Centerspace's Form 10-Q for the quarter ended June 30, 2023, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call. I'll now turn it over to Anne Olson for the company's prepared remarks.

Good morning, everyone, and thank you for joining Centerspace's third quarter earnings call. With me this morning is Bhairav Patel, our Chief Financial Officer. We're happy to be here today to discuss our third quarter results, our outlook for the remainder of 2023, and an update on our investment activities. We're pleased with our results on revenue and expenses, and year-to-date, we've increased core FFO by 6.8% year-over-year. Starting with revenue in our same store portfolio, we achieved a 5.7% year-over-year increase. This is slightly ahead of our expectations as we realize sequential revenue growth even as new lease rental rates have moderated. With respect to revenue trends in the third quarter, we executed one-third of our lease expirations. In same store new lease trade outs, we achieved 2.3% increases and 4.9% increases on renewals, resulting in a 3.9% blended lease trade out. Sequentially, market rent is declining as leasing slows into the fourth quarter. We expect that trend to continue. In October, our same store leasing trade outs look positive at a blended 0.8%, which is a combination of new lease trade outs of negative 2.4% and renewable lease rental rates increasing 5.3%. This slowdown in leasing has been factored into our revenue guidance, and with over 86% of our leases in the books for 2023, we’re focusing on occupancy to close out the year and maintain a strong position headed into 2024. This will capitalize on the stability of our portfolio fundamentals, with 23.8% rent household income levels, and a collection rate in the third quarter of 99.6%. With respect to expenses, we saw a 6.1% year-over-year increase, with the largest driver of increases continuing to be real estate taxes and insurance. This quarter, non-controllable expenses were up 11.3% year-over-year, driven by a 21.4% increase in insurance costs. We are not anticipating that we'll be seeing any relief on the insurance front into 2024, so we will focus on what we can control. Cost control measures implemented at the beginning of the year continue to benefit our repairs and maintenance costs. This and lower utilities expenses are offsetting the impact of increased on-site compensation. Our overall results also benefit from lower G&A expenses after the CEO transition earlier in the year. Our results and outlook for the remainder of the year led us to increase our guidance. Bhairav will cover our guidance projections in more detail in his remarks. But I wanted to highlight that we have reduced our estimate of 2023 value-add capital expense due to the timing of projects. We have seen market-specific softening in some leasing that is keeping our eyes sharp on our underwritten premiums. We will maintain discipline and stay nimble into next year if there are projects that don't hit our expected return. Overall, we're focusing our value-add capital on our highest return opportunities, which at this time are in the smart home and smart community category. Our current plan includes the implementation of smart home technology in about 50% of our total communities by the end of 2024. In addition to this implementation, during the quarter, we completed renovations on 350 units as well as associated common area amenity enhancements. Moving to investment activity, earlier this month, we announced that we had sold four communities in Minot, North Dakota, marking our exit from the Minot market for an aggregate sales price of $82.5 million. This disposition included approximately 50,000 square feet of commercial space. We also closed on an acquisition in Fort Collins, Colorado; Lake Vista apartment homes were purchased for $94.5 million at approximately a 5% cap rate. The acquisition included the assumption of $52.7 million in mortgage debt with an attractive interest rate of 3.4%. Our year-to-date transactions continue to benefit portfolio quality, and we are pleased with the execution of our dispositions and the addition of Lake Vista, which is a 2011-built community with 303 homes. Our entrance into the Fort Collins MSA creates a broader geographic footprint in Colorado and is an extension of the operating scale and efficiencies we have built in the Mountain West. We like the diverse economic base and comps, including healthcare, high-tech manufacturing, and education. The cost of homeownership is high, with a median single-family home value of $560,000. The market features significant outdoor amenities, including being a gateway to Rocky Mountain National Park. Otherwise, transaction activity is slow as price discovery continues, and we maintain focus on strengthening our balance sheet for when activity picks up. Now I'll turn it over to Bhairav to discuss our financial results, balance sheet, and outlook for the remainder of 2023.

