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MINNEAPOLIS, Jan. 25, 2024 /PRNewswire/ -- Centerspace (NYSE: CSR) announced today the appointment of Ola Oyinsan Hixon to its Board of Trustees on January 23, 2024. "We are very excited to welcome Ola as a Trustee," said Centerspace President and CEO Anne Olson. "Her extensive portfolio and asset management experience within the real estate space will allow her to provide valuable insight as we scale and position our Company in the coming years." Ms. Hixon is an executive director at PGIM Real Estate and p ...

MINNEAPOLIS, Jan. 24, 2024 /PRNewswire/ -- Centerspace (NYSE: CSR) announced today the tax treatment (Form 1099-DIV) for calendar year 2023 distributions on its common and preferred shares of beneficial interest. Shareholders are encouraged to consult with their personal tax advisors as to the specific tax treatment of their Centerspace distributions. Security Description     Record Date     Payable Date     Cash Distribution Per Share   Box 1a Ordinary Taxable Dividend Box 1b Qualified Dividend (1) ...

Financial Data and Key Metrics Changes - The company reported a year-to-date increase in core FFO of 6.8% year-over-year [6] - Same store revenue achieved a 5.7% year-over-year increase, slightly ahead of expectations [7] - Core FFO was reported at $1.20 per diluted share, driven by a 5.4% year-over-year increase in same store NOI [19] Business Line Data and Key Metrics Changes - The company executed one-third of its lease expirations in the third quarter, achieving a 3.9% blended lease trade out [7] - New lease trade outs showed a 2.3% increase, while renewals increased by 4.9% [7] - Cost control measures have benefited repairs and maintenance costs, offsetting increased on-site compensation [9] Market Data and Key Metrics Changes - Market rent is declining as leasing slows into the fourth quarter, with October showing a blended 0.8% leasing trade out [8] - The company noted that certain markets, particularly Denver and Minneapolis, are experiencing elevated supply pressures [38] Company Strategy and Development Direction - The company is focusing on value-add capital in smart home and smart community categories, targeting implementation in about 50% of total communities by the end of 2024 [10] - The company aims to improve portfolio quality and market exposure through capital recycling, with recent dispositions and acquisitions enhancing its geographic footprint [11][18] Management's Comments on Operating Environment and Future Outlook - Management expects supply to moderate in 2024, with a focus on maintaining occupancy levels [25][39] - The company anticipates no relief on insurance costs and expects overall expenses to moderate to 3% to 4% growth [57] - Management expressed optimism about holding revenue and growing NOI next year [47] Other Important Information - The company ended the quarter with no balance on its line of credit and a weighted average interest rate of 3.46% [20] - The acquisition of Lake Vista apartment homes was completed for $94.5 million, with an attractive interest rate on the assumed mortgage [18] Q&A Session Summary Question: What are the new lease numbers in October? - Management indicated that the new lease numbers are relatively normal for October, but they are feeling some pressure on lease rates [24][25] Question: What is the expected occupancy level for Q4? - The company expects occupancy to be in the mid-94% range, factoring in guidance [41] Question: How is the company managing staffing and retention? - The company is focused on retention through professional development and training opportunities to combat staffing challenges in the industry [60][61] Question: What are the expectations for new supply in the market? - Management noted that while some markets are experiencing elevated supply, they feel insulated due to their portfolio's characteristics [38][39] Question: What is the current state of bad debt? - Bad debt is reported at about 30 to 40 basis points, consistent with pre-COVID trends, and management has not seen significant fraud [52][71]

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Centerspace's unaudited condensed consolidated financial statements, highlighting a significant increase in net income to $59.1 million for the nine months ended September 30, 2023, primarily due to real estate sales [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets decreased to $1.88 billion due to property sales, while liabilities also decreased, and equity slightly increased Condensed Consolidated Balance Sheets (in thousands) | Balance Sheet Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total real estate investments | $1,809,735 | $1,998,723 | | Cash and cash equivalents | $29,701 | $10,458 | | **Total Assets** | **$1,878,281** | **$2,033,301** | | Revolving lines of credit | $0 | $113,500 | | Total Liabilities | $901,362 | $1,066,445 | | Total Equity | $960,359 | $950,296 | | **Total Liabilities & Equity** | **$1,878,281** | **$2,033,301** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 2023, net income significantly improved to $9.2 million due to real estate sales, while nine-month net income surged to $59.1 million driven by similar gains Condensed Consolidated Statements of Operations (in thousands, except EPS) | Metric (in thousands, except EPS) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $64,568 | $65,438 | $197,241 | $188,868 | | Operating Income | $17,395 | $7,031 | $85,958 | $6,955 | | Net Income (Loss) | $9,169 | $(770) | $59,116 | $(15,076) | | Net Income (Loss) Available to Common Shareholders | $6,167 | $(2,130) | $44,661 | $(16,924) | | Diluted EPS | $0.41 | $(0.14) | $2.96 | $(1.11) | - The significant improvement in net income for both the three and nine-month periods of 2023 was primarily driven by gains on the sale of real estate and other investments, amounting to **$11.2 million** and **$71.3 million**, respectively[6](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to $77.4 million, while investing activities provided $185.4 million primarily from real estate sales, leading to a $40.3 million net increase in cash Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $77,420 | $68,973 | | Net cash provided by (used by) investing activities | $185,371 | $(137,140) | | Net cash provided by (used by) financing activities | $(222,485) | $45,916 | | **Net Increase (Decrease) in Cash** | **$40,306** | **$(22,251)** | - The primary driver for the positive cash flow from investing activities was the **$223.3 million** in net proceeds from the sale of real estate, compared to none in the same period of 2022[21](index=21&type=chunk) - Significant uses of cash in financing activities included principal payments on revolving lines of credit (**$189.4M**), notes payable (**$100.0M**), and mortgages payable (**$46.8M**), alongside distributions to shareholders (**$32.8M**)[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's REIT focus on 71 apartment communities, significant property dispositions, a litigation settlement loss, CEO transition costs, and subsequent property acquisition - As of September 30, 2023, Centerspace owned interests in **71 apartment communities** consisting of **12,785 apartment homes**[25](index=25&type=chunk) - During the nine months ended September 30, 2023, the company disposed of **13 apartment communities** for an aggregate sales price of **$226.8 million**, resulting in a gain of **$71.4 million**[149](index=149&type=chunk)[150](index=150&type=chunk) - The company recorded a **$2.9 million** loss on a litigation settlement due to a trial judgment concerning water damage caused by a retaining wall at one of its properties[113](index=113&type=chunk)[185](index=185&type=chunk) - On October 11, 2023, subsequent to the quarter end, the company acquired Lake Vista Apartment Homes in Loveland, Colorado, for **$94.5 