Centerspace 10-Q for FY2023 Q1

Centerspace (CSR)

10-Q 2023-05-01 For: 2023-03-31

Added on April 04, 2026

About this 10-Q

Centerspace filed this 10-Q on May 1, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $67.9M; up 12.6% from $60.31M a year earlier
Net income: $43.57M; compared with a net loss of $8.59M a year earlier
Diluted EPS: $2.76; compared with -$0.68 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of Beneficial Interest, no par value	CSR	New York Stock Exchange
Series C Cumulative Redeemable Preferred Shares	CSR-PRC	New York Stock Exchange


			Page
Part I. Financial Information
Item 1. Financial Statements - First Quarter - 2023:			3
Condensed Consolidated Balance Sheets March 31, 2023 (unaudited) and December 31, 2022			3
Condensed Consolidated Statements of Operations (unaudited) For the Three Months ended March 31, 2023 and 2022			4
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) For the Three Months ended March 31, 2023 and 2022			5
Condensed Consolidated Statements of Equity (unaudited) For the Three Months ended March 31, 2023 and 2022			6
Condensed Consolidated Statements of Cash Flows (unaudited) For the Three Months ended March 31, 2023 and 2022			7
Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33

Part II. Other Information
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 4. Mine Safety Disclosures			34
Item 5. Other Information			34
Item 6. Exhibits			35
Signatures			36


	(in thousands, except per share data)
	March 31, 2023		December 31, 2022
ASSETS	(Unaudited)		(Audited)
Real estate investments
Property owned	$	2,420,911	$	2,534,124
Less accumulated depreciation	(519,167)		(535,401)



Total real estate investments	1,901,744		1,998,723
Cash and cash equivalents	8,939		10,458
Restricted cash	48,903		1,433
Other assets	19,298		22,687
TOTAL ASSETS	$	1,978,884	$	2,033,301
LIABILITIES, MEZZANINE EQUITY, AND EQUITY
LIABILITIES
Accounts payable and accrued expenses	$	56,639	$	58,812
Revolving lines of credit	143,469		113,500

Notes payable, net of unamortized loan costs of $588 and $993, respectively	299,412		399,007
Mortgages payable, net of unamortized loan costs of $3,750 and $3,615, respectively	474,999		495,126
TOTAL LIABILITIES	$	974,519	$	1,066,445
COMMITMENTS AND CONTINGENCIES (NOTE 10)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at March 31, 2023 and December 31, 2022, aggregate liquidation preference of $16,560)	$	16,560	$	16,560
EQUITY
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,881 shares issued and outstanding at March 31, 2023 and December 31, 2022, aggregate liquidation preference of $97,036)	93,530		93,530
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,032 shares issued and outstanding at March 31, 2023 and 15,020 shares issued and outstanding at December 31, 2022)	1,176,059		1,177,484
Accumulated distributions in excess of net income	(508,420)		(539,422)
Accumulated other comprehensive income (loss)	(1,917)		(2,055)
Total shareholders’ equity	$	759,252	$	729,537
Noncontrolling interests – Operating Partnership and Series E preferred units	227,920		220,132
Noncontrolling interests – consolidated real estate entities	633		627
TOTAL EQUITY	$	987,805	$	950,296
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY	$	1,978,884	$	2,033,301


	(in thousands, except per share data)
	Three Months Ended March 31,
	2023		2022
REVENUE	$	67,897	$	60,314
EXPENSES
Property operating expenses, excluding real estate taxes	21,342		19,014
Real estate taxes	7,581		6,859
Property management expense	2,568		2,253
Casualty (gain) loss	252		598
Depreciation and amortization	25,993		31,001

General and administrative expenses	7,723		4,500

TOTAL EXPENSES	$	65,459	$	64,225
Gain (loss) on sale of real estate and other investments	60,159		—
Operating income (loss)	62,597		(3,911)
Interest expense	(10,319)		(7,715)

Interest and other income (loss)	49		1,063
NET INCOME (LOSS)	$	52,327	$	(10,563)
Dividends to Series D preferred unitholders	(160)		(160)
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units	(8,566)		2,157
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(30)		(23)
Net income (loss) attributable to controlling interests	43,571		(8,589)
Dividends to preferred shareholders	(1,607)		(1,607)

