Centerspace 10-Q for FY2024 Q3
Centerspace (CSR)
10-Q
2024-10-28
For: 2024-09-30
View Original
Added on
April 04, 2026
About this 10-Q
Centerspace filed this 10-Q on October 28, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $65.03M
- up 0.7% from $64.57M a year earlier
- Net loss
- $1.05M
- compared with net income of $7.77M a year earlier
- Diluted EPS
- -$0.40
- compared with $0.41 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ____________ to ____________
Commission File Number 001-35624
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip code) | |||||||||||||
(701 ) 837-4738
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.
| ☑ | No | ☐ | ||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| ☑ | No | ☐ | ||||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |||||||||||||
| Smaller Reporting Company | Emerging growth company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | ☐ | No | ||||||||||||
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
The number of common shares of beneficial interest outstanding as of October 21, 2024, was 16,571,975 .
TABLE OF CONTENTS
| Page | |||||
2
PART I
Item 1. Financial Statements.
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share data) | |||||||||||
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| Real estate investments | |||||||||||
| Property owned | $ | $ | |||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total real estate investments | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES, MEZZANINE EQUITY, AND EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Revolving lines of credit | |||||||||||
Notes payable, net | |||||||||||
Mortgages payable, net | |||||||||||
| TOTAL LIABILITIES | $ | $ | |||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 10) | |||||||||||
SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ | $ | $ | |||||||||
| EQUITY | |||||||||||
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ | |||||||||||
Common Shares of Beneficial Interest (Unlimited authorization, no par value, | |||||||||||
| Accumulated distributions in excess of net income | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | $ | $ | |||||||||
| Noncontrolling interests – Operating Partnership and Series E preferred units | |||||||||||
| Noncontrolling interests – consolidated real estate entities | |||||||||||
| TOTAL EQUITY | $ | $ | |||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
| (in thousands, except per share data) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| REVENUE | $ | $ | $ | $ | |||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Property operating expenses, excluding real estate taxes | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Property management expense | |||||||||||||||||||||||
Casualty (gain) loss | ( | ||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| TOTAL EXPENSES | $ | $ | $ | $ | |||||||||||||||||||
Gain (loss) on sale of real estate and other investments | ( | ||||||||||||||||||||||
| Loss on litigation settlement | ( | ||||||||||||||||||||||
Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Interest and other income | |||||||||||||||||||||||
NET INCOME (LOSS) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Dividends to Series D preferred unitholders | ( | ( | ( | ( | |||||||||||||||||||
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | ( | ( | |||||||||||||||||||||
Net income attributable to noncontrolling interests – consolidated real estate entities | ( | ( | ( | ( | |||||||||||||||||||
Net income (loss) attributable to controlling interests | ( | ( | |||||||||||||||||||||
| Dividends to preferred shareholders | ( | ( | ( | ( | |||||||||||||||||||
| Redemption of preferred shares | ( | ( | |||||||||||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | ( | $ | $ | ( | $ | |||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE – BASIC | $ | ( | $ | $ | ( | $ | |||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE – DILUTED | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted average shares - basic | |||||||||||||||||||||||
| Weighted average shares - diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
| (in thousands) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Loss on derivative instrument reclassified into earnings | |||||||||||||||||||||||
Total comprehensive income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | ( | ( | |||||||||||||||||||||
Net income attributable to noncontrolling interests – consolidated real estate entities | ( | ( | ( | ( | |||||||||||||||||||
Comprehensive income (loss) attributable to controlling interests | $ | ( | $ | $ | ( | $ | |||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)
| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | PREFERRED SHARES | NUMBER OF COMMON SHARES | COMMON SHARES | ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME (LOSS) | ACCUMULATED OTHER COMPREHENSIVE LOSS | NONCONTROLLING INTERESTS | TOTAL EQUITY | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
Net income attributable to controlling interests and noncontrolling interests | ||||||||||||||||||||||||||||||||||||||
| Amortization of swap settlements | ||||||||||||||||||||||||||||||||||||||
Distributions - common shares and Units ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Distributions - Series C preferred shares ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
Distributions - Series E preferred units ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | ||||||||||||||||||||||||||||||||||||||
| Redemption of Units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Redemption of Series E preferred units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Shares repurchased | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
Net loss attributable to controlling interests and noncontrolling interests | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Amortization of swap settlements | ||||||||||||||||||||||||||||||||||||||
Distributions - common shares and Units ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Distributions - Series C preferred shares ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
Distributions - Series E preferred units ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | ||||||||||||||||||||||||||||||||||||||
| Sale of common shares, net | ||||||||||||||||||||||||||||||||||||||
| Redemption of Units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Redemption of Series E preferred units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Shares repurchased | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||
