Centerspace: One Of The Cheapest Multifamily REITs

Core Viewpoint - Centerspace (NYSE:CSR) is a multifamily REIT with a portfolio primarily in Minnesota and Colorado, facing challenges in growth and returns but showing potential due to undervaluation and favorable market conditions [2][10]. Company Overview - Centerspace was incorporated in 1970 and is headquartered in Minot, ND, owning and operating multifamily properties mainly in Minnesota and Colorado [1]. Portfolio and Market Outlook - The REIT's portfolio includes 70 communities with a total of 12,883 apartments across 6 states, with Minnesota representing 51.5% and Colorado 32.7% of the portfolio [3][4]. - Minnesota has stable population growth and a low unemployment rate of 3.20%, while Colorado's population growth is more volatile but generally higher, with an unemployment rate of 3.9% [4][5]. Rental Market Dynamics - High mortgage rates make home buying unattractive, leading to increased demand for rental properties, as rent prices are lower than combined maintenance, tax expenses, and mortgage payments [5][6]. - The supply of rental properties is relatively low, indicated by historically low vacancy rates and a decrease in building permits [7]. Financial Performance - The long-term stock price performance has been underwhelming, with current prices similar to those decades ago, underperforming peers [8]. - In 2023, average monthly revenue per occupied home increased by 6.9%, with an occupancy rate of 94.9% and same-store NOI rising by 8.95% YoY [8]. - Management projects a core FFO per share of $4.85 for 2024, indicating a 1.46% increase from 2023 [8]. Leverage and Liquidity - Centerspace maintains a moderate leverage level, with 54.85% of assets funded through various debt instruments and a low weighted average interest rate of 3.62% [9]. - The REIT has adequate liquidity, with annual maturities not exceeding 12% of total debt until 2028 and liquid assets comprising 35.16% of total debt [9]. Dividend and Valuation - The current quarterly dividend is $0.75 per share, yielding 4%, with a payout ratio of 61.85% [10]. - The forward AFFO yield is 6.47%, indicating good value for residential REITs, despite a low dividend yield compared to the sector median of 4.31% [10]. - Centerspace shares are undervalued, needing a 27.94% increase to reach the average FFO multiple and a 33.26% increase to reach NAV of $99.94 per share based on 2024 forecasts [11][13].