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	41,964	$	(10,196)




NET INCOME (LOSS) PER COMMON SHARE – BASIC	$	2.79	$	(0.68)




NET INCOME (LOSS) PER COMMON SHARE – DILUTED	$	2.76	$	(0.68)


	(in thousands)
	Three Months Ended March 31,
	2023		2022
Net income (loss)	$	52,327	$	(10,563)
Other comprehensive income (loss):
Unrealized gain (loss) from derivative instrument	—		1,581
(Gain) loss on derivative instrument reclassified into earnings	138		304
Total comprehensive income (loss)	$	52,465	$	(8,678)
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units	(8,543)		2,480
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(30)		(23)
Comprehensive income (loss) attributable to controlling interests	$	43,892	$	(6,221)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	(in thousands, except per share data)
Three Months Ended March 31, 2022	PREFERRED SHARES		NUMBER OF COMMON SHARES	COMMON SHARES		ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		NONCONTROLLING INTERESTS		TOTAL EQUITY
Balance at December 31, 2021	$	93,530	15,016	$	1,157,255	$	(474,318)	$	(4,435)	$	224,248	$	996,280
Net income (loss) attributable to controlling interests and noncontrolling interests						(8,589)				(2,134)		(10,723)
Change in fair value of derivatives and amortization of swap settlements								1,885				1,885
Distributions - common shares and Units ($0.73 per share and Unit)						(11,218)				(728)		(11,946)
Distributions – Series C preferred shares ($0.414063 per Series C share)						(1,607)						(1,607)
Distributions - Series E preferred units ($0.96875 per unit)										(1,757)		(1,757)
Share-based compensation, net of forfeitures			19	719								719
Sale of common shares, net			321	31,684								31,684

Issuance of Units				13,023						9,859		22,882
Redemption of Units for common shares			10	(388)						388		—
Redemption of units for cash										(2,903)		(2,903)


Change in redemption value of Series D preferred units				2,919								2,919

Shares withheld for taxes				(1,274)								(1,274)

Other			—	(253)						—		(253)
Balance at March 31, 2022	$	93,530	15,366	$	1,203,685	$	(495,732)	$	(2,550)	$	226,973	$	1,025,906

Three Months Ended March 31, 2023
Balance at December 31, 2022	$	93,530	15,020	$	1,177,484	$	(539,422)	$	(2,055)	$	220,759	$	950,296
Net income (loss) attributable to controlling interests and noncontrolling interests						43,571				8,596		52,167
Amortization of swap settlements								138				138
Distributions - common shares and Units ($0.73 per share and unit)						(10,962)				(706)		(11,668)
Distributions – Series C preferred shares ($0.4140630 per Series C share)						(1,607)						(1,607)
Distributions - Series E preferred units ($0.96875 per unit)										(1,704)		(1,704)
Share-based compensation, net of forfeitures			12	1,519								1,519



Redemption of Units for common shares			4	(697)						697		—

Redemption of Series E preferred units for common shares			16	(935)						935		—
Shares repurchased	—		(19)	(1,022)		—						(1,022)


Shares withheld for taxes				(161)								(161)
Other			(1)	(129)						(24)		(153)
Balance at March 31, 2023	$	93,530	15,032	$	1,176,059	$	(508,420)	$	(1,917)	$	228,553	$	987,805


SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures	$	3,804	$	2,596
Operating partnership units converted to shares	(697)		(388)
Distributions declared but not paid to common shareholders	11,668		11,946


Series E preferred units converted to common shares	(935)		—
Retirement of shares withheld for taxes	161		1,274
Real estate assets acquired through assumption of debt	—		41,623
Fair value adjustment to debt	—		1,224
Real estate assets acquired through exchange of note receivable	—		43,276
Note receivable exchanged through real estate acquisition	—		(43,276)
Real estate assets acquired through issuance of operating partnership units	—		22,882


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	6,168	$	7,182


	(in thousands)
Balance sheet description	March 31, 2023		December 31, 2022		March 31, 2022
Cash and cash equivalents	$	8,939	$	10,458	$	13,313
Restricted cash	48,903		1,433		2,409
Total cash, cash equivalents and restricted cash	$	57,842	$	11,891	$	15,722


Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU 2022-06, Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848	This ASU extends the sunset date of Reference Rate Reform (Topic 848): Facilitation of Reference Rate Reform to December 31, 2024.	This ASU is effective immediately for all companies.	The ASU will not have a material impact on the Condensed Consolidated Financial Statements.