| Shares withheld for taxes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)
| (in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | PREFERRED SHARES | NUMBER OF COMMON SHARES | COMMON SHARES | ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME (LOSS) | ACCUMULATED OTHER COMPREHENSIVE LOSS | NONCONTROLLING INTERESTS | TOTAL EQUITY | |||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
Net income attributable to controlling interests and noncontrolling interests | ||||||||||||||||||||||||||||||||||||||
| Amortization of swap settlements | ||||||||||||||||||||||||||||||||||||||
Distributions - common shares and Units ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Distributions - Series C preferred shares ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
Distributions - Series E preferred units ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | — | |||||||||||||||||||||||||||||||||||||
| Redemption of Units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Redemption of Series E preferred units from common shares | ( | |||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
Net loss attributable to controlling interests and noncontrolling interests | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Amortization of swap settlements | ||||||||||||||||||||||||||||||||||||||
Distributions - common shares and Units ($ | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Distributions - Series C preferred shares ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
Distributions - Series E preferred units ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | ||||||||||||||||||||||||||||||||||||||
| Sale of common shares, net | ||||||||||||||||||||||||||||||||||||||
| Redemption of Units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Redemption of Series E preferred units for common shares | ( | |||||||||||||||||||||||||||||||||||||
| Shares repurchased | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| (in thousands) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income (loss) | $ | ( | $ | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization, including amortization of capitalized loan costs | |||||||||||
(Gain) loss on sale of real estate and other investments | ( | ||||||||||
| Loss on litigation settlement | |||||||||||
| Share-based compensation expense | |||||||||||
Loss on interest rate swap settlement amortization | |||||||||||
| Casualty loss write off | |||||||||||
| Other, net | |||||||||||
| Changes in other assets and liabilities: | |||||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued expenses | |||||||||||
Net cash provided by operating activities | $ | $ | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Proceeds from repayment of mortgage loans and notes receivable | |||||||||||
| Increase in mortgages and real estate related notes receivable | ( | ||||||||||
Net proceeds from sale of real estate and other investments | |||||||||||
| Proceeds from insurance | |||||||||||
| Payments for improvements of real estate investments | ( | ( | |||||||||
| Other investing activities | ( | ( | |||||||||
Net cash provided by (used by) investing activities | $ | ( | $ | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from mortgages payable | |||||||||||
| Principal payments on mortgages payable | ( | ( | |||||||||
| Proceeds from revolving lines of credit | |||||||||||
| Principal payments on revolving lines of credit | ( | ( | |||||||||
| Principal payments on notes payable | ( | ||||||||||
| Net proceeds from issuance of common shares | |||||||||||
| Repurchase of common shares | ( | ( | |||||||||
| Redemption of Series C preferred shares | ( | ||||||||||
| Distributions paid to common shareholders | ( | ( | |||||||||
| Distributions paid to preferred shareholders | ( | ( | |||||||||
| Distributions paid to Series D preferred unitholders | ( | ( | |||||||||
| Distributions paid to noncontrolling interests – Operating Partnership and Series E preferred units | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
Net cash used by financing activities | $ | ( | $ | ( | |||||||
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Accrued capital expenditures | $ | $ | |||||||||
| Operating partnership units converted to common shares | ( | ( | |||||||||
| Distributions declared but not paid to common shareholders | |||||||||||
| Series E preferred units converted to common shares | ( | ( | |||||||||
| Retirement of shares withheld for taxes | |||||||||||
| Loss on litigation settlement | |||||||||||
| Involuntary conversion of assets | ( | ( | |||||||||
| Non-cash interest income | |||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
8
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| (in thousands) | |||||||||||||||||
| Balance sheet description | September 30, 2024 | December 31, 2023 | September 30, 2023 | ||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Restricted cash | |||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | $ | ||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
9
CENTERSPACE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2024
NOTE 1 • ORGANIZATION
NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP, a North Dakota limited partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities. The accompanying Condensed Consolidated Financial Statements include the Company’s accounts and the accounts of all its subsidiaries in which it maintains a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.
The Condensed Consolidated Financial Statements also reflect the Operating Partnership’s ownership of a joint venture entity in which the Operating Partnership has a general partner or controlling interest. This entity is consolidated into the Company’s operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Centerspace’s unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial position, results of operations, and cash flows for the interim periods, have been included.
The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim Condensed Consolidated Financial Statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 20, 2024.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents include all cash and highly liquid investments purchased with maturities of three months or less. Cash and cash equivalents consist of bank deposits and deposits in a money market mutual fund. The Company is potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed
10
federally insured limits. Although past bank failures have increased the risk of loss in such accounts, the Company has not experienced any losses in such accounts.