million**[140](index=140&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2023 financial performance, highlighting a revenue decrease offset by same-store growth, improved net income driven by property sales, increased Core FFO, and strong liquidity - As of September 30, 2023, the company owned interests in **71 apartment communities** with **12,785 apartment homes**, with a historical cost of **$2.3 billion**[120](index=120&type=chunk) - For Q3 2023, revenue decreased by **1.3%** year-over-year, mainly due to dispositions, but this was partially offset by a **5.7%** revenue increase from same-store communities[144](index=144&type=chunk) - The company's liquidity position is strong, with approximately **$285.7 million** available as of September 30, 2023, consisting of **$256.0 million** on lines of credit and **$29.7 million** in cash[82](index=82&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q3 2023 saw a 1.3% revenue decrease due to dispositions, offset by 5.7% same-store revenue growth, with net income improving significantly due to real estate sale gains Results of Operations (in thousands) | Metric (in thousands) | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $64,568 | $65,438 | (1.3)% | | Same-Store Revenue | $57,949 | $54,838 | 5.7% | | Net Operating Income (NOI) | $37,823 | $38,109 | (0.8)% | | Same-Store NOI | $34,043 | $32,305 | 5.4% | | Net Income (Loss) | $9,169 | $(770) | * | - For the nine months ended Sep 30, 2023, General and Administrative expenses increased **10.4%** to **$15.7 million**, primarily due to **$3.2 million** in executive severance and transition costs related to the CEO's departure[241](index=241&type=chunk) - Interest expense increased by **8.7%** in Q3 and **18.9%** YTD, primarily due to higher interest rates[243](index=243&type=chunk)[267](index=267&type=chunk) [Funds from Operations (FFO) and Core Funds from Operations (Core FFO)](index=31&type=section&id=Funds%20from%20Operations%20(FFO)%20and%20Core%20Funds%20from%20Operations%20(Core%20FFO)) Q3 2023 FFO per share slightly decreased to $1.15, while Core FFO per share increased to $1.20, with nine-month Core FFO growing to $3.56 due to strong performance and non-core item adjustments Per Share Data | Per Share Data | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | FFO per share and Unit - diluted | $1.15 | $1.13 | $3.15 | $3.16 | | Core FFO per share and Unit - diluted | $1.20 | $1.15 | $3.56 | $3.25 | - Core FFO for the nine months ended Sep 30, 2023, includes adjustments to exclude **$3.2 million** in severance and transition costs and a **$3.2 million** loss on litigation settlement and related trial costs[299](index=299&type=chunk)[272](index=272&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity of $285.7 million as of September 30, 2023, utilizing proceeds from property sales and new mortgages to repay debt and fund capital improvements - Total liquidity was approximately **$285.7 million** as of September 30, 2023, up from **$153.0 million** at year-end 2022[82](index=82&type=chunk) - During the nine months ended September 30, 2023, the company repaid its **$100.0 million** term loan in full and made net repayments of **$113.5 million** on its revolving line of credit[85](index=85&type=chunk)[284](index=284&type=chunk) - The company repurchased **124,000 common shares** for **$6.7 million** during the first nine months of 2023, with **$14.2 million** remaining authorized for purchase under the program as of quarter-end[284](index=284&type=chunk)[88](index=88&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk stems from interest rate fluctuations affecting debt obligations, and it does not use derivative instruments for speculative purposes - Centerspace's main market risk is from fluctuations in interest rates on its debt obligations, which can impact operating results and cash flows[287](index=287&type=chunk)[314](index=314&type=chunk) - The company states it does not use derivative instruments for trading or speculative purposes[287](index=287&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[288](index=288&type=chunk) - There were no material changes to the company's internal control over financial reporting during the third quarter of 2023[316](index=316&type=chunk) [Part II. Other Information](index=40&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings beyond ordinary routine litigation incidental to its business - The company is not involved in any material pending legal proceedings outside of ordinary, routine litigation[290](index=290&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the previously disclosed risk factors were reported for the quarter - No material changes to risk factors were reported for the quarter[98](index=98&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued 8,553 unregistered Common Shares in exchange for Units and detailed equity securities repurchases during the quarter - On July 31, 2023, the company issued **8,553 unregistered Common Shares** to limited partners in exchange for their Units, relying on a private offering exemption[291](index=291&type=chunk) Equity Securities Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 0 | N/A | | August 2023 | 60 | $61.27 | | September 2023 | 380 | $63.70 | | **Total Q3 2023** | **440** | **$63.37** | - As of September 30, 2023, the maximum dollar amount that may yet be purchased under the company's share repurchase program is **$14,234,010**[99](index=99&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) No trustees or executive officers adopted or terminated any Rule 10b5-1 trading plans during the third quarter of 2023 - No trustees or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter[108](index=108&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and interactive data files - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[327](index=327&type=chunk)

Financial Data and Key Metrics Changes - Revenue growth was strong, achieving 7% to 10% increases across same-store portfolios compared to the same quarter last year [7] - Core FFO grew by 10.8% year-over-year, with a year-to-date increase of 10% [11] - NOI increased by 12.1% year-over-year and 7.2% sequentially [16] - Same-store revenues increased by 8.5% year-over-year, while same-store expenses grew by 3.3% [16] - Core FFO guidance raised to $4.65 per diluted share, an increase of $0.23 from the previous midpoint [19] Business Line Data and Key Metrics Changes - Same-store new lease trade-outs achieved a 5.2% increase, while same-store renewals saw a 7% increase [7] - Blended rent increase was 4.9% for the quarter, with July showing 4.6% for new lease trade-outs and 4.1% for renewals [8] Market Data and Key Metrics Changes - The company experienced consistent strength in leasing across its markets, with a focus on the Mountain West region for future acquisitions [15][30] - The transaction market remains slow for institutional quality products, but there is significant demand for well-located and stable products [15] Company Strategy and Development Direction - The company is focusing on a deep value-add pipeline and plans to invest approximately $100 million in new acquisitions [14][21] - There is a strategic shift towards expanding the Mountain West portfolio, particularly targeting Denver [30] - The company aims to maintain flexibility in its balance sheet while advancing portfolio composition initiatives [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational performance and the ability to raise guidance for the remainder of the year [11][22] - There is an expectation of normal seasonality in leasing and revenue trends, with continued discipline on expenses [14] - Management noted that while insurance costs are expected to remain steady in the short term, a significant increase is anticipated next year [32] Other Important Information - The company recorded a loss on litigation settlement of $2.9 million during the second