	(in thousands)
2023 (remainder)	$	2,281
2024	2,999
2025	2,953
2026	2,350
2027	1,265
Thereafter	5,760
Total scheduled lease income - commercial operating leases	$	17,608


		(in thousands)
		Three Months Ended March 31,
Revenue Stream	Applicable Standard	2023		2022
Fixed lease income - operating leases	Leases	$	63,265	$	56,673
Variable lease income - operating leases	Leases	3,500		2,523
Other property revenue	Revenue from contracts with customers	1,132		1,118
Total revenue		$	67,897	$	60,314


	(in thousands)
Three Months Ended March 31,	Number of Units	Net Book Basis
2023	4	$	(697)
2022	10	$	(388)


	(in thousands, except per Unit data)
Three Months Ended March 31,	Number of Units	Aggregate Cost		Average Price Per Unit
2023	—	$	—	$	—
2022	31	$	2,903	$	93.14


	(in thousands)
	March 31, 2023				December 31, 2022
	Carrying Amount		Weighted Average Interest Rate		Carrying Amount		Weighted Average Interest Rate		Weighted Average Maturity in Years at March 31, 2023
Lines of credit (1)	$	143,469	6.39	%	$	113,500	4.12	%	2.00
Term loans	—		—		100,000		5.57	%	—
Unsecured senior notes (2)(5)	300,000		3.12	%	300,000		3.12	%	8.01
Unsecured debt	443,469				513,500				6.51
Mortgages payable - Fannie Mae credit facility (5)	198,850		2.78	%	198,850		2.78	%	7.99
Mortgages payable - other (3)(5)	279,340		3.85	%	299,427		3.85	%	5.09
Total debt (4)	$	921,659	3.71	%	$	1,011,777	3.62	%	6.06


	(in thousands)
	Amount		Maturity Date	Interest Rate
Series A	$	75,000	September 13, 2029	3.84	%
Series B	$	50,000	September 30, 2028	3.69	%
Series C	$	50,000	June 6, 2030	2.70	%
Series 2021-A	$	35,000	September 17, 2030	2.50	%
Series 2021-B	$	50,000	September 17, 2031	2.62	%
Series 2021-C	$	25,000	September 17, 2032	2.68	%
Series 2021-D	$	15,000	September 17, 2034	2.78	%


	Date Acquired	(in thousands)
		Total Acquisition Cost(1)		Form of Consideration						Investment Allocation
Acquisitions				Cash		Units(2)		Other(3)		Land		Building		Intangible Assets(4)		Other(5)

191 homes - Martin Blu - Minneapolis, MN	January 4, 2022	$	49,825	$	3,031	$	18,885	$	27,909	$	3,547	$	45,212	$	1,813	$	(747)
31 homes - Elements - Minneapolis, MN	January 4, 2022	9,066		1,290		1,748		6,028		941		7,853		335		(63)
45 homes - Zest - Minneapolis, MN	January 4, 2022	11,364		1,429		2,249		7,686		936		10,261		574		(407)
130 homes - Noko Apartments - Minneapolis, MN	January 26, 2022	46,619		3,343		—		43,276		1,915		42,754		1,950		—


Total Acquisitions		$	116,874	$	9,093	$	22,882	$	84,899	$	7,339	$	106,080	$	4,672	$	(1,217)


		(in thousands)
Dispositions	Date Disposed	Sale Price		Book Value and Sales Cost		Gain/(Loss)
115 homes - Boulder Court - Eagan, MN	March 8, 2023	$	14,605	$	4,970	$	9,635
498 homes - 2 Nebraska apartment communities	March 14, 2023	$	48,500	$	14,975	$	33,525
892 homes - 5 Minnesota apartment communities	March 15, 2023	$	74,500	$	55,053	$	19,447
62 homes - Portage - Minneapolis, MN	March 15, 2023	$	6,650	$	9,098	$	(2,448)