As of September 30, 2024 and December 31, 2023, restricted cash consisted of $2.8 million and $639,000 , respectively, for real estate deposits and escrows held by lenders. Escrows include funds deposited with a lender for payment of real estate taxes and insurance and reserves to be used for replacement of structural elements and mechanical equipment at certain communities. The funds are under the control of the lender. Disbursements are made after supplying written documentation to the lender.
LEASES
As a lessor, Centerspace primarily leases multifamily apartment homes which qualify as operating leases with terms that are generally one year or less. Rental revenues are recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 842, Leases, using a method that represents a straight-line basis over the term of the lease. For the three months ended September 30, 2024 and 2023, rental income represented approximately 98.1 % and 97.9 % of total revenues, respectively, and included gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt. For the three months ended September 30, 2024 and 2023, other property revenues represented the remaining 1.9 % and 2.1 % of total revenues, respectively, and were primarily driven by other fee income, which is typically recognized when earned, at a point in time. For the nine months ended September 30, 2024 and 2023, rental income represented approximately 98.2 % and 98.1 % of total revenues, respectively. For the nine months ended September 30, 2024 and 2023, other property revenues represented the remaining 1.8 % and 1.9 % of total revenues, respectively.
Some of the Company’s apartment communities have commercial spaces available for lease. Lease terms for these spaces typically range from to fifteen years . The leases for commercial spaces generally include options to extend the lease for additional terms.
The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of September 30, 2024, was as follows:
| (in thousands) | ||||||||
2024 (remainder) | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total scheduled lease income - commercial operating leases | $ | |||||||
REVENUES AND GAINS ON SALE OF REAL ESTATE
Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the Company expects to be entitled for those goods and services.
Revenue streams that are included in revenues from contracts with customers include other property revenues such as application fees and other miscellaneous items. Centerspace recognizes revenue, for rental related items not included as a component of a lease, as earned.
The following table presents the disaggregation of revenue streams for the three and nine months ended September 30, 2024 and 2023:
| (in thousands) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Revenue Stream | Applicable Standard | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||
| Fixed lease income - operating leases | Leases | $ | $ | $ | $ | ||||||||||||||||||
| Variable lease income - operating leases | Leases | ||||||||||||||||||||||
| Other property revenue | Revenue from contracts with customers | ||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
11
IN-PLACE LEASE AMORTIZATION
MARKET CONCENTRATION RISK
The Company is subject to increased exposure from economic and other competitive factors specific to markets where it holds a significant percentage of the carrying value of its real estate portfolio. As of September 30, 2024, Centerspace held more than 10% of the carrying value of its real estate portfolio in each of the Minneapolis, Minnesota and Denver, Colorado markets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets, including real estate investments, for impairment indicators at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns. If indicators exist, the Company compares the estimated future undiscounted cash flows for the property against the carrying amount of that property. If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is generally recorded for the difference between the estimated fair value and the carrying amount. If the anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, the evaluation of impairment charges may be different and such differences could be material to the consolidated financial statements. The evaluation of estimated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decreases the likelihood of recording impairment losses.
During the three and nine months ended September 30, 2024 and 2023, the Company recorded no
VARIABLE INTEREST ENTITIES
Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are variable interest entities (each, a “VIE”), as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on the balance sheet because the Company has a controlling financial interest in the VIEs and has both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.
REAL ESTATE RELATED NOTES RECEIVABLE
The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $5.2 million and $5.7 million at September 30, 2024 and December 31, 2023, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets at fair value. The note bears an interest rate of 4.5 % with payments due in February and August of each year. The note matures February 1, 2039 and may be prepaid in whole or in part at any time.
12
In 2023, the Company originated a $15.1 million mezzanine loan for the development of an apartment community located in Inver Grove Heights, Minnesota. The mezzanine loan bears interest at 10.0 % per annum. As of September 30, 2024 and December 31, 2023, the Company had funded $15.1 million and $1.6 million of the mezzanine loan, respectively. The loan matures in December 2027 unless extended to December 2028 in accordance with the terms of the mezzanine loan agreement. The loan is secured by a pledge of and first priority security interest against 100 % of the membership interests in the mezzanine borrower and the agreement provides the Company with an option to purchase the development at a discount to future appraised value. The loan represents an investment in an unconsolidated variable interest entity. The Company is not the primary beneficiary of the VIE as Centerspace does not have the power to direct the activities which most significantly impact the entity’s economic performance nor does Centerspace have significant influence over the entity. The note receivable appears within other assets in the Condensed Consolidated Balance Sheets at fair value.
ADVERTISING COSTS
SEVERANCE AND TRANSITION
On March 23, 2023, the Company entered into a Separation and General Release Agreement (the “Separation Agreement”) in connection with the departure of former CEO, Mark Decker, Jr. During the nine months ended September 30, 2023, the Company incurred total severance costs of $2.2 million for the cash severance and benefits for Mr. Decker, $737,000 in share-based compensation expense for the acceleration of certain equity awards, and $306,000 in other CEO transition related expenses.
INVOLUNTARY CONVERSION OF ASSETS
During the three and nine months ended September 30, 2024, Centerspace recorded a $981,000 2.1 million within other assets on the Condensed Consolidated Balance Sheets due to storm damage at one apartment community.
During the three months ended September 30, 2024, Centerspace also recognized casualty losses of $546,000 resulting from two new insurance events and updated loss estimates on six previously reported events. During the nine months ended September 30, 2024, Centerspace recognized $1.3 million in casualty losses from two new insurance events and updated loss estimates on six previously reported events, excluding the storm damage claim discussed above. Any business interruption insurance proceeds will be recognized when received in accordance with ASC 610-30.
NOTE 3 • NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period. Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on net income (loss) per share upon vesting of the RSUs, upon exercising of ISOs, or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units). The Company calculates diluted net income (loss) per share using the treasury stock method for RSUs and ISOs and the if converted method for Series D preferred units and Series E preferred units. Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock, or other contractual obligations requiring issuance of additional common shares that would result in a dilution of net income (loss). Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”). Upon the exercise of Exchange Rights, and in Centerspace’s sole discretion, it may issue common shares in exchange for Units on a one -for-one basis.
13
The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted net income (loss) per share reported in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2024 and 2023.
| (in thousands, except per share data) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| NUMERATOR | |||||||||||||||||||||||
Net income (loss) attributable to controlling interests | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Dividends to preferred shareholders | ( | ( | ( | ( | |||||||||||||||||||
| Redemption of preferred shares | ( | ( | |||||||||||||||||||||
Numerator for basic income (loss) per share – net income (loss) available to common shareholders | ( | ( | |||||||||||||||||||||
Noncontrolling interests – Operating Partnership and Series E preferred units (1) | |||||||||||||||||||||||
Dividends to Series D preferred unitholders (2) | |||||||||||||||||||||||
Numerator for diluted income (loss) per share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| DENOMINATOR | |||||||||||||||||||||||
| Denominator for basic income (loss) per share weighted average shares | |||||||||||||||||||||||
| Effect of redeemable operating partnership units | |||||||||||||||||||||||
| Effect of Series D preferred units | |||||||||||||||||||||||
| Effect of Series E preferred units | |||||||||||||||||||||||
| Effect of dilutive restricted stock units and stock options | |||||||||||||||||||||||
| Denominator for diluted income (loss) per share | |||||||||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE – BASIC | $ | ( | $ | $ | ( | $ | |||||||||||||||||
NET INCOME (LOSS) PER COMMON SHARE – DILUTED | $ | ( | $ | $ | ( | $ | |||||||||||||||||
(1)For the three and nine months ended September 30, 2024, the impact of Units and Series E preferred units was excluded from the calculation of net income (loss) per common share - diluted as they were anti-dilutive.
(2)For the three and nine months ended September 30, 2024 and the three months ended September 30, 2023, dividends to preferred unitholders are excluded from the calculation of net income (loss) per common share - diluted as they were anti-dilutive.
For the three months ended September 30, 2024, operating partnership units of 818,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.1 million, as converted, time-based RSUs and options of 49,000 , and performance-based RSUs of 41,000 were excluded from the calculation of diluted net income (loss) per share because they were anti-dilutive as including these items would have improved net loss per share.
For the three months ended September 30, 2023, Series D preferred units of 228,000 , as converted and performance-based RSUs of 26,000 were excluded from the calculation of diluted income (loss) per share because they were anti-dilutive as including these items would have improved net income per share.
For the nine months ended September 30, 2024, operating partnership units of 836,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.1 million, as converted, time-based RSUs and options of 32,000 , and performance-based RSUs of 41,000 were excluded from the calculation of diluted net income (loss) per share because they were anti-dilutive as including these items would have improved net loss per share.
For the nine months ended September 30, 2023, operating partnership units of 943,000 and performance-based RSUs of 26,000 were excluded from the calculation of diluted net income per share because they were anti-dilutive as including these items would have improved net income per share.
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NOTE 4 • EQUITY AND MEZZANINE EQUITY
Series D Preferred Units (Mezzanine Equity). Series D preferred units outstanding were 165,600 100 per preferred unit. The Series D preferred unit holders receive a preferred distribution at the rate of 3.862 % per year. The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issuance price. Each Series D preferred unit is convertible, at the holder’s option, into 1.37931 Units. The Series D preferred units have an aggregate liquidation value of $16.6 million. Changes in the redemption value are based on changes in the trading value of common shares and are charged to common shares on the Condensed Consolidated Balance Sheets each quarter. The holders of the Series D preferred units do not have voting rights. Distributions to Series D unitholders are presented in the Condensed Consolidated Statements of Equity within net income (loss) attributable to controlling interests and noncontrolling interests.
Series C Preferred Shares. On August 21, 2024, our Board of Trustees authorized the redemption of all of the Series C preferred shares. On August 30, 2024, we delivered notice to holders of the Series C preferred shares that we intended to redeem all 3.9 million Series C preferred shares at a redemption price equal to $25 per share plus any accrued but unpaid distributions per share up to and including the redemption date of September 30, 2024. On September 30, 2024, the Company completed the redemption of all the outstanding Series C preferred shares for an aggregate redemption price of $97.0 million, excluding distributions, which was $3.5 million in excess of the carrying value and is included in redemption of preferred shares on the Condense Consolidated Statement of Operations. Such shares were no longer outstanding as of September 30, 2024. Series C preferred shares outstanding were 3.9 million shares at December 31, 2023. The Series C preferred shares were nonvoting and redeemable for cash at $25 per share at Centerspace’s option. Holders of these shares were entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees). Distributions accrued at an annual rate of $1.65625 per share, which is equal to 6.625 % of the $25 per share liquidation preference.
Operating Partnership Units. The Operating Partnership had 809,000 and 861,000 outstanding Units at September 30, 2024 and December 31, 2023, respectively.
Exchange Rights. Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three and nine months ended September 30, 2024 and 2023 as detailed in the table below.
| (in thousands) | |||||||||||
| Three Months Ended September 30, | Number of Units | Net Book Basis | |||||||||
| 2024 | $ | ||||||||||
| 2023 | $ | ||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2024 | $ | ||||||||||
| 2023 | $ | ||||||||||
Series E Preferred Units (Noncontrolling Interests). Centerspace had 1.7 100 3.875 % per year. Each Series E preferred unit is convertible, at the holder’s option, into 1.2048 Units. Centerspace has the option, at its sole election, to convert Series E preferred units into Units if its stock has traded at or above $83 per share for 15 of 30 consecutive trading days and it has made at least three consecutive quarters of distributions with a rate of at least $0.804 per Unit. The Series E preferred units have an aggregate liquidation preference of $169.1 million as of September 30, 2024. The holders of the Series E preferred units do not have voting rights.
| (in thousands) | ||||||||||||||
| Number of Series E | Number of | Total | ||||||||||||
| Three Months Ended September 30, | Preferred Units Redeemed | Common Shares Issued | Value | |||||||||||
| 2024 | $ | |||||||||||||
| 2023 | $ | |||||||||||||
| Nine Months Ended September 30, | ||||||||||||||
| 2024 | $ | |||||||||||||
| 2023 | $ | |||||||||||||
Common Shares and Equity Awards. Common shares outstanding on September 30, 2024 and December 31, 2023, totaled 16.6 million and 15.0 million, respectively.
15
During the three and nine months ended September 30, 2024, Centerspace issued approximately 46 and 13,511 common shares, respectively, with a total grant-date fair value of $4,000 and $1.0 million, respectively, as share-based compensation for employees and trustees under its 2015 Incentive Plan. During the three and nine months ended September 30, 2023, Centerspace issued approximately 64 and 19,014 common shares, respectively, with a total grant-date fair value of $5,000 and $1.7 million, respectively, as share-based compensation for employees and trustees under its 2015 Incentive Plan. These shares vested based on performance and service criteria. Refer to Note 11 for additional details on share-based compensation.
Equity Distribution Agreement. On September 9, 2024 Centerspace amended its equity distribution agreement in connection with the at-the-market offering (“ATM Program”) through which it may offer and sell common shares in amounts and at times determined by management. The amendment increased the maximum aggregate offering price of common shares available for offer and sale thereunder from $250.0 million to $500.0 million. Under the ATM Program, the Company may enter into separate forward sale agreements. The proceeds from the sale of common shares under the ATM Program may be used for general corporate purposes, including the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. The table below provides details on the sale of common shares during the three and nine months ended September 30, 2024 under the ATM Program. There were no 262.9 million remained available under the ATM Program.
(in thousands, except per share amounts) | ||||||||||||||||||||
| Three Months Ended September 30, | Number of Common Shares | Net Consideration(1) | Average Net Price Per Share | |||||||||||||||||
| 2024 | $ | $ | ||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2024 | $ | $ | ||||||||||||||||||
(1)Includes 869,000 shares sold on a forward basis for $62.7 million which were physically settled during the three months ended September 30, 2024.
(2)Total consideration is net of $1.0 million and $1.1 million in commissions during the three and nine months ended September 30, 2024, respectively.