quarter [17] - Total liquidity stands at over $245 million, with leverage at an all-time low of 6.5x [18] Q&A Session Summary Question: What are the things that were boosting the second quarter results that you don't expect to be as recurring? - Management acknowledged that while some trends are expected to continue, they built in room for potential changes in turn costs and utilities due to heavy expirations [25][26] Question: Is there a reduction in renewals in July typical on a seasonal basis? - Management clarified that lower renewals reflect lease rates from the end of the first quarter and expect a slight uptick as they head into fall [27] Question: Are you looking at any new markets for acquisitions? - Management confirmed a focus on expanding the Mountain West portfolio, particularly in Denver and surrounding areas [30] Question: What are the expectations for insurance costs over the next couple of quarters? - Management indicated that insurance costs are expected to remain steady in the short term, with a significant increase anticipated next year [32] Question: What is driving the large increase in guidance now? - Management attributed the increase to strong operating results and the successful transition in executive leadership, which provided certainty in G&A costs [36][38] Question: What markets are showing the strongest and least strongest blended growth? - Strongest growth is seen in Omaha and St. Cloud, driven by value-add spend over the last 18 months [69]

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This section presents the company's unaudited financial statements and management's analysis of financial performance and condition [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Centerspace's unaudited condensed consolidated financial statements, showing a net income of **$49.9 million** for H1 2023 driven by real estate sales [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a summary of Centerspace's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Summary (Unaudited) | Account | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$1,920,177** | **$2,033,301** | | Total real estate investments, net | $1,890,874 | $1,998,723 | | Cash and cash equivalents | $9,745 | $10,458 | | **Total Liabilities** | **$938,209** | **$1,066,445** | | Revolving lines of credit | $18,989 | $113,500 | | Notes payable, net | $299,428 | $399,007 | | Mortgages payable, net | $563,079 | $495,126 | | **Total Equity** | **$965,408** | **$950,296** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details Centerspace's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2023 and 2022 Statement of Operations Summary (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$64,776** | **$63,116** | **$132,673** | **$123,430** | | Total Expenses | $55,879 | $59,308 | $121,338 | $123,533 | | Gain (loss) on sale of real estate | ($67) | $27 | $60,092 | $27 | | Loss on litigation settlement | ($2,864) | $0 | ($2,864) | $0 | | **Net Income (Loss)** | **($2,380)** | **($3,743)** | **$49,947** | **($14,306)** | | Net Income (Loss) Available to Common Shareholders | ($3,470) | ($4,598) | $38,494 | ($14,794) | Net Income (Loss) Per Share (Diluted) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended June 30 | $(0.23) | $(0.30) | | Six Months Ended June 30 | $2.55 | $(0.97) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines Centerspace's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Cash Flow Summary for Six Months Ended June 30 (Unaudited, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,561 | $34,491 | | Net cash provided by (used by) investing activities | $117,246 | ($23,547) | | Net cash used by financing activities | ($164,387) | ($34,499) | | **Net Decrease in Cash** | **($1,580)** | **($23,555)** | | Cash at end of period | $10,311 | $15,070 | - Key investing activities in H1 2023 included **$141.6 million** in proceeds from real estate sales[83](index=83&type=chunk) - Key financing activities included **$90.0 million** in proceeds from new mortgages, offset by **$100.0 million** in term loan repayments, **$156.8 million** in revolving credit repayments, and **$21.9 million** in distributions to common shareholders[83](index=83&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides additional details and explanations for the figures presented in the condensed consolidated financial statements - As of June 30, 2023, Centerspace owned interests in **75 apartment communities** comprising **13,497 apartment homes**[87](index=87&type=chunk) - The company recorded a **$2.9 million** loss on litigation settlement due to a trial judgment against Centerspace for property damage caused by a retaining wall at one of its properties[45](index=45&type=chunk)[124](index=124&type=chunk) - In H1 2023, the company incurred **$2.2 million** in cash severance and benefits, plus **$737,000** in accelerated share-based compensation expense, related to the departure of former CEO, Mark Decker, Jr[27](index=27&type=chunk)[122](index=122&type=chunk) - There were no real estate acquisitions during the six months ended June 30, 2023[3](index=3&type=chunk) - During the same period, the company disposed of **nine apartment communities** for an aggregate sales price of **$144.3 million**, resulting in a gain of **$60.1 million**[35](index=35&type=chunk)[117](index=117&type=chunk) - Share-based compensation expense was **$2.1 million** for the six months ended June 30, 2023, an increase from **$1.2 million** in the prior-year period[26](index=26&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights a **7.7%** increase in Net Operating Income (NOI) for Q2 2023, driven by strong same-store performance, and improved Core Funds from Operations [Executive Summary](index=25&type=section&id=Executive%20Summary) This section provides an overview of Centerspace's operational and financial highlights for the period, including property portfolio and key performance indicators - As of June 30, 2023, Centerspace owned interests in **75 apartment communities** with **13,497 homes**, with property owned at a historical cost of **$2.4 billion**[59](index=59&type=chunk) - For Q2 2023, revenue increased **2.6%** YoY to **$64.8 million**, while total expenses decreased by **$3.4 million** to **$55.9 million**[52](index=52&type=chunk)[53](index=53&type=chunk) - Net loss per diluted share improved to **$0.23** for Q2 2023, compared to a net loss of **$0.30** per diluted share for the same period in 2022[53](index=53&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes Centerspace's financial performance, including revenue, expenses, Net Operating Income, and Funds from Operations, for the reported periods Q2 and H1 2023 vs 2022 Performance Highlights (in thousands) | Metric | Q2 2023 | Q2 2022 | Change | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$64,776** | **$63,116** | **+2.6%** | **$132,673** | **$123,430** | **+7.5%** | | Same-Store Revenue | $60,104 | $55,386 | +8.5% | $118,964 | $108,635 | +9.5% | | **Total NOI** | **$39,730** | **$36,900** | **+7.7%** | **$78,704** | **$71,341** | **+10.3%** | | Same-Store NOI | $36,722 | $32,757 | +12.1% | $70,988 | $63,637 | +11.6% | | **Net Income (Loss)** | **($2,380)** | **($3,743)** | **+36.4%** | **$49,947** | **($14,306)** | **+449.1%** | - The increase in same-store revenue for Q2 2023 was driven by an **8.3%** growth in average monthly revenue per occupied home and a **0.2%** increase in weighted average occupancy to **95.2%**[204](index=204&type=chunk) - General and administrative expenses for H1 2023 increased **22.3%** to **$11.9 million**, primarily due to **$3.2 million** in executive severance and transition costs[229](index=229&type=chunk) FFO and Core FFO Reconciliation (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) available to common shareholders | $(3,470) | $(4,598) | $38,494 | $(14,794) | | **FFO applicable to common shares and Units** | **$20,152** | **$19,085** | **$36,406** | **$37,611** | | **Core FFO applicable to common shares and Units** | **$23,303** | **$21,016** | **$42,845** | **$38,938** | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Centerspace's financial flexibility, including cash, credit facilities, debt obligations, and capital allocation strategies - As of June 30, 2023, the company had total liquidity of approximately **$246.7 million**, consisting of **$237.0 million** available on lines of credit and **$9.7 million** in cash[274](index=274&type=chunk) - During H1 2023, the company generated **$141.6 million** from the sale of nine apartment communities and **$90.0 million** from a new mortgage[282](index=282&type=chunk) - Significant uses of capital in H1 2023 included repaying a **$100.0 million** term loan, net repayments of **$94.5 million** on the line of credit, paying **$29.9 million** in distributions, and repurchasing **$6.7 million** of common shares[282](index=282&type=chunk) - The company amended its unsecured credit facility on May 31, 2023, to replace LIBOR with SOFR as the benchmark reference rate[163](index=163&type=chunk)[244](index=244&type=chunk) - As of June 30, 2023, **$126.6 million** remained available for sale of common shares under the at-the-market (ATM) offering program[133](index=133&type=chunk)[249](index=249&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure relates to interest rate fluctuations affecting its fixed and variable rate debt obligations - The company's main market risk is from adverse changes in interest rates, which affect future revenue, cash flows, and the fair value of financial instruments[8](index=8&type=chunk) - Exposure is primarily related to fluctuations in interest rates (including LIBOR and SOFR) on current and future debt[301](index=301&type=chunk) - The company does not use derivatives for trading or speculation[301](index=301&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[302](index=302&type=chunk) - No changes in internal controls over financial reporting were identified during the quarter ended June 30, 2023, that have materially affected or are likely to materially affect internal control over financial reporting[10](index=10&type=chunk) [Part II. Other Information](index=39&type=section&id=Part%20II.%20Other%20Information) This section provides additional information including legal proceedings, risk factors, equity security sales, and exhibits [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings, other than ordinary routine litigation incidental to its business - The company is not involved in any material pending legal proceedings, apart from ordinary routine litigation[11](index=11&type=chunk)[304](index=304&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K and Quarterly Report - No material changes to risk factors have been reported since the fiscal year-end 2022 Form 10-K and Q1 2023 Form 10-Q[11](index=11&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued unregistered common shares in exchange for Operating Partnership Units and repurchased shares under its authorized program - In May and June 2023, the company issued **150** and **2,773** unregistered Common Shares, respectively, to limited partners in exchange for their Units, relying on the private offering exemption[12](index=12&type=chunk) Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares/Units Purchased | Average Price Paid | Shares Purchased Under Program | Max Dollar Amount Remaining (in thousands) | | :--- | :--- | :--- | :--- | :--- | | April 2023 | 103,648 | $54.51 | 103,618 | $14,283 | | May 2023 | 1,035 | $55.01 | 885 | $14,234 | | June 2023 | 0 | - | 0 | $14,234 | | **Total** | **104,683** | **$54.51** | **104,503** | | - The board authorized a **$50.0 million** share repurchase program on March 10, 2022[13](index=13&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the quarterly report, including certifications by the CEO and CFO (Sections 302 and 906) and iXBRL-formatted financial statements - The report includes filed exhibits such as CEO and CFO certifications under Sections 302 and 906, and financial data formatted in Inline eXtensible Business Reporting Language (iXBRL)[16](index=16&type=chunk)[293](index=293&type=chunk)

CLAPPO centerspace Civic Lofts – Denver, CO Certain statements in this presentation are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from expected results. These statements may be identified by our use of words such as "expects," "plans," "estimates," "anticipates," "projects," "intends," "believes," and similar expre ...

Financial Data and Key Metrics Changes - The company reported core FFO growth of 9% year-over-year for Q1 2023, with same-store revenue growth of 10.5% and NOI growth of 11% compared to the prior year [20][24] - G&A expenses included one-time charges of $3.2 million related to the CEO transition, which were excluded from core FFO calculations [8][10] - The average monthly rental rate in Q1 was $1,450, with a portfolio rent-to-income ratio of just under 25% [21] Business Line Data and Key Metrics Changes - Same-store new lease trade outs increased by 2.5%, while same-store renewals increased by 5.8%, leading to a blended rent increase of 3.9% in Q1 [21] - The company disposed of nine communities with an average monthly revenue per unit of $944, compared to the post-sale portfolio average of $1,378 [22] Market Data and Key Metrics Changes - Revenue growth in Minneapolis and Denver was 9.5% and 10.5%, respectively, despite elevated supply levels [6] - Transaction volume in Metro Denver decreased significantly by 69% compared to Q1 2022, indicating a competitive market environment [6] Company Strategy and Development Direction - The company plans to focus on internal opportunities and portfolio construction improvements, rather than pursuing acquisitions at current market cap rates [7][34] - The strategy includes enhancing the quality of the portfolio through dispositions and value-add programs [22][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining guidance for same-store NOI and core FFO for 2023, despite the impact of the CEO transition [10][47] - The company is optimistic about the leasing trends and expects to see continued strength in rental growth as the year progresses [21][28] Other Important Information - The company has reduced its floating rate exposure significantly and has a total liquidity of approximately $230 million [46] - Bad debt was reported at 25 basis points, aligning with historical averages and showing improvement from the previous year [62] Q&A Session Summary Question: Can you discuss the vision for the company under new leadership? - The company aims to enhance execution standards and accountability while continuing the planned strategy from previous leadership [48] Question: What is the current state of market rents? - Market rents are running slightly ahead of expectations, with positive results in April indicating a good leasing season ahead [31] Question: What type of debt will be targeted for paydown? - The focus will be on paying down floating rate debt, particularly as more dispositions are expected throughout the year [33] Question: How does the company view acquisitions at the current cap rate? - The company does not see acquisitions as accretive at current levels and prefers to focus on internal investments [34] Question: What is the status of the redevelopment pipeline? - The company has a robust pipeline with about $25 million scheduled for value-add investments this year, focusing on smart home technology and unit renovations [36] Question: How is the company managing utility costs? - The rollout of the ratio utility billing system (RUBS) is expected to mitigate volatility in utility costs, with significant progress made in implementation [38]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Centerspace and its subsidiaries for the quarter