Total Dispositions		$	144,255	$	84,096	$	60,159


	(in thousands, except per share amounts)
Three Months Ended March 31,	Number of Common Shares	Net Consideration(1)		Average Net Price Per Share
2023	—	$	—	$	—
2022	321	$	31,732	$	98.89


	(in thousands)
2023 (remainder)	$	25,995
2024	8,981
2025	173,350
2026	50,088
2027	47,088
Thereafter	616,157
Total payments	$	921,659


	(in thousands)
	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Gain (Loss) Reclassified from Accumulated OCI into Income (Loss)
Three months ended March 31,	2023		2022			2023		2022
Total derivatives in cash flow hedging relationships - Interest rate contracts	$	—	$	1,581	Interest expense	$	(138)	$	(304)


		(in thousands)
	Balance Sheet Location	Total		Level 1	Level 2	Level 3
March 31, 2023
Assets
Notes receivable	Other assets	$	5,661	—	—	$	5,661



December 31, 2022
Assets
Notes receivable	Other assets	$	5,871	—	—	$	5,871


	(in thousands)
	Fair Value Measurement		Other Gains (Losses)		Interest Income		Total Changes in Fair Value Included in Current-Period Earnings
Three months ended March 31, 2023
Notes receivable	$	5,661	$	5	$	67	$	72
Three months ended March 31, 2022
Notes receivable	$	6,068	$	4	$	460	$	464


	(in thousands)
Three Months Ended March 31, 2023	Multifamily		All Other		Total
Revenue	$	62,498	$	5,399	$	67,897
Property operating expenses, including real estate taxes	25,903		3,020		28,923
Net operating income	$	36,595	$	2,379	$	38,974
Property management					(2,568)
Casualty gain (loss)					(252)
Depreciation and amortization					(25,993)
General and administrative expenses					(7,723)
Gain (loss) on sale of real estate and other investments					60,159
Interest expense					(10,319)

Interest and other income					49


Net income (loss)					$	52,327


	(in thousands)
As of March 31, 2023	Multifamily		All Other		Total
Segment assets
Property owned	$	2,394,065	$	26,846	$	2,420,911
Less accumulated depreciation	(510,716)		(8,451)		(519,167)
Total property owned	$	1,883,349	$	18,395	$	1,901,744


Cash and cash equivalents					8,939
Restricted cash					48,903
Other assets					19,298
Total Assets					$	1,978,884


	(in thousands)
As of December 31, 2022	Multifamily		All Other		Total
Segment assets
Property owned	$	2,385,351	$	148,773	$	2,534,124
Less accumulated depreciation	(487,129)		(48,272)		(535,401)
Total property owned	$	1,898,222	$	100,501	$	1,998,723


Cash and cash equivalents					10,458
Restricted cash					1,433
Other assets					22,687
Total Assets					$	2,033,301


	2023
Exercise price	$	58.67
Risk-free rate	3.97		%
Expected term	6.25 years
Expected volatility	28.7		%
Dividend yield	4.977		%


	(in thousands, except percentages)
	Three Months Ended March 31,
	2023		2022		$ Change		% Change
Operating income (loss)	$	62,597	$	(3,911)	$	66,508	(1,700.5)	%
Adjustments:
Property management expenses	2,568		2,253		315		14.0	%
Casualty (gain) loss	252		598		(346)		(57.9)	%
Depreciation and amortization	25,993		31,001		(5,008)		(16.2)	%

General and administrative expenses	7,723		4,500		3,223		71.6	%
(Gain) loss on sale of real estate and other investments	(60,159)		—		(60,159)		N/A
Net operating income	$	38,974	$	34,441	$	4,533	13.2	%


	Three Months Ended March 31,
Weighted Average Occupancy(1)	2023		2022
Same-store	94.8	%	94.1	%
Non-same-store	95.9	%	91.5	%
Total	94.9	%	94.0	%


Number of Apartment Homes	March 31, 2023	March 31, 2022
Same-store	12,885	12,885
Non-same-store	612	397
Total	13,497	13,282


	(in thousands, except per share and unit amounts)
	Three Months Ended March 31,
	2023		2022
Net income (loss) available to common shareholders	$	41,964	$	(10,196)
Adjustments:
Noncontrolling interests – Operating Partnership and Series E preferred units	8,566		(2,157)