Share Repurchase Program. On March 10, 2022, the Board of Trustees approved a share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $50.0 million of the Company’s outstanding common shares. Under the Share Repurchase Program, the Company is authorized to repurchase common shares through open market purchases, privately-negotiated transactions, block trades or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors. There were no The table below provides details on the shares repurchased during the nine months ended September 30, 2024 and 2023. As of September 30, 2024, the Company had $4.7 million remaining authorized for purchase under this program.
| (in thousands, except per share amounts) | ||||||||||||||
| Nine Months Ended September 30, | Number of Common Shares | Aggregate Cost(1) | Average Price Per Share(1) | |||||||||||
| 2024 | $ | $ | ||||||||||||
| 2023 | $ | $ | ||||||||||||
(1)Amount includes commissions.
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NOTE 5 • DEBT
The following table summarizes the Company’s secured and unsecured debt at September 30, 2024 and December 31, 2023.
| (in thousands) | ||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Carrying Amount | Weighted Average Interest Rate | Carrying Amount | Weighted Average Interest Rate | Weighted Average Maturity in Years at September 30, 2024 | ||||||||||||||||
Lines of credit (1) | $ | % | $ | % | ||||||||||||||||
Unsecured senior notes (2)(4) | % | % | ||||||||||||||||||
| Unsecured debt | ||||||||||||||||||||
Mortgages payable - Fannie Mae credit facility (4) | % | % | ||||||||||||||||||
Mortgages payable - other (3)(4) | % | % | ||||||||||||||||||
| Secured debt | ||||||||||||||||||||
| Subtotal | % | % | ||||||||||||||||||
| Premiums and discounts, net | ( | ( | ||||||||||||||||||
| Deferred financing costs, net | ( | ( | ||||||||||||||||||
| Total debt | $ | $ | ||||||||||||||||||
(1)Interest rates on lines of credit are variable and exclude any unused facility fees and amounts reclassified from accumulated other comprehensive income (loss) into interest expense from terminated interest rate swaps.
(2)Included within notes payable on the Condensed Consolidated Balance Sheets.
(3)Represents apartment communities encumbered by mortgages; 14
(4)Interest rate is fixed.
As of September 30, 2024, 45 apartment communities were not encumbered by mortgages and were available to provide credit support for the unsecured borrowings. The Company’s primary unsecured credit facility (“Unsecured Credit Facility” or “Facility”) is a revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent. The line of credit has total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of September 30, 2024, there was $39.0 million outstanding on this line of credit. Therefore the additional borrowing availability was $211.0 million. On July 26, 2024, the Unsecured Credit Facility was amended to extend maturity and to modify the leverage-based margin ratios applicable to borrowings. As amended, this credit facility matures in July 2028, with an option to extend maturity for up to two additional six-month periods and has an accordion option to increase borrowing capacity up to $400.0 million.
The Secured Overnight Financing Rate (“SOFR”) is the benchmark alternative reference rate under the Facility. On July 26, 2024, the Unsecured Credit Facility was amended to extend the maturity of the facility to July 2028 and to modify the leverage-based margin rates applicable to borrowings. As amended, the interest rates on the line of credit are based on the consolidated leverage ratio, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 20 -80 basis points, or daily or term SOFR, plus a margin that ranges from 120 -180 basis points with the consolidated leverage ratio described under the Third Amended and Restated Credit Agreement, as amended. The Unsecured Credit Facility and unsecured senior notes are subject to customary financial covenants and limitations. The Company believes that it was in compliance with all such financial covenants and limitations as of September 30, 2024.
In September 2024, Centerspace entered into a line of credit agreement with borrowing capacity of up to $10.0 million and pricing based on SOFR. This operating line of credit terminates in September 2025 and is designed to enhance treasury management activities and more effectively manage cash balances. Centerspace had a $6.0 million operating line of credit with pricing based on SOFR that matured on August 31, 2024. As of September 30, 2024 and December 31, 2023, there was no
Centerspace had a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) under which the Company issued $175.0 million in unsecured senior promissory notes (“Unsecured Shelf Notes”). On October 28, 2024, the shelf agreement was amended to extend the period of time during which Centerspace may borrow money to October 2027 and to increase the borrowing capacity to $300.0 million. The Company also has a separate private note purchase agreement with PGIM and certain other lenders for the issuance of $125.0 million of senior unsecured promissory notes (“Unsecured Club Notes”, and, collectively with the Unsecured Shelf Notes, the “unsecured senior notes”), of which all $125.0 million was issued in September 2021. The following table shows the notes issued under both agreements as of September 30, 2024 and December 31, 2023.