ended March 31, 2023, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time, reflecting its financial position | Metric | March 31, 2023 (Unaudited) (in thousands) | December 31, 2022 (Audited) (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | **ASSETS** | | | | Total real estate investments | $1,901,744 | $1,998,723 | | Cash and cash equivalents | $8,939 | $10,458 | | Restricted cash | $48,903 | $1,433 | | Other assets | $19,298 | $22,687 | | **TOTAL ASSETS** | **$1,978,884** | **$2,033,301** | | **LIABILITIES** | | | | Accounts payable and accrued expenses | $56,639 | $58,812 | | Revolving lines of credit | $143,469 | $113,500 | | Notes payable, net | $299,412 | $399,007 | | Mortgages payable, net | $474,999 | $495,126 | | **TOTAL LIABILITIES** | **$974,519** | **$1,066,445** | | **EQUITY** | | | | Total shareholders' equity | $759,252 | $729,537 | | Noncontrolling interests | $228,553 | $220,759 | | **TOTAL EQUITY** | **$987,805** | **$950,296** | | **TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY** | **$1,978,884** | **$2,033,301** | - Total assets decreased by **$54.4 million** from December 31, 2022, to March 31, 2023, primarily driven by a reduction in real estate investments[12](index=12&type=chunk) - Total liabilities decreased by **$91.9 million**, mainly due to significant reductions in notes payable and mortgages payable[12](index=12&type=chunk) - Total equity increased by **$37.5 million**, reflecting an improvement in the company's financial position[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income or loss over a period, indicating its operational profitability | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Revenue | $67,897 | $60,314 | +12.6% | | Total Expenses | $65,459 | $64,225 | +1.9% | | Gain (loss) on sale of real estate and other investments | $60,159 | — | N/A | | Operating income (loss) | $62,597 | $(3,911) | N/A | | Interest expense | $(10,319) | $(7,715) | +33.8% | | Interest and other income (loss) | $49 | $1,063 | -95.4% | | **NET INCOME (LOSS)** | **$52,327** | **$(10,563)** | N/A | | Net income (loss) attributable to controlling interests | $43,571 | $(8,589) | N/A | | **NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS** | **$41,964** | **$(10,196)** | N/A | | NET INCOME (LOSS) PER COMMON SHARE – BASIC | $2.79 | $(0.68) | N/A | | NET INCOME (LOSS) PER COMMON SHARE – DILUTED | $2.76 | $(0.68) | N/A | - The company reported a significant turnaround from a net loss of **$10.6 million** in Q1 2022 to a net income of **$52.3 million** in Q1 2023, primarily driven by a **$60.2 million** gain on the sale of real estate[15](index=15&type=chunk) - Revenue increased by **12.6%** year-over-year, while total expenses saw a modest increase of **1.9%**[15](index=15&type=chunk) - Diluted EPS improved substantially from **$(0.68)** in Q1 2022 to **$2.76** in Q1 2023[15](index=15&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This statement presents net income or loss alongside other comprehensive income items, providing a complete view of changes in equity from non-owner sources | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | $52,327 | $(10,563) | | Other comprehensive income (loss): | | | | Unrealized gain (loss) from derivative instrument | — | $1,581 | | (Gain) loss on derivative instrument reclassified into earnings | $138 | $304 | | **Total comprehensive income (loss)** | **$52,465** | **$(8,678)** | | Comprehensive income (loss) attributable to controlling interests | $43,892 | $(6,221) | - Total comprehensive income (loss) significantly improved from a loss of **$8.7 million** in Q1 2022 to an income of **$52.5 million** in Q1 2023, mirroring the net income trend[17](index=17&type=chunk) [Condensed Consolidated Statements of Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This statement tracks changes in the company's equity accounts, including net income, distributions, and share transactions, over a period | Metric | Balance at December 31, 2022 (in thousands) | Net income (loss) attributable to controlling interests and noncontrolling interests (in thousands) | Distributions - common shares and Units (in thousands) | Shares repurchased (in thousands) | Balance at March 31, 2023 (in thousands) | | :----------------------------------- | :---------------------------------------- | :------------------------------------------------------------------------------------------------ | :--------------------------------------------------- | :-------------------------------- | :--------------------------------------- | | Total Equity | $950,296 | $52,167 | $(11,668) | $(1,022) | $987,805 | - Total equity increased from **$950.3 million** at December 31, 2022, to **$987.8 million** at March 31, 2023, primarily due to net income, partially offset by distributions and share repurchases[20](index=20&type=chunk) - Common shares outstanding increased slightly from **15,020** at December 31, 2022, to **15,032** at March 31, 2023, despite share repurchases, due to share-based compensation and unit conversions[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows from operating, investing, and financing activities, showing liquidity and solvency | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by (used by) operating activities | $21,804 | $11,598 | | Net cash provided by (used by) investing activities | $131,184 | $(12,731) | | Net cash provided by (used by) financing activities | $(107,037) | $(21,770) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $45,951 | $(22,903) | | Cash, cash equivalents, and restricted cash at end of period | $57,842 | $15,722 | - Net cash from operating activities increased by **$10.2 million** year-over-year, reaching **$21.8 million** in Q1 2023[22](index=22&type=chunk) - Investing activities generated **$131.2 million** in Q1 2023, a significant improvement from a **$12.7 million** outflow in Q1 2022, primarily due to proceeds from the sale of real estate[22](index=22&type=chunk) - Financing activities resulted in a net cash outflow of **$107.0 million** in Q1 2023, largely due to principal payments on notes and mortgages payable, and distributions[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, clarifying accounting policies and specific line items [NOTE 1 • ORGANIZATION](index=9&type=section&id=NOTE%201%20%E2%80%A2%20ORGANIZATION) This note describes Centerspace's business as a REIT focused on apartment communities and its operational structure - Centerspace is a North Dakota real estate investment trust (REIT) focused on owning, managing, acquiring, redeveloping, and developing apartment communities[27](index=27&type=chunk) - As of March 31, 2023, Centerspace owned interests in **75 apartment communities**, comprising **13,497 apartment homes**[27](index=27&type=chunk) [NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%202%20%E2%80%A2%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the accounting principles used in preparing the financial statements and details key revenue recognition and expense policies - The financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations, omitting certain annual disclosures[30](index=30&type=chunk) - Rental income constituted approximately **98.3%** of total revenues for the three months ended March 31, 2023[37](index=37&type=chunk) Revenue Stream Disaggregation (Three Months Ended March 31) | Revenue Stream | 2023 (in thousands) | 2022 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Fixed lease income - operating leases | $63,265 | $56,673 | | Variable lease income - operating leases | $3,500 | $2,523 | | Other property revenue | $1,132 | $1,118 | | **Total revenue** | **$67,897** | **$60,314** | - A gain of **$60.2 million** on the sale of real estate and other assets was recognized for the three months ended March 31, 2023, compared to no gain in the prior year[43](index=43&type=chunk) - The company incurred **$2.2 million** in