Depreciation and amortization	25,993		31,001
Less depreciation – non real estate	(91)		(101)
Less depreciation – partially owned entities	(19)		(21)

(Gain) loss on sale of real estate and other investments	(60,159)		—
FFO applicable to common shares and Units	$	16,254	$	18,526

Adjustments to Core FFO:
Non-cash casualty (gain) loss	13		25

Technology implementation costs(1)	—		103

Interest rate swap termination, amortization, and mark-to-market	138		(613)
Amortization of assumed debt	(116)		(115)
Pursuit costs	5		—
Severance and transition related costs	3,199		—
Other miscellaneous items(2)	49		(4)
Core FFO applicable to common shares and Units	$	19,542	$	17,922

FFO applicable to common shares and Units	$	16,254	$	18,526
Dividends to preferred unitholders	160		160
FFO applicable to common shares and Units - diluted	$	16,414	$	18,686

Core FFO applicable to common shares and Units	$	19,542	$	17,922
Dividends to preferred unitholders	160		160
Core FFO applicable to common shares and Units - diluted	$	19,702	$	18,082

Per Share Data
Net income (loss) per common share - diluted	$	2.76	$	(0.68)
FFO per share and Unit - diluted	$	0.89	$	1.01
Core FFO per share and Unit - diluted	$	1.07	$	0.98

Weighted average shares - basic	15,025		15,097
Effect of redeemable operating partnership Units	968		965
Effect of Series D preferred units	228		228
Effect of Series E preferred units	2,118		2,186
Effect of dilutive restricted stock units and stock options	20		66
Weighted average shares and Units - diluted	18,359		18,542


					Maximum Dollar
				Total Number of Shares	Amount of Shares That
	Total Number of	Average Price		Purchased as Part of	May Yet Be Purchased
	Shares and Units	Paid per		Publicly Announced	Under the Plans or
Period	Purchased(1)	Share and Unit(2)		Plans or Programs	Programs(3)
January 1 - 31, 2023	—	$	—	—	$	20,949,598
February 1 - 28, 2023	—	—		—	20,949,598
March 1 - 31, 2023	19,464	52.51		19,464	19,928,020
Total	19,464	$	52.51	19,464


Exhibit No.			Description
3.1			Articles of Amendment and Third Restated Declaration of Trust of Investors Real Estate Trust adopted on September 23, 2003, as amended on September 18, 2007 (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the Commission on June 30, 2014).
3.2			Seventh Restated Trustee’s Regulations (Bylaws) of Investors Real Estate Trust, adopted on April 27, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 1, 2020).
3.3			Articles Supplementary to the Company’s Articles of Amendment and Third Restated Declaration of Trust designating the Company’s 6.625% Series C Cumulative Redeemable Preferred Shares, no par value per share (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 8-A filed with the SEC on September 28, 2017).
10.1			Employment Agreement, effective March 31, 2023, by and between the Company and Anne Olson (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on March 23, 2023).
10.2			Form of Change in Control Severance Agreement (incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on March 23, 2023).
10.3			Separation Agreement, effective as of March 31, 2023, by and between the Company and Mark Decker, Jr. (incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Commission on March 23, 2023).
31.1*			Section 302 Certification of Chief Executive Officer
31.2*			Section 302 Certification of Executive Vice President and Chief Financial Officer
32.1*			Section 906 Certifications of Chief Executive Officer
32.2*			Section 906 Certifications of Executive Vice President and Chief Financial Officer
101 INS**			INSTANCE DOCUMENT
101 SCH**			SCHEMA DOCUMENT
101 CAL**			CALCULATION LINKBASE DOCUMENT
101 LAB**			LABELS LINKBASE DOCUMENT
101 PRE**			PRESENTATION LINKBASE DOCUMENT
101 DEF**			DEFINITION LINKBASE DOCUMENT
104**			COVER PAGE INTERACTIVE DATA FILE - THE COVER PAGE XBRL TAGS ARE EMBEDDED WITHIN THE INLINE XBRL DOCUMENT


/s/ Anne Olson
Anne Olson
President and Chief Executive Officer

/s/ Bhairav Patel
Bhairav Patel
Executive Vice President and Chief Financial Officer

Date: May 1, 2023


1			I have reviewed this quarterly report on Form 10-Q of Centerspace;


2			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4			The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: