Centerspace(US:CSR)2023-02-20 16:00Part I Business Overview Centerspace is a REIT specializing in owning, managing, and developing apartment communities across the Midwest and Mountain West - Centerspace is a REIT focused on owning, managing, and developing apartment communities, with 84 communities and 15,065 homes and a net real estate investment of $2.0 billion as of December 31, 20221540 - The company operates as an Umbrella Partnership Real Estate Investment Trust (UPREIT) through its operating partnership, facilitating tax-deferred property contributions1743 - Business strategies focus on enhancing resident experience, scaling for efficiency, leveraging technology, and committing to ESG initiatives2021 - As of December 31, 2022, the company had 471 employees, with 52.0% identifying as female and diverse ethnic representation8534 - The company faces direct competition from other apartment communities, single-family homes, and various real estate investors, including REITs36104 Risk Factors The company faces significant operational, financial, and stock-related risks, including macroeconomic volatility, sector concentration, and REIT status maintenance - Operations are materially affected by uncertain global macroeconomic and political conditions, including inflation and geopolitical instability6292 - Investments are significantly concentrated in the multifamily sector, increasing vulnerability to market downturns68 - The company faces risks from security breaches and cyber-attacks, having previously experienced a non-material ransomware attack77108 - Financing risks include inability to refinance debt on favorable terms due to high interest rates and restrictive debt covenants115116131 - Failure to qualify as a REIT would result in federal income tax at corporate rates, significantly reducing funds for distribution and investment148170 Unresolved Staff Comments The company reports no unresolved comments from the SEC staff - No unresolved staff comments were reported179 Properties As of December 31, 2022, the portfolio included 84 apartment communities with 15,065 homes, concentrated in Minnesota and Colorado - As of December 31, 2022, the company owned 84 apartment communities with 15,065 homes, categorized into same-store and non-same-store pools161 Properties by State (as of Dec 31, 2022) | State | Total Value (in thousands) | % of Total | | :--- | :--- | :--- | | Minnesota | $ 1,046,037 | 52.3 % | | Colorado | 632,310 | 31.6 % | | North Dakota | 203,955 | 10.2 % | | Nebraska | 73,023 | 3.7 % | | South Dakota | 24,179 | 1.2 % | | Montana | 19,219 | 1.0 % | | Total | $ 1,998,723 | 100.0 % | - The portfolio comprises 71 same-store communities with 11,330 homes and 24 non-same-store communities with 3,735 homes162185203 Legal Proceedings The company is not involved in any material pending or threatened legal proceedings - The company is not aware of any material pending or threatened legal proceedings187 Mine Safety Disclosures This item is not applicable to the company's business operations - This item is not applicable188 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on the NYSE under 'CSR', with approximately 2,524 shareholders and recent share repurchases - The company's common shares are traded on the NYSE under the symbol 'CSR'189 - As of February 14, 2023, there were approximately 2,524 common shareholders of record190 - A stock performance graph compares the company's five-year cumulative total return against key industry indices193213 - In Q4 2022, the company purchased 430,502 shares and units at an average price of $67.37192 Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported strong operational performance in FY2022 with increased Core FFO and NOI, despite a net loss, driven by acquisitions and strategic financing Key Performance Metrics (FY 2022 vs. FY 2021) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Loss per Diluted Share | ($1.35) | ($0.47) | | Core FFO per Diluted Share | $4.43 | $3.99 | | Same-Store NOI Growth | 9.0% | N/A | - During 2022, the company acquired five apartment communities for $211.9 million and issued 321,000 common shares via its ATM program for $31.4 million in net proceeds24853747 Consolidated Results of Operations (in thousands) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $256,716 | $201,705 | +27.3% | | Net Operating Income (NOI) | $148,079 | $119,848 | +23.6% | | Net Loss | ($17,641) | ($2,101) | +739.6% | Funds from Operations (FFO) and Core FFO (in thousands, except per share) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | FFO applicable to common shares and Units | $79,928 | $54,925 | | Core FFO applicable to common shares and Units | $81,883 | $62,085 | | FFO per diluted share and Unit | $4.32 | $3.54 | | Core FFO per diluted share and Unit | $4.43 | $3.99 | - Total liquidity was approximately $153.0 million as of December 31, 2022, comprising $142.5 million in credit lines and $10.5 million in cash268 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $213.5 