolling interest

 

 
9,483 

 

 
4,234 

 

 
(4,313)

 

 
9,404 

 

Comprehensive income attributable  to Sterling Real Estate Trust

 

$
4,017 

 

$
1,820 

 

$
(1,853)

 

$
3,984 

 

 

See Accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements

 

6

 

(1)

Represents the pro forma adjustments for the  Acquisition.  The purchase price of $103.5 million has preliminarily been allocated to real estate investments, including land, building and personal property, net ($103.4 million) and restricted deposits and funded reserves ($132).  Sterling allocated the preliminary purchase price of the Properties assets in accordance with ASC Topic 805, Business Combinations.    In addition, the Company assumed accrued expenses and other liabilities of $578, security deposits payable of $564 and special assessments of $5 as a result of the acquisition.  Rental revenue was prorated based on the acquisition date and the Company recognized $14 of tenant receivables.

 

(2)

Represents the pro forma adjustments for the Acquisition which was partially funded with cash on hand and borrowings under the Company’s lines of credit.  Reflects the estimated loan proceeds of $24.0 million drawn on the Company’s lines of credit.

 

(3)

Represents the pro forma adjustments for the Acquisition which was partially funded by the cash proceeds from the liquidation of the Company’s investment portfolio prior to the acquisition. 

 

(4)

Represents the pro forma adjustments for the  estimated $845 of financing costs, net and $11 loan fee deposits associated with the new loans.

 

(5)

Represents the pro forma adjustments for the aggregate loan proceeds of $67.5 million from three new mortgage notes payable. New loans consisted of (i) a new secured loan from Transamerica Life Insurance Company with an aggregate principal amount of $45.9 million and an average interest rate of 4.00% which matures on December 1, 2029, (ii) a new secured loan from Transamerica Life Insurance Company with an aggregate principal amount of $16.7 million and an average interest rate of 3.72% which matures on December 1, 2024, (iii) a new secured loan from Bell State Bank & Trust with an aggregate principal amount of $4.9 million and an average interest rate of 3.44% which matures on January 10, 2022.

 

(6)

Represents the pro forma adjustments for acquisition costs and survey costs related to the Acquisition that are excluded from the pro forma consolidated statement of operations because such costs are nonrecurring.  The Company incurred survey costs of $62.  The Company incurred acquisition fees of $1.9 million with our Advisor, Sterling Management, LLC, a related party, for performing due diligence on the properties acquired.  In addition, the Company incurred financing fees of $169 with our Advisor for loan financing.  The Company incurred real estate commission fees of $750, owed to GOLDMARK SCHLOSSMAN Commercial Real Estate Services, Inc., a related party.

 

(7)

Represents pro form adjustment of the revenues and certain expenses of the Properties for the nine months ended September 30, 2014 and year ended December 31, 2013, respectively.  This is not intended to be a complete presentation of the revenues and expenses of the Properties.  Certain expenses, primarily depreciation and amortization, and other costs not directly related to the future operations of the Properties have been excluded.

 

(8)

Represents the pro forma adjustments of the increase in interest expense due to an increase in borrowing under our lines of credit and new mortgage notes payable.  The interest rates used range from 4.0% to 2.44%, which is the same as the interest rate on the lines of credit and new mortgage notes payable.

 

(9)

Represents the pro forma adjustments of the estimated depreciation and amortization of the acquired assets on a straight-line basis.  Buildings are depreciated over the estimated remaining useful lives which are 40 years.  Tangible personal property is depreciated over 5-9 years.  Estimated financing costs applicable to new mortgages and lines of credit are amortized over the expected life of the respective loan agreements (weighted average of 10.5 years) using the effective interest rate method.

 

7

 

(10)

Represents the pro forma adjustments of the estimated property management fees that will be paid to a third party property manager.  The Properties were previously self-managed.

 

(11)

Represents the pro forma adjustments for the allocation of results between the controlling interest and the noncontrolling interests – operating partnership based on the noncontrolling interest – operating partnership weighted average ownership of 69.94% for the year ended December 31, 2013 and 72.18% for the nine months ended September 30, 2014.

 

(12)

Represents the pro forma adjustments of earnings per share. Earnings per share is calculated in accordance with Accounting Standards Codification 260 – “Earnings per Share”, which requires the allocation of non-controlling interest between continuing and discontinued operations

 

8