cash severance and benefits, **$737 thousand** in accelerated share-based compensation, and **$306 thousand** in other transition-related expenses due to the former CEO's departure[51](index=51&type=chunk) [NOTE 3 • EARNINGS PER SHARE](index=12&type=section&id=NOTE%203%20%E2%80%A2%20EARNINGS%20PER%20SHARE) This note provides the calculation and reconciliation of basic and diluted earnings per share, including factors affecting the denominator Earnings Per Share Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands, except per share data) | 2022 (in thousands, except per share data) | | :------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net income (loss) attributable to controlling interests | $43,571 | $(8,589) | | Numerator for basic earnings (loss) per share | $41,964 | $(10,196) | | Numerator for diluted earnings (loss) per share | $50,690 | $(12,193) | | Denominator for basic earnings per share weighted average shares | 15,025 | 15,097 | | Denominator for diluted earnings per share | 18,359 | 15,097 | | **NET INCOME (LOSS) PER COMMON SHARE – BASIC** | **$2.79** | **$(0.68)** | | **NET INCOME (LOSS) PER COMMON SHARE – DILUTED** | **$2.76** | **$(0.68)** | - Diluted EPS significantly improved to **$2.76** in Q1 2023 from a loss of **$0.68** in Q1 2022[58](index=58&type=chunk) - Performance-based RSUs of **36 thousand** were excluded from diluted EPS calculation in Q1 2023 as they were anti-dilutive[54](index=54&type=chunk) [NOTE 4 • EQUITY AND MEZZANINE EQUITY](index=13&type=section&id=NOTE%204%20%E2%80%A2%20EQUITY%20AND%20MEZZANINE%20EQUITY) This note details changes in equity and mezzanine equity, including operating partnership units, preferred units, and share repurchase activities - Operating Partnership Units outstanding were **967 thousand** at March 31, 2023, down from **971 thousand** at December 31, 2022[59](index=59&type=chunk) - Series E preferred units outstanding decreased from **1.8 million** at December 31, 2022, to **1.7 million** at March 31, 2023, with **13 thousand** units redeemed for **16 thousand** common shares valued at **$935 thousand** in Q1 2023[62](index=62&type=chunk)[63](index=63&type=chunk) - The company repurchased **19,464 common shares** for **$1.0 million** at an average price of **$52.51 per share** during Q1 2023, with **$19.9 million** remaining authorized under the Share Repurchase Program[67](index=67&type=chunk)[68](index=68&type=chunk) - As of March 31, 2023, **$126.6 million** remained available under the 2021 ATM Program for common share offerings[65](index=65&type=chunk) [NOTE 5 • DEBT](index=15&type=section&id=NOTE%205%20%E2%80%A2%20DEBT) This note provides a comprehensive breakdown of the company's debt obligations, including lines of credit, notes, and mortgages, with associated interest rates and maturities Debt Summary (in thousands) | Debt Type | March 31, 2023 Carrying Amount (in thousands) | March 31, 2023 Weighted Average Interest Rate | December 31, 2022 Carrying Amount (in thousands) | December 31, 2022 Weighted Average Interest Rate | Weighted Average Maturity in Years at March 31, 2023 | | :------------------------------------ | :-------------------------------------------- | :------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :--------------------------------------------------- | | Lines of credit | $143,469 | 6.39% | $113,500 | 4.12% | 2.00 | | Term loans | — | — | $100,000 | 5.57% | — | | Unsecured senior notes | $300,000 | 3.12% | $300,000 | 3.12% | 8.01 | | Mortgages payable - Fannie Mae credit facility | $198,850 | 2.78% | $198,850 | 2.78% | 7.99 | | Mortgages payable - other | $279,340 | 3.85% | $299,427 | 3.85% | 5.09 | | **Total debt** | **$921,659** | **3.71%** | **$1,011,777** | **3.62%** | **6.06** | - Total debt decreased by **$90.1 million** from December 31, 2022, to March 31, 2023, primarily due to the full repayment of a **$100.0 million** term loan[72](index=72&type=chunk)[79](index=79&type=chunk) - The weighted average interest rate on total debt increased slightly from **3.62%** to **3.71%** due to rising interest rates affecting variable rate lines of credit[72](index=72&type=chunk) - As of March 31, 2023, **$110.5 million** in additional borrowing availability remained under its **$250.0 million** unsecured credit facility[74](index=74&type=chunk) [NOTE 6 • DERIVATIVE INSTRUMENTS](index=16&type=section&id=NOTE%206%20%E2%80%A2%20DERIVATIVE%20INSTRUMENTS) This note explains the company's use of derivative instruments, primarily interest rate swaps, to manage exposure to interest rate fluctuations - The company uses interest rate derivatives to manage exposure to interest rate fluctuations, primarily through interest rate swap contracts to fix variable interest rate debt[83](index=83&type=chunk) - In February 2022, the company terminated its **$75.0 million** interest rate swap and **$70.0 million** forward swap, incurring a **$3.2 million** payment[85](index=85&type=chunk) - As of March 31, 2023, and December 31, 2022, the company had no remaining interest rate swaps[85](index=85&type=chunk) [NOTE 7 • FAIR VALUE MEASUREMENTS](index=17&type=section&id=NOTE%207%20%E2%80%A2%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value measurements of financial instruments, including notes receivable and investments, using various valuation techniques and inputs Fair Value Measurements on a Recurring Basis (Notes Receivable) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------- | :---------------------------- | :---------------------------- | | Notes receivable | $5,661 | $5,871 | - Notes receivable are valued using an income approach with Level 3 inputs, including market transactions, comparable interest rates (**3.75% to 5.00%**), and instrument-specific credit risk (**0.5% to 1.0%**)[91](index=91&type=chunk) - Investments in real estate technology venture funds, measured at NAV, totaled **$1.5 million** at March 31, 2023, with unfunded commitments of **$1.4 million**[92](index=92&type=chunk)[114](index=114&type=chunk) [NOTE 8 • ACQUISITIONS AND DISPOSITIONS](index=18&type=section&id=NOTE%208%20%E2%80%A2%20ACQUISITIONS%20AND%20DISPOSITIONS) This note summarizes the company's real estate acquisition and disposition activities, including sales proceeds and recognized gains or losses - Centerspace did not acquire new real estate during the three months ended March 31, 2023[96](index=96&type=chunk) - During Q1 2023, Centerspace disposed of **nine apartment communities** across four transactions for an aggregate sales price of **$144.3 million**, realizing a gain of **$60.2 million**[100](index=100&type=chunk)[102](index=102&type=chunk) Dispositions (Three Months Ended March 31, 2023) | Dispositions | Sale Price (in thousands) | Book Value and Sales Cost (in thousands) | Gain/(Loss) (in thousands) | | :-------------------------------------- | :------------------------ | :--------------------------------------- | :------------------------- | | 115 homes - Boulder Court - Eagan, MN | $14,605 | $4,970 | $9,635 | | 498 homes - 2 Nebraska apartment communities | $48,500 | $14,975 | $33,525 | | 892 homes - 5 Minnesota apartment communities | $74,500 | $55,053 | $19,447 | | 62 homes - Portage - Minneapolis, MN | $6,650 | $9,098 | $(2,448) | | **Total Dispositions** | **$144,255** | **$84,096** | **$60,159** | [NOTE 9 • SEGMENTS](index=19&type=section&id=NOTE%209%20%E2%80%A2%20SEGMENTS) This note identifies the company's reportable operating segments and provides financial information, including Net Operating Income, for each segment - Centerspace operates in a single reportable segment: ownership, management, development, redevelopment, and acquisition of apartment communities[103](index=103&type=chunk) - Net Operating Income (NOI) for the multifamily segment increased to **$36.6 million** in Q1 2023 from **$31.8 million** in Q1 2022[106](index=106&type=chunk)[108](index=108&type=chunk) Net Operating Income (NOI) Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Total Revenue | $67,897 | $60,314 | | Property operating expenses, including real estate taxes | $28,923 | $25,873 | | **Net operating income** | **$38,974** | **$34,441** | | Net income (loss) | $52,327 | $(10,563) | [NOTE 10 • COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=NOTE%2010%20%E2%80%A2%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's various commitments and potential liabilities, including legal proceedings and unfunded investment commitments - Centerspace is involved in a lawsuit regarding water damage from a retaining wall, with an unpredictable outcome and potential settlement[110](index=110&type=chunk) - **Thirty-two properties** (**6,115 apartment homes**) are subject to restrictions on taxable dispositions, which the company manages through tax-deferred transactions (Section 1031) to avoid indemnification payments[112](index=112&type=chunk)[113](index=113&type=chunk) - Unfunded commitments in real estate technology venture funds totaled **$1.4 million** as of March 31, 2023[114](index=114&type=chunk) [NOTE 11 • SHARE-BASED COMPENSATION](index=21&type=section&id=NOTE%2011%20%E2%80%A2%20SHARE-BASED%20COMPENSATION) This note details the nature and amount of share-based compensation expense, including information on RSU and stock option awards - Share-based compensation expense was **$1.5 million** for Q1 2023, up from **$719 thousand** in Q1 2022[117](index=117&type=chunk) - The vesting of unvested time-based RSUs and stock options for the former CEO, Mark Decker, was accelerated on March 31, 2023, resulting in an additional **$737 thousand** in share-based compensation expense[118](index=118&type=chunk) - 2023 LTIP awards included **14,256 time-based RSUs**, **20,497 performance RSUs** (TSR-based), and **45,955 stock options**, with specific vesting schedules and valuation assumptions[116](index=116&type=chunk) [NOTE 12 • SUBSEQUENT EVENTS](index=22&type=section&id=NOTE%2012%20%E2%80%A2%20SUBSEQUENT%20EVENTS) This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - Through May 1, 2023, Centerspace repurchased **104,503 common shares** for **$5.7 million** at an average price of **$54.51 per share**[120](index=120&type=chunk) - On April 26, 2023, the company closed on a **$90.0 million** secured note payable with a **5.04% interest rate** and a **12-year term**[121](index=121&type=chunk) - Subsequent to March 31, 2023, **$47.8 million** of net tax-deferred exchange proceeds were released from restricted cash[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an executive summary, detailed analysis of the company's financial performance for the three months ended March 31, 2023, compared to 2022, including GAAP and non-GAAP measures like NOI, FFO, and Core FFO. It also discusses liquidity, capital resources, debt, equity, and potential risks such as inflation and supply chain issues - Centerspace is a REIT focused on owning, managing, acquiring, redeveloping, and developing apartment communities, with **75 communities** and **13,497 apartment homes** as of March 31, 2023[128](index=128&type=chunk) - The company sold **nine non-core apartment communities** for **$144.3 million**, realizing a **$60.2 million** gain, and used proceeds to pay down a **$100.0 million** term loan[132](index=132&type=chunk) Key Financial Performance Highlights (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------------------ | :--------- | :--------- | :----------- | | Revenue | $67.9 million | $60.3 million | +12.6% | | Total Expenses | $65.5 million | $64.2 million | +1.9% | | Net income (loss) per diluted share | $2.76 | $(0.68) | N/A | | Core FFO applicable to common shares and Units | $19.5 million | $17.9 million | +8.9% | | Same-store revenue growth | 10.5% | N/A | N/A | | Same-store NOI growth | 11.0% | N/A | N/A | | Weighted Average Occupancy (Same-store) | 94.8% | 94.1% | +0.7 pp | | General and administrative expenses | $7.7 million | $4.5 million | +71.6% | | Interest expense | $10.3 million | $7.7 million | +33.8% | [Executive Summary](index=23&type=section&id=Executive%20Summary) This summary provides a high-level overview of Centerspace's business model, strategic focus, and key financial highlights for the period - Centerspace is a REIT focused on apartment communities, aiming to maximize resident satisfaction and retention through high-quality assets and resident-centered operations[128](index=128&type=chunk)[129](index=129&type=chunk) - Property owned at historical cost was **$2.4 billion** at March 31, 2023, down from **$2.5 billion** at December 31, 2022[128](index=128&type=chunk) [Overview of the Three Months Ended March 31, 2023](index=23&type=section&id=Overview%20of%20the%20Three%20Months%20Ended%20March%2031%2C%202023) This section highlights the significant operational and financial achievements and challenges during the first quarter of 2023 - Sold **nine non-core apartment communities** for **$144.3 million**, realizing a **$60.2 million** gain, and used proceeds to pay down a **$100.0 million** term loan[132](index=132&type=chunk) - Revenue increased by **12.6%** to **$67.9 million**, driven by **10.5% growth** from same-store communities[132](index=132&type=chunk) - Net income per diluted share was **$2.76**, a significant improvement from a net loss of **$0.68** in the prior year[132](index=132&type=chunk) - Core FFO increased by **$1.6 million** to **$19.5 million**, primarily due to increased NOI, offset by higher interest expense and lower other income[133](index=133&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenues, expenses, and profitability metrics, including same-store performance and non-GAAP measures - Same-store revenue increased by **10.5%** (**$5.6 million**) due to **9.6% growth** in average monthly revenue per occupied home and a **0.7% increase** in weighted average occupancy to **94.8%**[142](index=142&type=chunk) - Same-store Net Operating Income (NOI) increased by **11.0%** (**$3.4 million**) to **$34.3 million**[142](index=142&type=chunk) - General and administrative expenses surged by **71.6%** (**$3.2 million**) to **$7.7 million**, mainly due to executive severance and transition costs related to the CEO departure[148](index=148&type=chunk) - Interest expense rose by **33.8%** (**$2.6 million**) to **$10.3 million**, attributed to larger debt balances from 2022 acquisitions and rising interest rates[150](index=150&type=chunk) Funds from Operations (FFO) and Core FFO (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :----------------------------------------- | :------------------ | :------------------ | | FFO applicable to common shares and Units | $16,254 | $18,526 | | Core FFO applicable to common shares and Units | $19,542 | $17,922 | | FFO per share and Unit - diluted | $0.89 | $1.01 | | Core FFO per share and Unit - diluted | $1.07 | $0.98 | - FFO decreased by **12.3%** to **$16.3 million**, impacted by severance costs and increased interest expense, while Core FFO increased by **8.9%** to **$19.5 million**[159](index=159&type=chunk)[160](index=160&type=chunk) [Acquisitions and Dispositions](index=28&type=section&id=Acquisitions%20and%20Dispositions) This section summarizes the company's activities related to acquiring and selling real estate properties during the reporting period - No acquisitions were made during Q1 2023[162](index=162&type=chunk) - **Nine apartment communities** were disposed of in Q1 2023 for an aggregate sales price of **$144.3 million**[162](index=162&type=chunk) [Distributions Declared](index=29&type=section&id=Distributions%20Declared) This section outlines the common and preferred share distributions declared by the company for the reported quarter - Distributions of **$0.73 per common share and Unit** were declared for Q1 2023 and Q1 2022[163](index=163&type=chunk) - Preferred share distributions were **$0.4140625 per Series C preferred