Centerspace Reports Second Quarter 2023 Financial Results and Increases 2023 Core FFO Guidance

Rhea-AI Summary

Centerspace (NYSE: CSR) Reports Increased Core FFO and Same-Store Revenue in Q2 2023

Positive

• Core FFO per diluted share increased 14.3% to $1.28 for Q2 2023 compared to Q2 2022
• Same-store revenues increased by 8.5% for Q2 2023 compared to Q2 2022, driving a 12.1% increase in NOI compared to the same period of the prior year
• Total expenses decreased by $3.4 million to $55.9 million for Q2 2023 compared to Q2 2022
• Centerspace revised its 2023 financial outlook upward, with increases in net income per diluted share, FFO per diluted share, and Core FFO per diluted share

Negative

• None.

MINNEAPOLIS, July 31, 2023 /PRNewswire/ -- Centerspace (NYSE: CSR) announced today its financial and operating results for the three and six months ended June 30, 2023. The tables below show Net Income (Loss), Funds from Operations ("FFO")¹, and Core FFO¹, all on a per common share basis, for the three and six months ended June 30, 2023; Same-Store Revenues, Expenses, and Net Operating Income (Loss) ("NOI")¹ over comparable periods; and Same-Store¹ Weighted-Average Occupancy for each of the three months ended June 30, 2023, March 31, 2023, and June 30, 2022.

		Three Months Ended June 30,				Six Months Ended June 30,
Per Common Share		2023		2022		2023		2022
Net income (loss) - diluted		$                      (0.23)		$                      (0.30)		$                    2.55		$                  (0.97)
FFO - diluted(1)		$                        1.11		$                        1.02		$                    2.01		$                    2.03
Core FFO - diluted(1)		$                        1.28		$                        1.12		$                    2.36		$                    2.10

 

		Year-Over-Year Comparison		Sequential Comparison		YTD Comparison
Same-Store Results		Q2 2023 vs. Q2 2022		Q2 2023 vs. Q1 2023		2023 vs. 2022
Revenues		8.5 %		2.1 %		9.5 %
Expenses		3.3 %		(4.9) %		6.6 %
NOI(1)		12.1 %		7.2 %		11.6 %

 

		Three months ended						Six months ended
Same-Store Results		June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Weighted Average Occupancy		95.2 %		94.8 %		95.0 %		95.0 %		94.5 %

(1)	NOI, FFO, Core FFO, and same-store results are non-GAAP financial measures. For more information on their usage and presentation, and a reconciliation to the most directly comparable GAAP measures, refer to "Non-GAAP Financial Measures and Reconciliations" in supplemental and financial operating data within.

 

Highlights

• Net loss increased 23.3% to $0.23 per diluted share for the second quarter of 2023, compared to Net loss of $0.30 per diluted share for the same period of 2022;
• Core FFO per diluted share increased 14.3% to $1.28 for the three months ended June 30, 2023, compared to $1.12 for the three months ended June 30, 2022;
• Same-store revenues increased by 8.5% for the second quarter of 2023 compared to the second quarter of 2022, driving a 12.1% increase in NOI compared to the same period of the prior year;
• Total expenses decreased by $3.4 million to $55.9 million for the three months ended June 30, 2023, compared to $59.3 million for the three months ended June 30, 2022; and
• Increased the 2023 financial outlook ranges for net income per diluted share, FFO per diluted share, and Core FFO per diluted share. Refer to page S-18 in the supplemental and financial operating date within for additional detail.

Balance Sheet

At the end of the second quarter, Centerspace had $246.7 million of total liquidity on its balance sheet, consisting of $237.0 million available under the lines of credit and cash and cash equivalents of $9.7 million.

Revised 2023 Financial Outlook

Centerspace revised its 2023 financial outlook upward. For additional information, see S-18 of the Supplemental Financial and Operating Data for the quarter ended June 30, 2023 included at the end of this release. These ranges should be considered in their entirety. The table below reflects the revised outlook.

	Previous Outlook for 2023		Updated Outlook for 2023
	Low	High	Low	High
Net income per Share – diluted	$                          2.73	$                          3.62	$                          2.84	$                          3.64
Same-Store Revenue	6.00 %	8.00 %	6.50 %	8.00 %
Same-Store Expenses	4.75 %	6.25 %	4.00 %	5.25 %
Same-Store NOI	7.00 %	9.00 %	8.50 %	10.00 %
FFO per Share – diluted	$                          4.03	$                          4.33	$                          4.14	$                          4.35
Core FFO per Share – diluted	$                          4.27	$                          4.56	$                          4.55	$                          4.75

Additional assumptions:

• Same-store capital expenditures of $1,100 per home to $1,150 per home
• Value-add expenditures of $31.5 million to $34.5 million
• Investments from potential acquisitions of $95.0 million to $100.0 million
• Proceeds from potential dispositions of $220.0 million to $225.0 million

Earnings Call

Live webcast and replay:  https://ir.centerspacehomes.com
Live Conference Call			Conference Call Replay
Tuesday, August 1, 2023, at 10:00 AM ET			Replay available until August 15, 2023
USA Toll Free Number	1-833-470-1428		USA Toll Free Number	1-866-813-9403
International Toll Free Number	1-929-526-1599		International Toll Free Number	44-204-525-0658
Canada Toll Free Number	1-833-950-0062		Canada Toll Free Number	1-226-828-7578
Conference Number	474781		Conference Number	413439

 

Supplemental Information

Supplemental Operating and Financial Data for the quarter ended June 30, 2023 included herein ("Supplemental Information"), is available in the Investors section on Centerspace's website at www.centerspacehomes.com or by calling Investor Relations at 701-837-7104. Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and reconciled in the Supplemental Financial and Operating Data, which accompanies this earnings release.  

About Centerspace

Centerspace is an owner and operator of apartment communities committed to providing great homes by focusing on integrity and serving others. Founded in 1970, as of June 30, 2023, Centerspace owned interests in 75 apartment communities consisting of 13,497 apartment homes located in Colorado, Minnesota, Montana, Nebraska, North Dakota, and South Dakota. Centerspace was named a Top Workplace for the fourth consecutive year in 2023 by the Minneapolis Star Tribune. For more information, please visit www.centerspacehomes.com.

Forward-Looking Statements

Certain statements in this press release and the accompanying Supplemental Operating and Financial Data are based on the company's current expectations and assumptions, and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Forward-looking statements are typically identified by the use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will," "assumes," "may," "projects," "outlook," "future," and variations of such words and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements. Although the company believes the expectations reflected in its forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be achieved. As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond the company's control and could differ materially from actual results and performance. Such risks, uncertainties, and other factors that might cause such differences include, but are not limited to those risks and uncertainties detailed from time to time in Centerspace's filings with the Securities and Exchange Commission, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" contained in its Annual Report on Form 10-K for the year ended December 31, 2022, in its subsequent quarterly reports on Form 10-Q, and in other public reports. The company assumes no obligation to update or supplement forward-looking statements that become untrue due to subsequent events.