Thanks, Anne and good morning, everyone. We are pleased to report another quarter of strong earnings with core FFO at $1.20 per diluted share, driven by a 5.4% year-over-year increase in same-store NOI. On a sequential basis, same-store NOI decreased by 3.7%, driving a sequential decline in core FFO as revenue was relatively flat while expenses grew due to higher spending in certain categories typical of the summer months when we have a significant portion of our leases expiring. Our balance sheet remains in one of the strongest positions the company has experienced. We ended the quarter with no balance on our line of credit and a weighted average interest rate of 3.46%. We have a well-structured laddered maturity schedule with a weighted average maturity of approximately seven years and minimal debt coming due in the near term. Our net debt to EBITDA, pro forma for our Lake Vista acquisition and Minot dispositions, is approximately seven times. This metric includes the mortgage we assumed as part of the Lake Vista purchase, as the coupon of 3.45% on the mortgage we assumed is significantly below the current market rate, resulting in a fair market value discount of $3.9 million on the date of acquisition. This discount will be amortized over the remaining term of just under three years at a rate of $370,000 per quarter, and will increase our interest expense relative to the coupon payment. Consistent with our past practice, we will make an adjustment for it in calculating our core FFO. Historically, this adjustment has decreased our core FFO per share as we have been advertising above-market debt. Now, I will discuss our financial outlook for 2023. Based on our Q3 results, we are increasing the midpoint of our full-year 2023 core FFO guidance by $0.02 to $4.67 per diluted share. There were no changes to the expected increases in same-store NOI or revenues at the midpoints, where we still expect 9.25% and 7.25% increases, respectively. As revenues and expenses were generally in line with expectations during the quarter, we were able to capture a loss to lease in a bulk of expirations before we saw rental rates and demand softening toward the end of peak leasing season, which is something we experienced at the same time last year, and generally aligned with historical trends for the portfolio. On the expense side, we have seen decreases in certain controllable categories that grew significantly last year, and we expect the trend to continue. Lastly, after completing our Minot dispositions and Lake Vista acquisition, guidance incorporates no further transactions for the year. To conclude, we're pleased to report another quarter of strong operating results while simultaneously advancing our key strategic priorities of improving portfolio quality and market exposure through capital recycling. I want to compliment the team for their flawless execution of our plan in an extremely challenging transaction environment. And with that, I will turn it back to the operator to open up the line for questions.

Thank you. We will now take our first question from Brad Heffern from RBC Capital Markets. Brad, your line is now open. Please go ahead.

Yeah, thanks. Hey, everybody. On the new lease number in October, Bhairav, it sounded like you said that that's a relatively normal number for October. Is that correct? And I guess just any color as to whether you're seeing any additional pressure versus what you would normally see on lease rates?

Morning, Brad, this is Anne, thanks for your question. I think Brad did reiterate that it is fairly normal. We have seen through the second half of the year, in particular, a real return to pre-COVID seasonality after a couple of years of very steep run-up. So, we aren't concerned about what we're seeing in October. It is pretty isolated to markets where we had very steep increases in the Mountain West, or have more supply pressure on a relative basis than the rest of our markets. That would be Billings, Rapid City, and the other Mountain West. A little bit in Denver. We're down in October about 0.9 in new leases. So, not too concerning, and then we're about flat in Minneapolis.

Okay, got it. And then on supply, not something that you typically have to deal with. But that's obviously been the theme this quarter. So, what are the markets where you're seeing elevated supply? I think you just gave a couple. And then what are your expectations for supply in 2024?

Yeah, that's a great question. It certainly is a big theme. You know, one of the hallmarks of our portfolio is our markets are more insulated from supply; they're smaller. But that also means that they're more susceptible to supply. So, someplace like Billings, which is a small market has very little supply, but it has impacted it slightly there. The most supply-affected markets are Denver and Minneapolis; we feel good about our position in those markets; our rents are still at a level below brand-new products, and they keep us a little inflated, but we are feeling pressure there. With respect to 2024, like most of the industry, we’re really expecting supply to moderate. In fact, we are unlikely to see a lot of new products coming on or starting lease-up in 2024, but we may have some products that took longer to lease that fall into 2024. We expect the effective supply to be much muted in 2024.

Okay, thank you.

Thank you, Brad. Our next question comes from John Kim from BMO Capital Markets. John, your line is now open. Please go ahead.

Good morning. This is Robin Haneland. I’m sitting in with John just to touch on focus on occupancy for the remainder of the year. What level of occupancy translates to the respective high and low end on the same store revenue? And could you also give us a sense of how occupancy splits between your value-add and stabilizing portfolios?

Yeah, Robin, this is Bhairav. So with respect to Q4, we expect occupancy to be in the mid-94 range. That is what we have built into the guidance, so I would say 94.5% to 94.8% is what we are factoring into the guidance. And with respect to value-add, it's about 25 basis points, which is attributable to value-add from an occupancy perspective.

Got it? And do you consider Fort Collins a standalone market from Denver? And could we expect future investments in the market?

Yeah, Fort Collins is near Denver, but it does have its own MSA and some of its own economic drivers, particularly with respect to Colorado State University. Hewlett Packard has a large presence there, so it has a little less energy and gas concentration than the core of the Denver market. It does have its own demographics, and available information is somewhat less supply-driven. So, we do consider it a separate market. It is an extension for us of Denver from a regional and scale basis. It's within 30 minutes of some of our assets that are in the Denver MSA, including our asset in Longmont. We are looking there to continue to scale out that Mountain West platform. So, when we see some transactions come back, we would like to see more in Fort Collins.

Okay, thank you.

Thank you, John. Our next question comes from Wesley Golladay from Baird. Wes, your line is now open, please go ahead.

Hey, yeah, good morning, everyone. I want to go back to that smart home technology roll that you've put into this year. How much of a lift, if any, in revenue was from this this year? And would you expect a greater lift next year?

So, this year, we started this rollout, so the increase on the revenue side has been relatively minor. Simply because we're in the middle of the rollout. We think that that will continue into next year. There isn't a large component. I think the premiums on those are about $40 to $60 a unit, so it's not a significant lift on the revenue side, but we really do expect considerable expense savings particularly into next year from some of this. Our return, our calculated ROI that we're targeting on those is about 21.4%. So, it's a great investment, a combination of cost savings for us and revenue.

Yeah, no, thanks for the return on that as well. Appreciate that. And then you did a lot of capital recycling lately. And just wondering, when you look at the portfolio now and see where pricing is, is there a chance to do more of that?

I think so. We're really taking a keen eye to what in our portfolio is performing well, what markets and types of assets we think have long-term growth potential, and where we may do some trading out. The flip side of the coin on the dispositions is that there's a real dearth of acquisition opportunities, particularly in markets that we like. There's a lot of capital still waiting to be placed, even with high interest rates, and a lot of sellers who are holding. So, we do see the disposition side; we think we can achieve really good pricing given the amount of capital. With respect to the Minot sale, we had four full portfolio best and final offers, which we thought was a very strong bid pool for those assets in North Dakota. So, we're keeping a strong eye on it. We’d like to be well positioned, really focusing on the balance sheet right now to take advantage of what opportunities come, whether those be in the form of capital recycling or new opportunities.

Great, thanks for the time.

Thank you, Wes. We now have a follow-up question from Brad Heffern from RBC Capital Markets.

Hey, everybody, I'm back. Just a couple of quick questions. Bhairav, can you give the last lease in the earnings that you're expecting for 2024? Currently?

Sure. The last lease, as it stands as of today, is about 2.8%. The earnings are about a 0.5. Now this has kind of declined, as you know, it's a point-in-time number. So, this has declined over the summer months into today. It's a similar trend that we expected last year into this time as well.

Okay, got it. And then on the expense picture for '24. I think you said no relief was expected on insurance. Not expecting you to give guidance, but would you expect relief overall on expenses next year? Or should we expect them to remain elevated?

Well, am I giving direction to you or to the people running my budgets here, Brad? I think what we're going to see and what we're starting to see, as we've begun to see some of the budgets come in for next year. I think we're going to see some relief on taxes; those are going to stay relatively flat. I think our portfolio was very fully valued, and with the higher interest rates, we have good reason to believe that those will stay relatively flat. Insurance, though, will not see any relief. In other areas, over the past couple of years, we've had a lot of pressure on wages and on-site compensation. I think we could see that moderate back to normal levels, 3% to 4% there instead of the double digits we've seen in the past couple of years. Repairs and maintenance and churn costs continue to be a struggle as vendors are difficult to find, and they are still feeling some inflationary pressure in those services, particularly the professional services category. So, I think we're optimistic that we'll be able to hold revenue and grow NOI next year. That's really our core goal and focus right now—making sure that we can grow the NOI.

Okay, appreciate the thoughts.

Thank you, Brad. Our next question is from Buck Horne from Raymond James. Buck, your line is now open. Please go ahead.

Hey, thanks. Good morning. Just wondering if you could comment on any recent updates on leasing traffic trends, either physical traffic in the communities or online. How's that been trending through the end of October?