17
| (in thousands) | |||||||||||||||||
| Amount | Maturity Date | Interest Rate | |||||||||||||||
| Series A | $ | September 13, 2029 | % | ||||||||||||||
| Series B | $ | September 30, 2028 | % | ||||||||||||||
| Series C | $ | June 6, 2030 | % | ||||||||||||||
| Series 2021-A | $ | September 17, 2030 | % | ||||||||||||||
| Series 2021-B | $ | September 17, 2031 | % | ||||||||||||||
| Series 2021-C | $ | September 17, 2032 | % | ||||||||||||||
| Series 2021-D | $ | September 17, 2034 | % | ||||||||||||||
Centerspace has a $198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”). The FMCF is secured by mortgages on 11 apartment communities. The notes are interest-only, with varying maturity dates of 7 , 10 , and 12 years, and a blended, weighted average interest rate of 2.78 %. As of September 30, 2024 and December 31, 2023, the FMCF had a balance of $198.9
As of September 30, 2024, Centerspace owned 14 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations. As of September 30, 2024, the Company believes that there were no material defaults or instances of material noncompliance in regard to any of these mortgage loans. As of September 30, 2024 and December 31, 2023, the mortgage loans had a balance of $387.3 million and $392.3 million, respectively, excluding unamortized premiums and discounts. The mortgage loans are included within mortgages payable on the Condensed Consolidated Balance Sheets.
The aggregate amount of required future principal payments on lines of credit, notes payable, and mortgages payable as of September 30, 2024, was as follows:
| (in thousands) | |||||
| 2024 (remainder) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
Total payments | |||||
| Premiums and discounts, net | ( | ||||
| Deferred financing costs, net | ( | ||||
Total | $ | ||||
NOTE 6 • DERIVATIVE INSTRUMENTS
Centerspace had, in the past, used interest rate derivatives to stabilize interest expense and to manage its exposure to interest rate fluctuations. To accomplish this objective, the Company primarily used interest rate swap contracts to fix variable interest rate debt.
Changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) (“OCI”) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) will be reclassified to interest expense in the periods in which interest payments are incurred on variable rate debt. During the next twelve months, the Company estimates an additional $578,000 will be reclassified as an increase to interest expense. As of September 30, 2024 and December 31, 2023 the Company had no
The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of September 30, 2024 and 2023.
18
| (in thousands) | |||||||||||||||||||||||||||||
| Gain Recognized in OCI | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Loss Reclassified from Accumulated OCI into Income (Loss) | |||||||||||||||||||||||||||
| Three months ended September 30, | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Total derivatives in cash flow hedging relationships - Interest rate contracts | $ | $ | Interest expense | $ | ( | $ | ( | ||||||||||||||||||||||
| Nine months ended September 30, | |||||||||||||||||||||||||||||
| Total derivatives in cash flow hedging relationships - Interest rate contracts | $ | $ | Interest expense | $ | ( | $ | ( | ||||||||||||||||||||||
NOTE 7 • FAIR VALUE MEASUREMENTS
Cash and cash equivalents, restricted cash, accounts payable, accrued expenses, and other liabilities are carried at amounts that reasonably approximate their fair value due to their short-term nature. For variable rate line of credit debt that re-prices frequently, fair values are based on carrying values.
In determining the fair value of other financial instruments, Centerspace applies FASB ASC 820, “Fair Value Measurement and Disclosures.” Fair value hierarchy under ASC 820 distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Levels 1 and 2) and the reporting entity’s own assumptions about market participant assumptions (Level 3). Fair value estimates may differ from the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities.
Fair Value Measurements on a Recurring Basis
| (in thousands) | ||||||||||||||||||||||||||
| Balance Sheet Location | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| September 30, 2024 | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Real estate related notes receivable | Other assets | $ | $ | |||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Real estate related notes receivable | Other assets | $ | $ | |||||||||||||||||||||||
Centerspace utilizes an income approach with Level 3 inputs based on expected future cash flows to value the notes receivable. The unobservable inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 5.00 % to 9.00 %), and instrument specific credit risk (range of 0.5 % to 1.0 %). Changes in the fair value of these receivables from period to period are reported in interest and other income on the Condensed Consolidated Statements of Operations.
| (in thousands) | |||||||||||||||||||||||
| Fair Value Measurement | Other Gains | Interest Income | Total Changes in Fair Value Included in Current-Period Earnings | ||||||||||||||||||||
| Nine months ended September 30, 2024 | |||||||||||||||||||||||
| Real estate related notes receivable | $ | $ | $ | $ | |||||||||||||||||||
| Nine months ended September 30, 2023 | |||||||||||||||||||||||
| Real estate related notes receivable | $ | $ | $ | $ | |||||||||||||||||||
As of September 30, 2024 and December 31, 2023, Centerspace had investments totaling $2.2 million and $2.1 million, respectively, in real estate technology venture funds consisting of privately held entities that develop technology related to the real estate industry. These investments appear within other assets on our Condensed Consolidated Balance Sheets. The investments are measured at net asset value (“NAV”) as a practical expedient under ASC 820. As of September 30, 2024, the Company had further unfunded commitments of $950,000 .