Contact Information

Investor Relations
Josh Klaetsch
Phone: 701-837-7104
Email: IR@centerspacehomes.com

Marketing & Media
Kelly Weber
Phone: 701-837-7104
Email: kweber@centerspacehomes.com

 

Common Share Data (NYSE: CSR)
		2nd Quarter		1st Quarter		4th Quarter		3rd Quarter		2nd Quarter
		2023		2023		2022		2022		2022
High closing price		$           64.18		$           71.07		$           70.20		$           89.71		$          103.17
Low closing price		$           53.98		$           51.39		$           58.50		$           65.85		$           76.65
Average closing price		$           58.61		$           61.68		$           64.64		$           79.40		$           87.61
Closing price at end of quarter		$           61.36		$           54.63		$           58.67		$           67.32		$           81.55
Common share distributions – annualized		$             2.92		$             2.92		$             2.92		$             2.92		$             2.92
Closing dividend yield – annualized		4.8 %		5.3 %		5.0 %		4.3 %		3.6 %
Closing common shares outstanding (thousands)		14,949		15,032		15,020		15,376		15,373
Closing limited partnership units outstanding (thousands)		961		967		971		980		995
Closing Series E preferred units outstanding, as converted (thousands)		2,094		2,103		2,119		2,186		2,186
Total closing common shares, limited partnership units, and Series E preferred units, as converted, outstanding (thousands)		18,004		18,102		18,110		18,542		18,554
Closing market value of outstanding common shares, plus imputed closing market value of outstanding limited partnership units and Series E preferred units, as converted (thousands)		$     1,104,725		$        988,912		$     1,062,514		$     1,248,247		$     1,513,079

 

CENTERSPACE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
		Three Months Ended											Six Months Ended
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022			6/30/2023		6/30/2022
REVENUE		$        64,776		$        67,897		$          67,848		$        65,438		$        63,116			$  132,673		$    123,430
EXPENSES
Property operating expenses, excluding real estate taxes		17,872		21,342		21,755		20,290		19,011			39,214		38,025
Real estate taxes		7,174		7,581		7,464		7,039		7,205			14,755		14,064
Property management expense		2,247		2,568		2,358		2,563		2,721			4,815		4,974
Casualty loss		53		252		335		276		382			305		980
Depreciation and amortization		24,371		25,993		25,768		23,720		24,768			50,364		55,769
General and administrative expenses		4,162		7,723		3,276		4,519		5,221			11,885		9,721
TOTAL EXPENSES		$        55,879		$        65,459		$          60,956		$        58,407		$        59,308			$  121,338		$    123,533
Gain (loss) on sale of real estate and other investments		(67)		60,159		14		—		27			60,092		27
Loss on litigation settlement		(2,864)		—		—		—		—			(2,864)		—
Operating income (loss)		5,966		62,597		6,906		7,031		3,835			68,563		(76)
Interest expense		(8,641)		(10,319)		(9,603)		(7,871)		(7,561)			(18,960)		(15,276)
Interest and other income (loss)		295		49		132		70		(17)			344		1,046
Net income (loss)		$        (2,380)		$        52,327		$          (2,565)		$           (770)		$        (3,743)			$    49,947		$    (14,306)
Dividends to Series D preferred unitholders		(160)		(160)		(160)		(160)		(160)			(320)		(320)
Net (income) loss attributable to noncontrolling interest – Operating Partnership and Series E preferred units		712		(8,566)		753		439		950			(7,854)		3,107
Net income  attributable to noncontrolling interests – consolidated real estate entities		(35)		(30)		(34)		(32)		(38)			(65)		(61)
Net income (loss) attributable to controlling interests		(1,863)		43,571		(2,006)		(523)		(2,991)			41,708		(11,580)
Dividends to preferred shareholders		(1,607)		(1,607)		(1,607)		(1,607)		(1,607)			(3,214)		(3,214)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$        (3,470)		$        41,964		$          (3,613)		$        (2,130)		$        (4,598)			$    38,494		$    (14,794)
Per Share Data - Basic
Net income (loss) per common share – basic		$          (0.23)		$            2.79		$           (0.24)		$          (0.14)		$          (0.30)			$       2.57		$        (0.97)
Per Share Data - Diluted
Net income  (loss) per common share – diluted		$          (0.23)		$            2.76		$           (0.24)		$          (0.14)		$          (0.30)			$       2.55		$        (0.97)

 

CENTERSPACE CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
ASSETS
Real estate investments
Property owned		$  2,434,138		$  2,420,911		$  2,534,124		$  2,513,470		$  2,401,427
Less accumulated depreciation		(543,264)		(519,167)		(535,401)		(511,000)		(487,834)
Total real estate investments		1,890,874		1,901,744		1,998,723		2,002,470		1,913,593
Cash and cash equivalents		9,745		8,939		10,458		14,957		13,156
Restricted cash		566		48,903		1,433		1,417		1,914
Other assets		18,992		19,298		22,687		19,742		18,950
TOTAL ASSETS		$  1,920,177		$  1,978,884		$  2,033,301		$  2,038,586		$  1,947,613
LIABILITIES, MEZZANINE EQUITY, AND EQUITY
LIABILITIES
Accounts payable and accrued expenses		$       56,713		$       56,639		$       58,812		$       58,322		$       48,077
Revolving lines of credit		18,989		143,469		113,500		171,500		73,000
Notes payable, net of unamortized loan costs		299,428		299,412		399,007		299,388		299,374
Mortgages payable, net of unamortized loan costs		563,079		474,999		495,126		496,530		497,917
TOTAL LIABILITIES		$     938,209		$     974,519		$  1,066,445		$  1,025,740		$     918,368
SERIES D PREFERRED UNITS		$       16,560		$       16,560		$       16,560		$       16,560		$       18,627
EQUITY
Series C Preferred Shares of Beneficial Interest		93,530		93,530		93,530		93,530		93,530
Common Shares of Beneficial Interest		1,169,501		1,176,059		1,177,484		1,209,732		1,207,849
Accumulated distributions in excess of net income		(522,796)		(508,420)		(539,422)		(524,905)		(511,552)
Accumulated other comprehensive loss		(1,758)		(1,917)		(2,055)		(2,158)		(2,362)
Total shareholders' equity		$     738,477		$     759,252		$     729,537		$     776,199		$     787,465
Noncontrolling interests – Operating Partnership and Series E preferred units		226,294		227,920		220,132		219,466		222,528
Noncontrolling interests – consolidated real estate entities		637		633		627		621		625
TOTAL EQUITY		$     965,408		$     987,805		$     950,296		$     996,286		$  1,010,618
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY		$  1,920,177		$  1,978,884		$  2,033,301		$  2,038,586		$  1,947,613

 

CENTERSPACE

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (unaudited)

This release contains certain non-GAAP financial measures. The non-GAAP financial measures should not be considered a substitute for operating results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The definitions and calculations of these non-GAAP financial measures, as calculated by the company, may not be comparable to non-GAAP financial measures reported by other REITs that do not define each of the non-GAAP financial measures exactly as Centerspace does.

The company provides certain information on a same-store and non-same-store basis. Same-store apartment communities are owned or in service for substantially all of the periods being compared, and, in the case of newly-constructed properties, have achieved a target level of physical occupancy of 90%. On the first day of each calendar year, Centerspace determines the composition of its same-store pool for that year as well as adjusts the previous year, which allows the company to evaluate the performance of existing apartment communities and their contribution to net operating income. The company believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of its communities are performing year-over-year. Centerspace uses this measure to assess whether or not the company has been successful in increasing NOI, raising average rental revenue, renewing leases on existing residents, controlling operating costs, and making prudent capital improvements.

For the comparison of the six months ended June 30, 2023 and 2022, five apartment communities were non-same-store. Sold communities are included in "Dispositions," while "Other properties" includes non-multifamily properties and the non-multifamily components of mixed-use properties.

Reconciliation of Operating Income (Loss) to Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure which the company defines as total real estate revenues less property operating expenses, including real estate taxes. Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation and amortization, financing costs, property management expenses, casualty losses, and general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income (loss), net income (loss) available for common shareholders, or cash flow from operating activities as a measure of financial performance.