Yeah, sure. Just starting in June and July, we really saw kind of a slowdown in leasing traffic. We have been able to offset that slowdown, which through the third quarter was about 20% year-over-year less leasing traffic, and that'd be a combination of online foot traffic and phone. We've been able to offset that with higher retention; more people are staying in place, which makes sense—fewer people are looking, so they’re staying where they are. We've also seen a higher closing ratio. We've really focused on making sure that our leasing techniques are effective, meeting the customer where they are and really getting those leases in the door. Into October, we're seeing that same slowdown; it feels seasonal in a lot of our markets. People don't like to move in during the winter, and generally, people are looking further out. So, people coming in today are looking for apartments for November and December. We're feeling a seasonal slowdown there, but nothing that concerns us from an occupancy standpoint; we feel like we're going to be able to meet our goals this year.

Got it. Very helpful, thanks for the color. And just following up on the personnel or just the cost you've seen in terms of wage and on-site costs. I'm curious if you're thinking about how you may be competing against more lease-up properties next year. Is there an issue with other developers or properties potentially coming in and trying to poach some of your employees to get their properties leased up if they're familiar with those markets? Or how do you manage that process and maintain good retention with your on-site staff?

Yeah, that's a great question. You're highlighting an issue that I think is facing all operators across the country. There’s no pipeline of new leasing teams, maintenance professionals, or anyone who works on-site for us. As new supply is delivered and the amount of units and communities out there increases, it does stretch the same staffing pool. So, we have been focused on retention through professional development, additional training opportunities, and really trying to provide some career pathing for our on-site personnel. Culture is huge for us—making sure that this is a great place to work. On the replacement side, we're focusing on talent acquisition, onboarding, and ensuring that we can get the right candidates and give them the tools to be successful right from the start. Another significant aspect for us is leveraging the technology that we've invested in to streamline what can be a very simple business, making it easy to execute on-site. The easier we make it for them to succeed in their jobs, the better our chances of keeping them from going to that new lease-up down the street.

Got it. Alright. Thanks, guys. Good luck.

Thank you, Buck. Our next question comes from Michael Gorman from BTIG. Michael, your line is now open. Please go ahead.

Yeah, thanks, Anne. I was wondering if you could just talk about some of the new supply in some of your markets and the possibility that, given the financing challenges, that might turn into potential opportunities if the developers can't roll the financing or maybe can't get the lease-up done quickly enough. Are you seeing that? And what your appetite would be to take on lease-up potential through acquisitions?

Yeah, I think there are two facets to what we're looking at from an opportunity perspective for investment relating to your question. One is existing developments that might have refinance risk and/or a developer who wants to redeploy that capital because of timing or otherwise. We are interested in stepping in, probably not at an early stage, at least up properties that have been between 75% and 90% leased or just coming into stabilization, where you still have that first full year of lease expirations to work through. That would have been the case for us with Lyra, which we acquired in Denver in September of 2022. It had just finalized lease-up with a developer who, for various reasons, needed to exit. We believe the pipeline of such opportunities is going to grow. The other side of it involves developers who are needing additional equity; we're actively seeking opportunities to place mezzanine financing that might grant us ownership of the asset upon stabilization. We've taken a few of those full-circle transactions over the past couple of years, and that’s another area where we see opportunities in the development pipeline.

Okay, great. Thank you.

Thank you, Michael. We will now take a follow-up question from John Kim from BMO Capital Markets. John, your line is now open. Please go ahead.

Hi, Robin here again. We've heard reports on new tenant application fraud. Is this anything you've seen in your market? And what is your bad debt today? And where do you see it going in the near term?

Yeah, we haven't seen very much fraud historically. We've had a little when we implemented ERD. We significantly enhanced our processes. We have a dual verification process, and we haven't seen much fraud there. On the bad debt side, Bhairav can comment on that.

Yeah. So, for Q3, our bad debt was about 30 basis points to 40 basis points, which is consistent with pre-COVID trends. We have seen a return to normalization over there. Typically, we see that fluctuate between 25 basis points and 50 basis points, and we've been towards the lower end of that throughout the year.

Got it. Thank you.

Thank you, John. We have no further questions registered. So, with that, I'll hand back to your host, Anne Olson for final remarks.

Thank you. Thanks, everyone, for joining. I'd like to thank our team for the tremendous work they have done. It's been a year of uncertainty, and everyone here at Centerspace has continued to prioritize what is really important to drive results. So, I'm grateful to be here and for all of you that joined us this morning. Have a great day.

This concludes today’s call. Thank you for your participation. You may now disconnect your lines.