million variable-rate debt, with a $2.1 million annual impact per 100 basis points change - The primary market risk stems from interest rate fluctuations on variable rate debt obligations289 - As of December 31, 2022, the company had $213.5 million in variable-rate borrowings, with a 100 basis point interest rate change impacting net income by an estimated $2.1 million annually314 - During 2022, the company terminated its remaining interest rate swaps, increasing exposure to variable rate movements339 Financial Statements and Supplementary Data This section incorporates the consolidated financial statements and the independent auditor's report by reference, starting on page F-1 - Consolidated financial statements, related notes, and the Independent Registered Public Accounting Firm's Report are included starting on page F-1316363 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - No changes in or disagreements with accountants were reported342 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that disclosure controls and procedures were effective as of December 31, 2022292 - Management assessed and found internal control over financial reporting effective as of December 31, 2022, as audited by Grant Thornton LLP293347 - No material changes in internal control over financial reporting were identified during the fourth quarter343 Other Information No information is reported under this item - No information is reported348 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable349 Part III Trustees, Executive Officers and Corporate Governance Information on trustees, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Shareholders322 Executive Compensation Executive compensation information, including tables, is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Shareholders323 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Shareholders324 Certain Relationships and Related Transactions, and Trustee Independence Information on related party transactions and trustee independence is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Shareholders325 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Shareholders326 Part IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules, including Schedule III, filed with or incorporated into the report - This section lists the financial statements, Schedule III (Real Estate and Accumulated Depreciation), and all exhibits filed with the report327351 10-K Summary The company has not provided a summary for this item - No summary has been provided for this item331 Financial Statements and Supplementary Data Reports of Independent Registered Public Accounting Firm Grant Thornton LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting - Grant Thornton LLP issued an unqualified opinion on the fair presentation of financial statements in conformity with GAAP391 - An unqualified opinion was also issued on the effectiveness of internal control over financial reporting as of December 31, 2022365368 - The firm determined there were no critical audit matters from the current period audit393 Consolidated Financial Statements Consolidated financial statements for FY2022 show total assets of $2.03 billion, a net loss of $17.6 million, and increased operating cash flow Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Real Estate Investments | $1,998,723 | $1,870,854 | | Total Assets | $2,033,301 | $1,940,061 | | Total Liabilities | $1,066,445 | $918,450 | | Total Equity | $950,296 | $996,280 | Consolidated Statement of Operations Data (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Revenue | $256,716 | $201,705 | $177,994 | | Operating Income | $13,861 | $29,892 | $33,843 | | Net Loss | ($17,641) | ($2,101) | $4,743 (Income) | Consolidated Cash Flow Data (in thousands) | Account | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $91,991 | $84,028 | | Net Cash from Investing Activities | ($160,094) | ($267,225) | | Net Cash from Financing Activities | $41,369 | $214,512 | Notes to Consolidated Financial Statements Notes detail accounting policies, $1.01 billion in debt, $211.9 million in 2022 acquisitions, and share-based compensation plans - The company operates as an UPREIT, holding an 82.9% interest in its Operating Partnership as of December 31, 2022, with financial statements relying on real estate valuation estimates410440442 Total Debt Summary (as of Dec 31, 2022, in thousands) | Debt Type | Balance | Weighted Avg. Maturity (Years) | | :--- | :--- | :--- | | Lines of credit | $113,500 | 2.75 | | Term loans | $100,000 | 0.89 | | Unsecured senior notes | $300,000 | 8.26 | | Mortgages payable | $498,277 | 6.69 | | Total Debt | $1,011,777 | 5.76 | - In 2022, the company acquired five apartment communities for $211.9 million, with no property dispositions during the year537566568 - Total share-based compensation expense was $2.6 million in 2022, including grants of 30,245 stock options and various RSUs to employees and trustees604487578