	(in thousands, except percentages)
	Three Months Ended							Sequential				Year-Over-Year
	6/30/2023		3/31/2023		6/30/2022			$ Change		% Change		$ Change		% Change
Operating income	$      5,966		$     62,597		$      3,835			$   (56,631)		(90.5) %		$      2,131		55.6 %
Adjustments:
Property management expenses	2,247		2,568		2,721			(321)		(12.5) %		(474)		(17.4) %
Casualty loss	53		252		382			(199)		(79.0) %		(329)		(86.1) %
Depreciation and amortization	24,371		25,993		24,768			(1,622)		(6.2) %		(397)		(1.6) %
General and administrative expenses	4,162		7,723		5,221			(3,561)		(46.1) %		(1,059)		(20.3) %
(Gain) loss on sale of real estate and other investments(1)	67		(60,159)		(27)			60,226		*		94		(348.1) %
Loss on litigation settlement	2,864		—		—			2,864		N/A		2,864		N/A
Net operating income	$     39,730		$     38,974		$     36,900			$         756		1.9 %		$      2,830		7.7 %
Revenue
Same-store	$     60,104		$     58,859		$     55,386			$      1,245		2.1 %		$      4,718		8.5 %
Non-same-store	3,629		3,639		2,050			(10)		(0.3) %		1,579		77.0 %
Other properties	983		1,002		915			(19)		(1.9) %		68		7.4 %
Dispositions	60		4,397		4,765			(4,337)		(98.6) %		(4,705)		(98.7) %
Total	64,776		67,897		63,116			(3,121)		(4.6) %		1,660		2.6 %
Property operating expenses, including real estate taxes
Same-store	23,382		24,593		22,629			(1,211)		(4.9) %		753		3.3 %
Non-same-store	1,348		1,310		769			38		2.9 %		579		75.3 %
Other properties	254		151		230			103		68.2 %		24		10.4 %
Dispositions	62		2,869		2,588			(2,807)		(97.8) %		(2,526)		(97.6) %
Total	25,046		28,923		26,216			(3,877)		(13.4) %		(1,170)		(4.5) %
Net operating income
Same-store	36,722		34,266		32,757			2,456		7.2 %		3,965		12.1 %
Non-same-store	2,281		2,329		1,281			(48)		(2.1) %		1,000		78.1 %
Other properties	729		851		685			(122)		(14.3) %		44		6.4 %
Dispositions	(2)		1,528		2,177			(1,530)		(100.1) %		(2,179)		(100.1) %
Total	$     39,730		$     38,974		$     36,900			$         756		1.9 %		$      2,830		7.7 %

(1)	Current quarter activity relates to dispositions that occurred in a prior period.
* Not a meaningful percentage

 

	Six Months Ended June 30,
	2023		2022		$ Change		% Change
Operating income (loss)	$           68,563		$               (76)		$       68,639		*
Adjustments:
Property management expenses	4,815		4,974		(159)		(3.2) %
Casualty loss	305		980		(675)		(68.9) %
Depreciation and amortization	50,364		55,769		(5,405)		(9.7) %
General and administrative expenses	11,885		9,721		2,164		22.3 %
Gain on sale of real estate and other investments	(60,092)		(27)		(60,065)		*
Loss on litigation settlement	2,864		—		2,864		N/A
Net operating income	$           78,704		$           71,341		$        7,363		10.3 %
Revenue
Same-store	$         118,964		$         108,635		$       10,329		9.5 %
Non-same-store	7,266		3,717		3,549		95.5 %
Other properties	1,985		1,831		154		8.4 %
Dispositions	4,458		9,247		(4,789)		(51.8) %
Total	132,673		123,430		9,243		7.5 %
Property operating expenses, including real estate taxes
Same-store	47,976		44,998		2,978		6.6 %
Non-same-store	2,657		1,480		1,177		79.5 %
Other properties	404		560		(156)		(27.9) %
Dispositions	2,932		5,051		(2,119)		(42.0) %
Total	53,969		52,089		1,880		3.6 %
Net operating income
Same-store	70,988		63,637		7,351		11.6 %
Non-same-store	4,609		2,237		2,372		106.0 %
Other properties	1,581		1,271		310		24.4 %
Dispositions	1,526		4,196		(2,670)		(63.6) %
Total	$           78,704		$           71,341		$        7,363		10.3 %

* Not a meaningful percentage

 

Reconciliation of Same-Store Controllable Expenses to Total Property Operating Expenses, Including Real Estate Taxes

Centerspace defines same-store controllable expenses as property operating expenses excluding real estate taxes and insurance. Same-store controllable expenses exclude real estate taxes and insurance, in order to provide a measure of expenses that are within management's control, and is used for the purposes of budgeting, business planning, and performance evaluation. This is a non-GAAP financial measure and should not be considered an alternative to total expenses or total property operating expenses and real estate taxes.

	(in thousands, except percentages)
	Three Months Ended June 30,									Six Months Ended June 30,
	2023		2022		$ Change		% Change			2023		2022		$ Change		% Change
Controllable expenses
On-site compensation(1)	$    6,501		$    5,922		$        579		9.8 %			$  12,518		$  11,471		$      1,047		9.1 %
Repairs and maintenance	3,281		3,533		(252)		(7.1) %			6,751		6,478		273		4.2 %
Utilities	3,431		3,635		(204)		(5.6) %			8,409		8,419		(10)		(0.1) %
Administrative and marketing	1,330		1,257		73		5.8 %			2,583		2,480		103		4.2 %
Total	$  14,543		$  14,347		$        196		1.4 %			$  30,261		$  28,848		$      1,413		4.9 %
Non-controllable expenses
Real estate taxes	$    6,591		$    6,319		$        272		4.3 %			$  13,356		$  12,293		$      1,063		8.6 %
Insurance	2,248		1,963		285		14.5 %			4,359		3,857		502		13.0 %
Total	$    8,839		$    8,282		$        557		6.7 %			$  17,715		$  16,150		$      1,565		9.7 %
Property operating expenses, including real estate taxes - non-same-store	$    1,348		$      769		$        579		75.3 %			$    2,657		$    1,480		$      1,177		79.5 %
Property operating expenses, including real estate taxes - other properties	254		230		24		10.4 %			404		560		(156)		(27.9) %
Property operating expenses, including real estate taxes - dispositions	62		2,588		(2,526)		(97.6) %			2,932		5,051		(2,119)		(42.0) %
Total property operating expenses, including real estate taxes	$  25,046		$  26,216		$    (1,170)		(4.5) %			$  53,969		$  52,089		$      1,880		3.6 %

(1)	On-site compensation for administration, leasing, and maintenance personnel.

 

Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds From Operations and Core Funds From Operations

Centerspace believes that FFO, which is a  non-GAAP financial measure used as a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding its operating performance, primarily because its calculation does not assume that the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation and amortization.

Centerspace uses the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. ("Nareit"). Nareit defines FFO as net income or loss calculated in accordance with GAAP, excluding:

• depreciation and amortization related to real estate;
• gains and losses from the sale of certain real estate assets;
• impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity; and
• similar adjustments for partially owned consolidated real estate entities.

The exclusion in Nareit's definition of FFO of gains and losses from the sale of real estate assets and impairment write-downs helps to identify the operating results of the long-term assets that form the base of the company's investments, and assists management and investors in comparing those operating results between periods.

Due to the limitations of the Nareit FFO definition, Centerspace has made certain interpretations in applying this definition. The company believes that all such interpretations not specifically identified in the Nareit definition are consistent with this definition. Nareit's FFO White Paper 2018 Restatement clarified that impairment write-downs of land related to a REIT's main business are excluded from FFO and a REIT has the option to exclude impairment write-downs of assets that are incidental to its main business.

While FFO is widely used by Centerspace as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, but rather should be considered as an additional, supplemental measure. FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund all cash flow needs, including the ability to service indebtedness or make distributions to shareholders.

Core Funds from Operations ("Core FFO") is FFO as adjusted for non-routine items or items not considered core to business operations. By further adjusting for items that are not considered part of core business operations, the company believes that Core FFO provides investors with additional information to compare core operating and financial performance between periods. Core FFO should not be considered as an alternative to net income, or any other GAAP measurement of performance, but rather should be considered an additional supplemental measure. Core FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund the company's cash needs, including its ability to service indebtedness or make distributions to shareholders. Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and should not be considered a substitute for operating results determined in accordance with GAAP.

		(in thousands, except per share amounts)
		Three Months Ended											Six Months Ended
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022			6/30/2023		6/30/2022
Funds From Operations
Net  income (loss) available to common shareholders		$     (3,470)		$     41,964		$     (3,613)		$     (2,130)		$     (4,598)			$   38,494		$  (14,794)
Adjustments:
Noncontrolling interests – Operating Partnership and Series E preferred units		(712)		8,566		(753)		(439)		(950)			7,854		(3,107)
Depreciation and amortization		24,371		25,993		25,768		23,720		24,768			50,364		55,769
Less depreciation – non real estate		(89)		(91)		(91)		(94)		(101)			(180)		(202)
Less depreciation – partially owned entities		(19)		(19)		(19)		(18)		(7)			(38)		(28)
(Gain) loss on sale of real estate and other assets		71		(60,159)		(14)		—		(27)			(60,088)		(27)
FFO applicable to common shares and Units		$     20,152		$     16,254		$     21,278		$     21,039		$     19,085			$   36,406		$   37,611
Adjustments to Core FFO:
Non-cash casualty (gain) loss		(52)		13		20		46		163			(39)		188
Loss on extinguishment of debt		—		—		—		—		5			—		5
Technology implementation costs(1)		—		—		89		234		447			—		550
Interest rate swap termination, amortization, and mark-to-market		159		138		104		204		205			297		(408)
Amortization of assumed debt		(116)		(116)		(117)		(116)		(116)			(232)		(231)
Pursuit costs		—		5		137		38		1,127			5		1,127
Severance and transition related costs		(19)		3,199		—		—		—			3,180		—
Loss on litigation settlement and one-time trial costs(2)		3,201		—		—		—		—			3,201		—
Other miscellaneous items(3)		(22)		49		(28)		17		100			27		96
Core FFO applicable to common shares and Units		$     23,303		$     19,542		$     21,483		$     21,462		$     21,016			$   42,845		$   38,938
FFO applicable to common shares and Units		$     20,152		$     16,254		$     21,278		$     21,039		$     19,085			$   36,406		$   37,611
Dividends to preferred unitholders		160		160		160		160		160			320		320
FFO applicable to common shares and Units - diluted		$     20,312		$     16,414		$     21,438		$     21,199		$     19,245			$   36,726		$   37,931
Core FFO applicable to common shares and Units		$     23,303		$     19,542		$     21,483		$     21,462		$     21,016			$   42,845		$   38,938
Dividends to preferred unitholders		160		160		160		160		160			320		320
Core FFO applicable to common shares and Units - diluted		$     23,463		$     19,702		$     21,643		$     21,622		$     21,176			$   43,165		$   39,258
Per Share Data
Net income (loss) per share and Unit - diluted		$       (0.23)		$        2.76		$       (0.24)		$       (0.14)		$       (0.30)			$       2.55		$     (0.97)
FFO per share and Unit - diluted		$        1.11		$        0.89		$        1.16		$        1.13		$        1.02			$       2.01		$       2.03
Core FFO per share and Unit - diluted		$        1.28		$        1.07		$        1.17		$        1.15		$        1.12			$       2.36		$       2.10
Weighted average shares - basic		14,949		15,025		15,027		15,373		15,369			14,987		15,233
Effect of redeemable operating partnership Units		965		968		974		984		995			967		978
Effect of Series D preferred units		228		228		228		228		228			228		228
Effect of Series E preferred units		2,103		2,118		2,185		2,186		2,186			2,111		2,186
Effect of dilutive restricted stock units and stock options		24		20		9		30		48			20		57
Weighted average shares and Units - diluted		18,269		18,359		18,423		18,801		18,826			18,313		18,682

(1)	Costs are related to a two-year implementation.
(2)	Consists of a $2.9 million loss on litigation settlement for a trial judgment entered against the Company and $340,000 in one-time trial costs related to the litigation matter.
(3)	Consists of (gain) loss on investments.

 

Reconciliation of Net Income (Loss) Available to Controlling Interests to Adjusted EBITDA

Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, gain/loss on sale of real estate and other investments, impairment of real estate investments, gain/loss on extinguishment of debt, gain/loss from involuntary conversion; and other non-routine items or items not considered core to business operations. The company considers Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, financing costs, or non-operating gains and losses. Adjusted EBITDA is a non-GAAP financial measure and should not be considered a substitute for operating results determined in accordance with GAAP. 

		(in thousands)
		Three Months Ended											Six Months Ended
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022			6/30/2023		6/30/2022
Adjusted EBITDA
Net income (loss) available to controlling interests		$    (1,863)		$      43,571		$       (2,006)		$       (523)		$    (2,991)			$    41,708		$  (11,580)
Adjustments:
Dividends to Series D preferred unitholders		160		160		160		160		160			320		320
Noncontrolling interests – Operating Partnership and Series E preferred units		(712)		8,566		(753)		(439)		(950)			7,854		(3,107)
Income (loss) before noncontrolling interests – Operating Partnership and Series E preferred units		$    (2,415)		$      52,297		$       (2,599)		$       (802)		$    (3,781)			$    49,882		$  (14,367)
Adjustments:
Interest expense		8,626		10,305		9,589		7,856		7,547			18,931		15,247
Loss on extinguishment of debt		—		—		—		—		5			—		5
Depreciation and amortization related to real estate investments		24,351		25,971		25,747		23,699		24,759			50,322		55,739
Non-cash casualty (gain) loss		(52)		13		20		46		163			(39)		188
Interest income		(248)		(92)		(92)		(82)		(74)			(340)		(538)
(Gain) loss on sale of real estate and other investments		71		(60,159)		(14)		—		(27)			(60,088)		(27)
Technology implementation costs(1)		—		—		89		234		447			—		550
Interest rate swap termination and mark-to-market		—		—		—		—		18			—		(564)
Pursuit costs		—		5		137		38		1,127			5		1,127
Severance and transition related costs		(19)		3,199		—		—		—			3,180		—
Loss on litigation settlement and one-time trial costs(2)		3,201		—		—		—		—			3,201		—
Other miscellaneous items(3)		(22)		49		(28)		17		100			27		96
Adjusted EBITDA		$    33,493		$      31,588		$       32,849		$     31,006		$    30,284			$    65,081		$    57,456

(1)	Costs are related to a two-year implementation.
(2)	Consists of a $2.9 million loss on litigation settlement for a trial judgment entered against the Company and $340,000 in one-time trial costs related to the litigation matter.
(3)	Consists of (gain) loss on investments.

 

CENTERSPACE DEBT ANALYSIS (in thousands) Debt Maturity Schedule Annual Expirations
		Future Maturities of Debt
		Secured Fixed Debt		Unsecured Fixed Debt		Unsecured Variable Debt		Total Debt		% of Total Debt		Weighted Average Interest Rate(1)
2023 (remainder)		$              22,385		$                    —		$              —		$              22,385		2.5 %		4.12 %
2024		—		—		989		989		0.1 %		12.68 %
2025		30,851		—		18,000		48,851		5.5 %		4.56 %
2026		51,270		—		—		51,270		5.8 %		3.73 %
2027		50,309		—		—		50,309		5.7 %		3.47 %
Thereafter		411,714		300,000		—		711,714		80.4 %		3.42 %
Total debt		$            566,529		$            300,000		$        18,989		$            885,518		100.0 %		3.54 %

(1)	Weighted average interest rate of debt that matures during the year.

 

		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Debt Balances Outstanding
Secured fixed rate - mortgages payable - other		$  367,679		$  279,340		$  299,427		$  300,956		$  302,360
Secured fixed rate - Fannie Mae credit facility		198,850		198,850		198,850		198,850		198,850
Unsecured variable rate lines of credit		18,989		143,469		113,500		171,500		73,000
Unsecured term loans		—		—		100,000		—		—
Unsecured senior notes		300,000		300,000		300,000		300,000		300,000
Debt total		$  885,518		$  921,659		$  1,011,777		$  971,306		$  874,210
Mortgages payable - other rate		4.14 %		3.85 %		3.85 %		3.85 %		3.85 %
Fannie Mae Credit Facility rate		2.78 %		2.78 %		2.78 %		2.78 %		2.78 %
Lines of credit rate		7.35 %		6.39 %		5.23 %		4.13 %		3.04 %
Unsecured term loan rate		—		—		5.57 %		—		—
Unsecured senior notes rate		3.12 %		3.12 %		3.12 %		3.12 %		3.12 %
Total debt		3.54 %		3.71 %		3.62 %		3.45 %		3.27 %

 

CENTERSPACE  CAPITAL ANALYSIS  (in thousands, except per share and unit amounts)
		Three Months Ended
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Equity Capitalization
Common shares outstanding		14,949		15,032		15,020		15,376		15,373
Operating partnership units outstanding		961		967		971		980		995
Series E preferred units (as converted)		2,094		2,103		2,119		2,186		2,186
Total common shares, Units, and Series E preferred units, as converted,  outstanding		18,004		18,102		18,110		18,542		18,554
Market price per common share (closing price at end of period)		$       61.36		$       54.63		$       58.67		$       67.32		$      81.55
Equity capitalization-common shares and units		$ 1,104,725		$   988,912		$ 1,062,514		$ 1,248,247		$  1,513,079
Recorded book value of preferred shares		$     93,530		$     93,530		$     93,530		$     93,530		$    93,530
Total equity capitalization		$ 1,198,255		$ 1,082,442		$ 1,156,044		$ 1,341,777		$  1,606,609
Series D Preferred Units		$     16,560		$     16,560		$     16,560		$     16,560		$    18,627
Debt Capitalization
Total debt		$   885,518		$   921,659		$ 1,011,777		$   971,306		$  874,210
Total capitalization		$ 2,100,333		$ 2,020,661		$ 2,184,381		$ 2,329,643		$  2,499,446
Total debt to total capitalization(1)		42.2 %		45.6 %		46.3 %		41.7 %		35.0 %

(1)

Total debt to total market capitalization, a non-GAAP financial measure, is total debt not adjusted for unamortized deferred financing costs from the balance sheet divided by the sum of total debt from the balance sheet, market value of common shares, operating partnership units, and the as converted Series E preferred units, and book value of Series C preferred shares and Series D preferred units outstanding at the end of the period. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP.

 

Three Months Ended

Six Months Ended

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

6/30/2023

6/30/2022

Debt service coverage ratio(1)

3.33 x

2.70 x

2.99 x

3.35 x

3.39 x

2.99 x

3.16 x

Adjusted EBITDA/Interest expense plus preferred distributions and principal amortization

2.83 x

2.35 x

2.58 x

2.81 x

2.83 x

2.57 x

2.64 x

Net debt/Adjusted EBITDA(2)

6.54 x

7.22 x

7.62 x

7.71 x

7.11 x

6.73 x

7.49 x

Net debt and preferred equity/Adjusted EBITDA(2)

7.36 x

8.09 x

8.46 x

8.60 x

8.03 x

7.57 x

8.47 x

Distribution Data

Common shares and Units outstanding at record date

15,910

15,999

15,991

16,356

16,368

15,910

16,368

Total common distribution declared

$ 11,608

$ 11,668

$ 11,614

$ 11,939

$  11,948

$ 23,276

$ 23,892

Common distribution per share and Unit

$     0.73

$     0.73

$     0.73

$     0.73

$   0.73

$     1.46

$     1.46

Payout ratio (Core FFO per diluted share and unit basis)(3)

57.0 %

68.2 %

62.4 %

63.5 %

65.2 %

61.9 %

69.5 %

(1)	Debt service coverage ratio is computed by dividing Adjusted EBITDA by interest expense and principal amortization. This term is a non-GAAP financial measure and should not be considered a substitute for operating results determined in accordance with GAAP. Refer to the Adjusted EBITDA definition included within the Non-GAAP Financial Measures and Reconciliations section.
(2)	Net debt is the total outstanding debt balance less cash and cash equivalents. Adjusted EBITDA is annualized for periods less than one year. Net debt and adjusted EBITDA are non-GAAP financial measures and should not be considered a substitute for operating results determined in accordance with GAAP. Refer to the Adjusted EBITDA definition included within the Non-GAAP Financial Measures and Reconciliations section.

 

		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Total debt		$            885,518		$            921,659		$         1,011,777		$            971,306		$                 874,210
Less: cash and cash equivalents		9,745		8,939		10,458		14,957		13,156
Net debt		$            875,773		$            912,720		$         1,001,319		$            956,349		$                 861,054

(3)

Payout ratio (Core FFO per diluted share and unit basis) is the ratio of the current quarterly or annual distribution rate per common share and unit divided by quarterly or annual Core FFO per diluted share and unit. This term is a non-GAAP financial measure and should not be considered a substitute for operating results determined in accordance with GAAP. Refer to the Core FFO definition included within the Non-GAAP Financial Measures and Reconciliations section.

 

CENTERSPACE SAME-STORE SECOND QUARTER COMPARISONS (in thousands, except property data amounts and percentages)
		Apartment Homes Included		Revenues						Expenses						NOI
Regions				Q2 2023		Q2 2022		% Change		Q2 2023		Q2 2022		% Change		Q2 2023		Q2 2022		% Change
Denver, CO		1,889		$      11,968		$           10,955		9.2 %		$         3,944		$         3,568		10.5 %		$        8,024		$          7,387		8.6 %
Minneapolis, MN		4,519		21,069		19,685		7.0 %		9,088		8,880		2.3 %		11,981		10,805		10.9 %
North Dakota		2,422		9,241		8,482		8.9 %		3,630		3,523		3.0 %		5,611		4,959		13.1 %
Omaha, NE		872		3,443		3,134		9.9 %		1,381		1,325		4.2 %		2,062		1,809		14.0 %
Rochester, MN		1,129		5,760		5,235		10.0 %		2,137		2,138		— %		3,623		3,097		17.0 %
St. Cloud, MN		832		3,459		3,177		8.9 %		1,405		1,375		2.2 %		2,054		1,802		14.0 %
Other Mountain West(1)		1,222		5,164		4,718		9.5 %		1,797		1,820		(1.3) %		3,367		2,898		16.2 %
Same-Store Total		12,885		$      60,104		$           55,386		8.5 %		$       23,382		$       22,629		3.3 %		$      36,722		$        32,757		12.1 %
		% of NOI Contribution		Weighted Average Occupancy (2)						Average Monthly Rental Rate (3)						Average Monthly Revenue per Occupied Home (4)
Regions				Q2 2023		Q2 2022		Growth		Q2 2023		Q2 2022		% Change		Q2 2023		Q2 2022		% Change
Denver, CO		21.8 %		96.1 %		94.2 %		1.9 %		$         1,928		$         1,820		5.9 %		$        2,198		$          2,053		7.1 %
Minneapolis, MN		32.6 %		94.9 %		95.0 %		(0.1) %		1,463		1,394		4.9 %		1,637		1,528		7.1 %
North Dakota		15.3 %		96.1 %		95.6 %		0.5 %		1,201		1,118		7.4 %		1,323		1,221		8.4 %
Omaha, NE		5.6 %		94.7 %		97.2 %		(2.5) %		1,262		1,126		12.1 %		1,389		1,232		12.7 %
Rochester, MN		9.9 %		95.0 %		95.2 %		(0.2) %		1,688		1,536		9.9 %		1,790		1,624		10.2 %
St. Cloud, MN		5.6 %		91.7 %		90.8 %		0.9 %		1,343		1,229		9.3 %		1,512		1,401		7.9 %
Other Mountain West(1)		9.2 %		95.3 %		96.5 %		(1.2) %		1,327		1,207		9.9 %		1,479		1,333		11.0 %
Same-Store Total		100.0 %		95.2 %		95.0 %		0.2 %		$         1,467		$         1,371		7.0 %		$        1,634		$          1,509		8.3 %

____
(1)	Includes apartment communities in Billings, Montana and Rapid City, South Dakota.
(2)	Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rent. Scheduled rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. When calculating actual rents for occupied apartment homes and market rents for vacant homes, delinquencies and concessions are not taken into account.  Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes. Centerspace believes that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.
(3)	Average monthly rental rate is scheduled rent divided by the total number of apartment homes.
(4)	Average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment homes for the period.

 

CENTERSPACE SAME-STORE SEQUENTIAL QUARTER COMPARISONS (in thousands, except property data amounts and percentages)
		Apartment Homes Included		Revenues						Expenses						NOI
Regions				Q2 2023		Q1 2023		% Change		Q2 2023		Q1 2023		% Change		Q2 2023		Q1 2023		% Change
Denver, CO		1,889		$       11,968		$           11,740		1.9 %		$         3,944		$         4,035		(2.3) %		$         8,024		$          7,705		4.1 %
Minneapolis, MN		4,519		21,069		20,805		1.3 %		9,088		9,588		(5.2) %		11,981		11,217		6.8 %
North Dakota		2,422		9,241		8,879		4.1 %		3,630		3,814		(4.8) %		5,611		5,065		10.8 %
Omaha, NE		872		3,443		3,356		2.6 %		1,381		1,433		(3.6) %		2,062		1,923		7.2 %
Rochester, MN		1,129		5,760		5,648		2.0 %		2,137		2,228		(4.1) %		3,623		3,420		5.9 %
St. Cloud, MN		832		3,459		3,351		3.2 %		1,405		1,691		(16.9) %		2,054		1,660		23.7 %
Other Mountain West(1)		1,222		5,164		5,080		1.7 %		1,797		1,804		(0.4) %		3,367		3,276		2.8 %
Same-Store Total		12,885		$       60,104		$           58,859		2.1 %		$       23,382		$       24,593		(4.9) %		$       36,722		$        34,266		7.2 %
		% of NOI Contribution		Weighted Average Occupancy (2)						Average Monthly Rental Rate (3)						Average Monthly Revenue per Occupied Home (4)
Regions				Q2 2023		Q1 2023		Growth		Q2 2023		Q1 2023		% Change		Q2 2023		Q1 2023		% Change
Denver, CO		21.8 %		96.1 %		95.8 %		0.3 %		$         1,928		$         1,912		0.8 %		$         2,198		$          2,162		1.7 %
Minneapolis, MN		32.6 %		94.9 %		94.6 %		0.3 %		1,463		1,454		0.6 %		1,637		1,622		0.9 %
North Dakota		15.3 %		96.1 %		95.9 %		0.2 %		1,201		1,175		2.2 %		1,323		1,274		3.8 %
Omaha, NE		5.6 %		94.7 %		94.0 %		0.7 %		1,262		1,234		2.3 %		1,389		1,364		1.8 %
Rochester, MN		9.9 %		95.0 %		94.8 %		0.2 %		1,688		1,664		1.4 %		1,790		1,759		1.8 %
St. Cloud, MN		5.6 %		91.7 %		90.1 %		1.6 %		1,343		1,315		2.1 %		1,512		1,490		1.5 %
Other Mountain West(1)		9.2 %		95.3 %		95.1 %		0.2 %		1,327		1,319		0.6 %		1,479		1,457		1.5 %
Same-Store Total		100.0 %		95.2 %		94.8 %		0.4 %		$         1,467		$         1,450		1.2 %		$         1,634		$          1,606		1.7 %

____
(1)	Includes apartment communities in Billings, Montana and Rapid City, South Dakota.
(2)	Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rent. Scheduled rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. When calculating actual rents for occupied apartment homes and market rents for vacant homes, delinquencies and concessions are not taken into account.  Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes. Centerspace believes that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.
(3)	Average monthly rental rate is scheduled rent divided by the total number of apartment homes.
(4)	Average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment homes for the period.

 

CENTERSPACE SAME-STORE YEAR-TO-DATE COMPARISONS (in thousands, except property data amounts and percentages)
		Apartment Homes Included		Revenues						Expenses						NOI
Regions				2023		2022		% Change		2023		2022		% Change		2023		2022		% Change
Denver, CO		1,889		$       23,708		$           21,580		9.9 %		$         7,979		$         6,743		18.3 %		$       15,729		$        14,837		6.0 %
Minneapolis, MN		4,519		41,874		38,689		8.2 %		18,677		17,880		4.5 %		23,197		20,809		11.5 %
North Dakota		2,422		18,119		16,638		8.9 %		7,444		7,176		3.7 %		10,675		9,462		12.8 %
Omaha, NE		872		6,799		6,192		9.8 %		2,815		2,652		6.1 %		3,984		3,540		12.5 %
Rochester, MN		1,129		11,409		10,238		11.4 %		4,365		4,235		3.1 %		7,044		6,003		17.3 %
St. Cloud, MN		832		6,810		6,226		9.4 %		3,095		2,874		7.7 %		3,715		3,352		10.8 %
Other Mountain West(1)		1,222		10,245		9,072		12.9 %		3,601		3,438		4.7 %		6,644		5,634		17.9 %
Same-Store Total		12,885		$    118,964		$         108,635		9.5 %		$       47,976		$       44,998		6.6 %		$       70,988		$        63,637		11.6 %
		% of NOI Contribution		Weighted Average Occupancy (2)						Average Monthly Rental Rate (3)						Average Monthly Revenue per Occupied Home (4)
Regions				2023		2022		Growth		2023		2022		% Change		2023		2022		% Change
Denver, CO		22.2 %		95.9 %		94.1 %		1.8 %		$         1,920		$         1,806		6.3 %		$         2,180		$          2,023		7.8 %
Minneapolis, MN		32.7 %		94.8 %		94.6 %		0.2 %		1,459		1,384		5.4 %		1,630		1,509		8.0 %
North Dakota		15.0 %		96.0 %		95.2 %		0.8 %		1,188		1,111		6.9 %		1,298		1,203		7.9 %
Omaha, NE		5.6 %		94.4 %		96.4 %		(2.0) %		1,248		1,111		12.3 %		1,377		1,228		12.1 %
Rochester, MN		9.9 %		94.9 %		94.1 %		0.8 %		1,676		1,522		10.1 %		1,774		1,607		10.4 %
St. Cloud, MN		5.2 %		90.9 %		91.6 %		(0.7) %		1,329		1,214		9.5 %		1,501		1,362		10.2 %
Other Mountain West(1)		9.4 %		95.2 %		95.3 %		(0.1) %		1,323		1,180		12.1 %		1,468		1,298		13.1 %
Same-Store Total		100.0 %		95.0 %		94.5 %		0.5 %		$         1,459		$         1,358		7.4 %		$         1,620		$          1,487		8.9 %

_____
(1)	Includes apartment communities in Billings, Montana and Rapid City, South Dakota.
(2)	Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rent. Scheduled rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. When calculating actual rents for occupied apartment homes and market rents for vacant homes, delinquencies and concessions are not taken into account.  Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes. Centerspace believes that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.
(3)	Average monthly rental rate is scheduled rent divided by the total number of apartment homes.
(4)	Average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment homes for the period.

 

CENTERSPACE PORTFOLIO SUMMARY(1)
		Three Months Ended
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Number of Apartment Homes at Period End
Same-Store		12,885		12,885		11,330		11,330		11,319
Non-Same-Store		612		612		3,735		3,734		3,519
All Communities		13,497		13,497		15,065		15,064		14,838
Average Monthly Rental Rate(2)
Same-Store		$      1,467		$      1,450		$      1,438		$      1,411		$      1,366
Non-Same-Store		1,894		1,890		1,352		1,286		1,245
All Communities		$      1,487		$      1,470		$      1,417		$      1,381		$      1,337
Average Monthly Revenue per Occupied Apartment Home(3)
Same-Store		$      1,634		$      1,606		$      1,592		$      1,565		$      1,518
Non-Same-Store		2,072		2,066		1,471		1,417		1,329
All Communities		$      1,654		$      1,627		$      1,562		$      1,530		$      1,473
Weighted Average Occupancy(4)
Same-Store		95.2 %		94.8 %		94.9 %		94.5 %		94.8 %
Non-Same-Store		95.4 %		95.9 %		94.7 %		94.6 %		95.0 %
All Communities		95.2 %		94.9 %		94.9 %		94.5 %		94.8 %
Operating Expenses as a % of Scheduled Rent
Same-Store		41.2 %		43.9 %		43.1 %		42.5 %		40.3 %
Non-Same-Store		38.8 %		37.8 %		51.7 %		48.7 %		47.1 %
All Communities		41.1 %		43.5 %		45.1 %		43.9 %		41.8 %
Capital Expenditures
Total Capital Expenditures per Apartment Home – Same-Store		$        258		$        115		$        364		$        465		$        196

_____
(1)	Previously reported amounts are not revised for changes in the composition of the same-store properties pool.
(2)	Average monthly rental rate is scheduled rent divided by the total number of apartment homes. Scheduled rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rates pursuant to leases and vacant apartment homes valued at estimated market rents. When calculating actual rents for occupied apartment homes and market rents for vacant homes, delinquencies and concessions are not taken into account. Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes.
(3)	Average monthly revenue per occupied home is defined as total rental revenues divided by the weighted average occupied apartment homes for the period.
(4)	Weighted average occupancy is the percentage resulting from dividing actual rental revenue by scheduled rent. The company believes that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.

 

CENTERSPACE CAPITAL EXPENDITURES ($ in thousands, except per home amounts)
		Three Months Ended					Six Months Ended
Same Store Capital Expenditures		6/30/2023		6/30/2022			6/30/2023		6/30/2022
Total Same-Store Apartment Homes		12,885		12,885			12,885		12,885
Building - Exterior		$              231		$               62			$              231		$              595
Building - Interior		64		225			64		230
Mechanical, Electrical, & Plumbing		775		308			1,059		533
Furniture & Equipment		153		113			178		193
Landscaping & Grounds		3		138			3		221
Turnover replacements		730		1,346			1,509		2,080
Work in progress		1,370		305			1,767		(205)
Capital Expenditures - Same-Store		$           3,326		$           2,497			$           4,811		$           3,647
Capital Expenditures per Apartment Home - Same-Store		$              258		$              194			$              373		$              283
Value Add		$           5,952		$           6,327			$           8,489		$         10,011
Total Capital Spend - Same-Store		$           9,278		$           8,824			$         13,300		$         13,658
Total Capital Spend per Apartment Home - Same-Store		$              720		$              685			$           1,032		$           1,060
		Three Months Ended					Six Months Ended
Capital Expenditures - All Properties		6/30/2023		6/30/2022			6/30/2023		6/30/2022
All Properties - Weighted Average Apartment Homes		13,497		14,838			14,019		14,838
Capital Expenditures		$           3,404		$           2,892			$           5,134		$           4,217
Capital Expenditures per Apartment Home		$              252		$              195			$              366		$              284
Value Add		5,976		6,367			8,606		10,051
Acquisition Capital		5,290		1,364			9,962		2,564
Total Capital Spend		14,670		10,623			23,702		16,832
Total Capital Spend per Apartment Home		$           1,087		$              716			$           1,691		$           1,134
		Three Months Ended					Six Months Ended
Value Add Capital Expenditures		6/30/2023		6/30/2022			6/30/2023		6/30/2022
Interior - Units
Same-Store		$           4,499		$           4,318			$           5,718		$           6,955
Non-Same-Store		—		—			—		—
Total Interior Units		$           4,499		$           4,318			$           5,718		$           6,955
Common Areas and Exteriors
Same-Store		$           1,330		$           1,917			$           2,555		$           4,850
Non-Same-Store		24		53			117		53
Total Common Areas and Exteriors		$           1,354		$           1,970			$           2,672		$           4,903
Work in Progress
Same-Store		$              123		$               92			$              216		$         (1,794)
Non-Same-Store		—		(13)			$               —		$              (13)
Total Work in Progress		$              123		$               79			$              216		$         (1,807)
Total Value-Add Capital Expenditures
Same-Store		$           5,952		$           6,327			$           8,489		$         10,011
Non-Same-Store		24		40			117		40
Total Portfolio Value-Add		$           5,976		$           6,367			$           8,606		$         10,051

 

CENTERSPACE 2023 Financial Outlook (in thousands, except per share and per home amounts)
Centerspace revised its outlook for 2023 in the table below.
	Six Months Ended		2023 Previous Outlook Range				2023 Revised Outlook Range
	June 30, 2023		Low		High		Low		High
	YTD Actual		Amount		Amount		Amount		Amount
Same-store growth
Revenue	$                   118,964		6.00 %		8.00 %		6.50 %		8.00 %
Controllable expenses	30,261		3.00 %		4.50 %		2.00 %		3.50 %
Non-controllable expenses	17,715		8.00 %		9.50 %		7.50 %		9.00 %
Total Expenses	$                     47,976		4.75 %		6.25 %		4.00 %		5.25 %
Same-store NOI(1)	$                     70,988		7.00 %		9.00 %		8.50 %		10.00 %
Components of NOI(1)
Same-store	$                     70,988		$      138,300		$      141,300		$      137,000		$      139,000
Non-same-store	4,609		8,900		9,100		9,000		9,200
Other properties	1,581		2,000		2,400		1,700		1,800
Dispositions	1,526		$         2,500		$         2,800		$         7,200		$         7,400
Total NOI(1)	$                     78,704		$      151,700		$      155,600		$      154,900		$      157,400
Accretion (dilution) from investments and capital market activity, excluding impact from change in share count	$                           —		—		—		(400)		(200)
Other operating income and expenses
General and administrative and property management	(16,700)		(32,300)		(31,500)		(31,100)		(30,700)
Casualty loss	(305)		(1,500)		(1,300)		(1,300)		(1,100)
Loss on litigation settlement	(2,864)		—		—		(3,200)		(3,200)
Non-real estate depreciation and amortization	(180)		(375)		(325)		(375)		(325)
Non-controlling interest	(65)		(110)		(100)		(110)		(100)
Total other operating income and expenses	$                    (20,114)		$      (34,285)		$      (33,225)		$      (36,085)		$      (35,425)
Interest expense	$                    (18,960)		(37,400)		(36,900)		(37,000)		(36,600)
Interest and other income	310		$            160		$            350		$            600		$            800
Dividends to preferred shareholders	(3,214)		(6,400)		(6,400)		(6,400)		(6,400)
FFO applicable to common shares and Units - diluted(1)	$                     36,726		$        73,775		$        79,425		$        75,615		$        79,575
Non-core income and expenses
Non-cash casualty (gain)  loss	$                          (39)		$            500		$            300		$            400		$            200
Interest rate swap amortization	297		900		1,000		900		1,000
Amortization of assumed debt	(232)		—		—		—		—
Pursuit costs	5		70		60		70		60
Severance and transition related costs	3,180		3,200		3,200		3,180		3,180
Loss on litigation settlement and one-time trial costs	3,201		—		—		3,200		3,200
Other miscellaneous items	27		(310)		(350)		(310)		(350)
Total non-core income and expenses	$                       6,439		$         4,360		$         4,210		$         7,440		$         7,290
Core FFO applicable to common shares and Units - diluted(1)	$                     43,165		$        78,135		$        83,635		$        83,055		$        86,865
EPS - Diluted	$                         2.55		$           2.73		$           3.62		$           2.84		$           3.64
FFO per diluted share(1)	$                         2.01		$           4.03		$           4.33		$           4.14		$           4.35
Core FFO per diluted share(1)	$                         2.36		$           4.27		$           4.56		$           4.55		$           4.75
Weighted average shares outstanding - diluted	18,313		18,300		18,325		18,250		18,275
Additional Assumptions
Same-store capital expenditures (per home)	$                          373		$         1,100		1,150		$         1,100		1,150
Value-add expenditures	$                       8,606		$        24,500		$        27,500		$        31,500		$        34,500
Investments	$                           —		$              —		$              —		$        95,000		$      100,000
Dispositions	$                   144,255		$      155,000		$      165,000		$      220,000		$      225,000

(1)	NOI, FFO, and Core FFO are non-GAAP financial measures.  For more information on their usage and presentation, and a reconciliation to the most directly comparable GAAP measures, refer to "Non-GAAP Financial Measures and Reconciliations" in the Supplemental Financial and Operating Data" above.

Reconciliation of Net Income (Loss) Available to Common Shareholders to FFO and Core FFO

The following table presents reconciliations of Net income (loss) available to common shareholders to FFO and Core FFO, which are non-GAAP financial measures described in greater detail under "Non-GAAP Financial Measures and Reconciliations." They should not be considered as alternatives to net income or any other GAAP measurement of performance, but rather should be considered as an additional, supplemental measure. FFO and Core FFO also do not represent cash generated from operating activities in accordance with GAAP, nor are they indicative of funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. The outlook and projections provided below are based on current expectations and are forward-looking.

			Previous Outlook				Revised Outlook
	Six Months Ended		12 Months Ended				12 Months Ended
	June 30, 2023		December 31, 2023				December 31, 2023
	Actual		Low		High		Low		High
Net income available to common shareholders	$                     38,494		$         57,839		$         74,307		$         59,679		$         74,457
Noncontrolling interests - Operating Partnership and Series E preferred units	7,854		(7,795)		(7,885)		(7,795)		(7,885)
Depreciation and amortization	50,364		92,556		91,768		92,556		91,768
Less depreciation - non real estate	(180)		(375)		(325)		(375)		(325)
Less depreciation - partially owned entities	(38)		(110)		(100)		(110)		(100)
Gain on sale of real estate	(60,088)		(68,980)		(78,980)		(68,980)		(78,980)
Dividends to preferred unitholders	320		640		640		640		640
FFO applicable to common shares and Units - diluted	$                     36,726		$         73,775		$         79,425		$         75,615		$         79,575
Adjustments to Core FFO:
Non-cash casualty (gain) loss	(39)		500		300		400		200
Interest rate swap termination, amortization, and mark-to-market	297		900		1,000		900		1,000
Amortization of assumed debt	(232)		—		—		—		—
Pursuit costs	5		70		60		70		60
Severance and transition related costs	3,180		3,200		3,200		3,180		3,180
Loss on litigation settlement and one-time trial costs	3,201		—		—		3,200		3,200
Other miscellaneous items	27		(310)		(350)		(310)		(350)
Core FFO applicable to common shares and Units - diluted	$                     43,165		$         78,135		$         83,635		$         83,055		$         86,865
Net income per share - diluted	$                         2.55		$             2.73		$             3.62		$             2.84		$             3.64
FFO per share - diluted	$                         2.01		$             4.03		$             4.33		$             4.14		$             4.35
Core FFO per share - diluted	$                         2.36		$             4.27		$             4.56		$             4.55		$             4.75

Reconciliation of Operating Income to Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure which the company defines as total real estate revenues less property operating expenses, including real estate taxes. Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by sales of real estate and other investments, depreciation, amortization, financing costs, property management expenses, casualty losses, and general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance. 

			Previous Outlook				Revised Outlook
	Six Months Ended		12 Months Ended				12 Months Ended
	June 30, 2023		December 31, 2023				December 31, 2023
	Actual		Low		High		Low		High
Operating income	$                     68,563		$         94,324		$       110,012		$         96,060		$       109,948
Adjustments:
General and administrative and property management expenses	16,700		32,300		31,500		31,100		30,700
Casualty loss	305		1,500		1,300		1,300		1,100
Depreciation and amortization	50,364		92,556		91,768		92,556		91,768
Gain on sale of real estate and other investments	(60,092)		(68,980)		(78,980)		(68,980)		(78,980)
Loss on litigation settlement	2,864		—		—		2,864		2,864
Net operating income	$                     78,704		$       151,700		$       155,600		$       154,900		$       157,400

 

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SOURCE Centerspace

FAQ

What are Centerspace's financial results for Q2 2023?

Centerspace reported an increase in Core FFO and same-store revenue for Q2 2023.

How did Centerspace's net income and expenses change in Q2 2023?

Net loss increased to $0.23 per diluted share, while total expenses decreased by $3.4 million.

What is Centerspace's revised 2023 financial outlook?

Centerspace revised its 2023 financial outlook upward, with increases in net income per diluted share, FFO per diluted share, and Core FFO per diluted share.