Centerspace(CSR) - 2023 Q2 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited financial statements and management's analysis of financial performance and condition Financial Statements 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 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 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 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] - 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] Notes to Condensed Consolidated Financial Statements 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] - 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][124] - 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][122] - There were no real estate acquisitions during the six months ended June 30, 2023[3] - 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][117] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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] - 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][53] - 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] Results of Operations 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] - 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] 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 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] - 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] - 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] - The company amended its unsecured credit facility on May 31, 2023, to replace LIBOR with SOFR as the benchmark reference rate[163][244] - As of June 30, 2023, $126.6 million remained available for sale of common shares under the at-the-market (ATM) offering program[133][249] Quantitative and Qualitative Disclosures About Market Risk 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] - Exposure is primarily related to fluctuations in interest rates (including LIBOR and SOFR) on current and future debt[301] - The company does not use derivatives for trading or speculation[301] Controls and Procedures 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] - 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] Part II. Other Information This section provides additional information including legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings 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][304] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] 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] Exhibits 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][293]