share** and **$0.96875 per Series E preferred unit** for both periods[163](index=163&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations, detailing sources and uses of capital - Total liquidity as of March 31, 2023, was approximately **$121.4 million**, including **$112.5 million** available on lines of credit and **$8.9 million** in cash and cash equivalents[168](index=168&type=chunk) - The company's primary liquidity sources include cash from operations, unsecured lines of credit, property dispositions, and offerings of preferred/common shares and long-term debt[165](index=165&type=chunk) - Key liquidity demands include operating expenses, debt service, capital improvements, distributions, and acquisitions[166](index=166&type=chunk) - During Q1 2023, capital was generated from **$141.6 million** in net proceeds from property sales and **$30.0 million** from lines of credit[186](index=186&type=chunk) - Capital was used for **$100.0 million repayment** on a term loan, **$20.7 million** in mortgage principal payments, **$14.9 million** in distributions, **$1.0 million** in share repurchases, and **$11.2 million** for capital improvements[186](index=186&type=chunk) [Inflation and Supply Chain](index=31&type=section&id=Inflation%20and%20Supply%20Chain) This section discusses the potential impacts of macroeconomic factors like inflation and supply chain disruptions on the company's operations and financial performance - Short-term apartment leases (one year or less) allow for rent increases in an inflationary environment, subject to market conditions[181](index=181&type=chunk) - Inflation and supply chain pressures are expected to increase operating expenses, particularly energy, salary, and construction material costs, potentially impacting returns on value-add projects[182](index=182&type=chunk) - Prolonged market disruption or declining credit conditions could negatively affect access to capital and refinancing efforts, while rising interest rates could increase borrowing costs[183](index=183&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses any significant transactions, agreements, or other contractual arrangements not recorded on the balance sheet - As of March 31, 2023, Centerspace had no significant off-balance sheet arrangements[184](index=184&type=chunk) [Critical Accounting Policies](index=31&type=section&id=Critical%20Accounting%20Policies) This section describes the accounting policies that require management's most difficult, subjective, or complex judgments and estimates - Management's estimates and assumptions in financial statements affect reported asset/liability amounts and revenue/expense disclosures[185](index=185&type=chunk) - No significant changes to critical accounting policies occurred during the three months ended March 31, 2023[185](index=185&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the company's exposure to market risk, primarily from fluctuations in interest rates on its debt obligations. Centerspace uses derivative instruments to manage interest rate exposure but not for speculative purposes - Centerspace's market risk primarily stems from fluctuations in interest rates (LIBOR and SOFR) affecting current and future fixed and variable rate debt[188](index=188&type=chunk) - The company uses derivative instruments to stabilize interest expense and manage interest rate exposure, but not for trading or speculative purposes[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2023. No material changes to internal controls over financial reporting were identified during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023, ensuring timely and accurate reporting[191](index=191&type=chunk) - No material changes to internal controls over financial reporting occurred during the quarter ended March 31, 2023[192](index=192&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=Part%20II.%20Other%20Information) This section provides additional disclosures on legal proceedings, risk factors, equity sales, and other relevant information not covered in the financial statements [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) Centerspace is involved in routine litigation incidental to its business and is currently a defendant in a lawsuit concerning water damage from a retaining wall. The company does not anticipate a material adverse effect on its financial statements from these proceedings - The company is a defendant in a lawsuit regarding water damage from a retaining wall, with an uncertain outcome and potential settlement[110](index=110&type=chunk) - No material pending legal proceedings, other than ordinary routine litigation, are known to the company[195](index=195&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company highlights a new risk factor related to potential losses from cash and cash equivalents held in deposit accounts exceeding FDIC insurance limits, particularly in light of recent financial institution failures. No other material changes to previously disclosed risk factors were noted - A new risk factor identifies potential loss or delayed access to funds exceeding FDIC insurance limits if financial institutions holding cash and cash equivalents fail[196](index=196&type=chunk)[197](index=197&type=chunk) - The company has not experienced losses from cash held in bank accounts and has no exposure to recently failed financial institutions like SVB or Signature Bank[197](index=197&type=chunk) - No other material changes to the risk factors discussed in the Annual Report on Form 10-K for 2022 were reported[198](index=198&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the issuance of unregistered common shares to limited partners of the Operating Partnership and the company's share repurchase activities under its authorized program - On January 31, 2023, **3,526 unregistered Common Shares** were issued to limited partners of the Operating Partnership in exchange for their Units[199](index=199&type=chunk) Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares and Units Purchased | Average Price Paid per Share and Unit | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plans or Programs | | :-------------------- | :--------------------------------------- | :------------------------------------ | :--------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------- | | January 1 - 31, 2023 | — | — | — | $20.9 million | | February 1 - 28, 2023 | — | — | — | $20.9 million | | March 1 - 31, 2023 | 19,464 | $52.51 | 19,464 | $19.9 million | | **Total** | **19,464** | **$52.51** | **19,464** | | - As of March 31, 2023, **$19.9 million** remained authorized for purchase under the **$50.0 million** share repurchase program approved on March 10, 2022[201](index=201&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Centerspace - Mine Safety Disclosures are not applicable to the registrant[202](index=202&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[202](index=202&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q report, including organizational documents, employment agreements, severance agreements, and various certifications and XBRL documents - Exhibits include Articles of Amendment, Trustee's Regulations, Articles Supplementary, Employment Agreement with Anne Olson, Change in Control Severance Agreement, and Separation Agreement with Mark Decker, Jr[205](index=205&type=chunk) - Certifications under Sections 302 and 906 by the CEO and CFO are filed, along with various XBRL documents for financial statements[205](index=205&type=chunk) [Signatures](index=36&type=section&id=Signatures) The report is duly signed on behalf of Centerspace by Anne Olson, President and Chief Executive Officer, and Bhairav Patel, Executive Vice President and Chief Financial Officer, as of May 1, 2023 - The report was signed by Anne Olson, President and CEO, and Bhairav Patel, Executive Vice President and CFO, on May 1, 2023[207](index=207&type=chunk)