Centerspace(US:CSR)2019-11-07 20:36Financial Data and Key Metrics Changes - Core FFO per diluted share increased by 15% year-over-year to $0.99, with year-to-date core FFO at $2.76, up 11% from $2.49 in the same period last year [28][29] - Same-store NOI growth for the third quarter was 5.3%, with year-to-date same-store NOI growth reaching 4.4% [17][19] - Average cost of debt decreased by 40 basis points from September 2018 to September 2019 [12] Business Line Data and Key Metrics Changes - The Rise by 5 initiative contributed to a 70 basis point margin increase year-over-year, with a target of over 60.5% NOI margins [9] - Average rents increased from $810 to $1,730, reflecting a significant improvement in asset quality [11] - Same-store controllable expenses decreased by 2.1% year-over-year, contributing to overall NOI growth [19][21] Market Data and Key Metrics Changes - The Twin Cities market showed strong occupancy levels, with cap rate compression observed despite increased supply [14] - Denver's market maintained a 96% occupancy rate, driven by positive population and job growth trends [15] - Over 40% of NOI is expected to come from top 20 markets in 2020, focusing on innovation-driven growth [15] Company Strategy and Development Direction - The company aims to transition from a good operator to a market leader through the Rise by 5 initiative, focusing on operational efficiencies and strategic investments [9][17] - The strategy includes opportunistic acquisitions in core markets while divesting from slower growth markets like Topeka and Bismarck [10][16] - The company plans to maintain a strong balance sheet while improving per share metrics and exploring new growth markets [17][60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth opportunities, citing strong operational performance and effective expense management [7][8] - The company anticipates challenges from rising non-controllable expenses, particularly real estate taxes and insurance costs [20] - Management remains optimistic about the impact of ongoing initiatives on revenue growth and margin expansion [19][49] Other Important Information - The company entered into a $150 million at-the-market equity distribution program to support general corporate purposes [13] - A new requirement for residents to obtain renters insurance is expected to generate over $1 million in annual revenue [22] - The company is focused on capitalizing on value-add opportunities within its portfolio, with ongoing renovations expected to drive revenue growth [25][80] Q&A Session Summary Question: Can you provide details on the exit cap rates for Topeka and Bismarck? - Topeka was exited at a cap rate of 6% to 6.25%, while Bismarck was at 6.25% to 6.5%. The acquisitions had a cap rate of approximately 4.58% to 4.78% [40][41] Question: What are the long-term growth prospects of the markets you are exiting versus those you are entering? - Management evaluates each asset quarterly, focusing on market growth prospects and expected cash flows. The decision to exit Topeka was based on increased interest and better pricing in the market [42][43] Question: Will other income growth continue to be a tailwind for overall revenue growth next year? - Yes, management expects other income to continue growing as initiatives are rolled out, with ongoing adjustments to market fees [47][49] Question: How does the asset quality compare between sold and remaining Bismarck properties? - The remaining assets in Bismarck are of better quality compared to those sold, with a focus on larger, higher-rent properties [52][53] Question: What is the outlook for same-store expense growth in the fourth quarter? - The fourth quarter is expected to see higher expense growth due to tough comparisons from the previous year and non-controllable expense increases [56] Question: How does the company view the potential impact of rent control measures in Minneapolis? - Management does not see rent control as a significant threat, citing ongoing developments that may increase supply and improve affordability [67][69] Question: What are the plans for debt refinancing in the near term? - The company has opportunities to refinance approximately $60 million to $70 million of debt at a weighted average rate of 5.2% [89]