Centerspace(CSR) - 2019 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The financial statements for the period ended September 30, 2019, show a significant increase in Q3 net income to $34.7 million, driven by a $39.1 million real estate sale gain, with total assets growing to $1.40 billion Condensed Consolidated Balance Sheets As of September 30, 2019, total assets increased to $1.404 billion from $1.336 billion at December 31, 2018, driven by real estate investments, while total liabilities rose to $773.6 million and total equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total real estate investments | $1,361,376 | $1,289,476 | | Total Assets | $1,403,804 | $1,335,997 | | Revolving lines of credit | $103,143 | $57,500 | | Mortgages payable, net | $360,886 | $444,197 | | Total Liabilities | $773,581 | $686,580 | | Total Equity | $613,663 | $643,449 | Condensed Consolidated Statements of Operations For Q3 2019, net income surged to $34.7 million from $3.4 million in Q3 2018, primarily due to a $39.1 million gain on real estate sales, with diluted EPS reaching $2.54 Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $47,436 | $45,406 | $139,978 | $134,638 | | Operating Income (Loss) | $3,596 | $2,114 | $8,951 | ($15,153) | | Gain on sale of real estate | $39,105 | $9,095 | $39,774 | $11,399 | | Net Income (Loss) | $34,718 | $3,441 | $32,025 | ($13,244) | | Net Earnings (Loss) Per Common Share – Diluted | $2.54 | $0.08 | $2.11 | ($1.34) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, operating cash flow increased to $51.6 million, investing activities used $74.6 million, and financing activities provided $15.6 million, a significant shift from prior year Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,642 | $43,182 | | Net cash used by investing activities | ($74,618) | ($62,167) | | Net cash provided by (used by) financing activities | $15,559 | ($225,662) | | Net (Decrease) in Cash | ($7,417) | ($244,647) | Notes to Condensed Consolidated Financial Statements The notes detail the company's REIT focus on 84 apartment communities in Midwest markets, key events like a 1-for-10 reverse stock split, and significant Q3 2019 property acquisitions and dispositions - The company is a REIT focused on owning and managing 84 apartment communities with 13,336 apartment homes, primarily in Midwest markets[33] - A 1-for-10 reverse stock split of common shares and limited partnership units was effective on December 27, 2018, with all share and per-share data adjusted[35] - The company operates in a single reportable segment, encompassing the ownership, management, and acquisition of apartment communities[81] - During Q3 2019, the company acquired two properties for $125.3 million and sold six apartment communities for $85.0 million[98][102] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on apartment communities, reporting a 4.5% Q3 2019 revenue increase to $47.4 million, 5.3% same-store NOI growth, and $12.2 million FFO, alongside active portfolio management Consolidated Results of Operations Q3 2019 total revenue rose 4.5% to $47.4 million, driven by same-store growth and non-same-store contributions, with same-store NOI increasing 5.3% and net income surging to $29.9 million Same-Store Performance (Three Months Ended Sep 30) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $37,633 | $36,198 | 4.0% | | Property operating expenses | $16,147 | $15,795 | 2.2% | | Net Operating Income (NOI) | $21,486 | $20,403 | 5.3% | - Same-store revenue growth in Q3 2019 was driven by a 2.6% increase in average rental revenue and a 1.4% increase in weighted average occupancy to 93.3%[164] - Net income available to common shareholders for Q3 2019 was $29.9 million, a 3,053.1% increase from $0.9 million in Q3 2018, largely due to a $30.0 million increase in gains from property sales[158][184] Funds from Operations (FFO) FFO applicable to common shares and units for Q3 2019 increased 10.8% to $12.2 million, or $0.93 per diluted share/unit, driven by higher NOI, reduced interest expense, and a litigation settlement gain FFO Reconciliation and Per Share Data (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) available to common shareholders | $29,891 | $948 | $24,895 | ($16,033) | | FFO applicable to common shares and Units | $12,159 | $10,976 | $41,131 | $31,723 | | FFO per share and Unit - diluted | $0.93 | $0.82 | $3.15 | $2.38 | - The increase in FFO for the nine months ended Sep 30, 2019, was primarily due to a $6.6 million gain on litigation settlement, higher NOI, and reductions in interest and G&A expenses[190] Liquidity and Capital Resources As of September 30, 2019, total liquidity was $155.4 million, with $146.9 million available on the credit line, and the company issued $125.0 million in senior unsecured notes to enhance its capital structure - Total liquidity was approximately $155.4 million as of September 30, 2019, including $146.9 million available on the line of credit and $8.5 million of cash[201] - In Q3 2019, the company issued $125.0 million of senior unsecured notes with maturities in 2028 and 2029, carrying interest rates of 3.69% and 3.84% respectively[206][211] - As of September 30, 2019, 49 apartment communities were unencumbered, representing 56.0% of third quarter 2019 multifamily NOI[207] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on its debt through swaps and further reduced exposure in Q3 2019 by issuing $125.0 million in fixed-rate unsecured senior notes, lengthening debt maturity - The company uses interest rate swaps to manage exposure to interest rate fluctuations on its variable-rate term loans[218] - In Q3 2019, the company issued $125.0 million of fixed-rate senior notes, reducing exposure to interest rate fluctuations and lengthening average debt maturity[219] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting identified - The CEO and CFO concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[222] - No material changes in internal controls over financial reporting occurred during the quarter[223] Part II. Other Information Legal Proceedings The company reports no material pending legal proceedings beyond routine litigation incidental to its business operations - As of the report date, there are no material pending legal proceedings[226] Risk Factors No material changes to the risk factors previously disclosed in the company's Transition Report on Form 10-KT for the period ended December 31, 2018, were reported - No material changes to risk factors were reported for the period[227] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 39,563 shares and units at an average price of $59.58, with approximately $15.4 million remaining under its $50 million share repurchase program Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares/Units Purchased | Average Price Paid | Purchased Under Program | | :--- | :--- | :--- | :--- | | Jul 1-31, 2019 | 39,441 | $59.57 | 39,381 | | Aug 1-31, 2019 | 30 | $60.40 | 0 | | Sep 1-30, 2019 | 92 | $64.68 | 0 | | Total | 39,563 | $59.58 | 39,381 | - As of September 30, 2019, approximately $15.4 million remained available under the company's $50 million share repurchase program[228] Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements related to the new Note Purchase and Credit Agreement, CEO/CFO certifications, and XBRL data files