19
Fair Value Measurements on a Nonrecurring Basis
There were no Non-financial assets measured at fair value on a nonrecurring basis at December 31, 2023 consisted of real estate investments that were written-down to estimated fair value during the year ended December 31, 2023.
| (in thousands) | ||||||||||||||||||||||||||
| Balance Sheet Location | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Real estate investments measured at fair value | Property owned | $ | $ | $ | $ | |||||||||||||||||||||
As of December 31, 2023, the Company estimated the fair value of real estate investments using market offers to purchase and other market data.
Financial Assets and Liabilities Not Measured at Fair Value
The fair value of unsecured senior notes and mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates, excluding any prepayment penalties (Level 3).
The estimated fair values of the Company’s financial instruments as of September 30, 2024 and December 31, 2023, respectively, are as follows:
| (in thousands) | ||||||||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Balance Sheet Location | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||
| FINANCIAL ASSETS | ||||||||||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||||
| Restricted cash | Restricted cash | $ | $ | $ | $ | |||||||||||||||||||||
| FINANCIAL LIABILITIES | ||||||||||||||||||||||||||
| Revolving lines of credit | Revolving lines of credit | $ | $ | $ | $ | |||||||||||||||||||||
| Unsecured senior notes | Notes payable | $ | $ | $ | $ | |||||||||||||||||||||
| Mortgages payable - Fannie Mae credit facility | Mortgages payable | $ | $ | $ | $ | |||||||||||||||||||||
| Mortgages payable - other | Mortgages payable | $ | $ | $ | $ | |||||||||||||||||||||
NOTE 8 • ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Centerspace did not
DISPOSITIONS
Centerspace did not dispose of any real estate during the three months ended September 30, 2024. During the three months ended September 30, 2023, Centerspace disposed of four apartment communities and associated commercial space, in one transaction for an aggregate sales price of $82.5 million. During the nine months ended September 30, 2024, Centerspace disposed of two apartment communities in two exchange transactions for an aggregate sales price of $19.0 million. During the nine months ended September 30, 2023, Centerspace disposed of 13 apartment communities and associated commercial space, in five transactions for an aggregate sales price of $226.8 million. The dispositions for the nine months ended September 30, 2024 and 2023 are detailed below.
Nine Months Ended September 30, 2024
| (in thousands) | |||||||||||||||||||||||
| Dispositions | Date Disposed | Sale Price | Net Book Value and Transaction Costs | Gain/(Loss) | |||||||||||||||||||
| February 29, 2024 | $ | $ | $ | ( | |||||||||||||||||||
| February 29, 2024 | $ | $ | $ | ( | |||||||||||||||||||
| Total Dispositions | $ | $ | $ | ( | |||||||||||||||||||
20
Nine Months Ended September 30, 2023
| (in thousands) | |||||||||||||||||||||||
| Dispositions | Date Disposed | Sale Price | Net Book Value and Transaction Costs | Gain/(Loss) | |||||||||||||||||||
| March 8, 2023 | $ | $ | $ | ||||||||||||||||||||
| March 14, 2023 | $ | $ | $ | ||||||||||||||||||||
| March 15, 2023 | $ | $ | $ | ||||||||||||||||||||
| March 15, 2023 | $ | $ | $ | ( | |||||||||||||||||||
| September 14, 2023 | $ | $ | $ | ||||||||||||||||||||
| Total Dispositions | $ | $ | $ | ||||||||||||||||||||
NOTE 9 • SEGMENTS
Centerspace operates in a single reportable segment which includes the ownership, management, development, redevelopment, and acquisition of apartment communities. Each of the operating properties is considered a separate operating segment because each property earns revenues, incurs expenses, and has discrete financial information. The chief operating decision-makers evaluate each property’s operating results to make decisions about resources to be allocated and to assess performance and do not group the properties based on geography, size, or type for this purpose. The apartment communities have similar long-term economic characteristics and provide similar products and services to residents. No apartment community comprises more than 10% of consolidated revenues, profits, or assets. Accordingly, the apartment communities are aggregated into a single reportable segment. “All other” includes non-multifamily components of mixed-use properties and apartment communities the Company has disposed or designated as held for sale. For the nine months ended September 30, 2024, two sold apartment communities were reclassified from the multifamily segment to “all other” for all periods presented. For the nine months ended September 30, 2023, thirteen sold apartment communities were reclassified from the multifamily segment to “all other” for all periods presented.
The members of the executive management team are the chief operating decision-makers. This team measures the performance of the reportable segment based on net operating income (“NOI”), a non-GAAP 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 excludes gain (loss) on the sale of real estate and other assets, impairment, depreciation, amortization, financing costs, property management overhead, casualty gains (losses), loss on litigation settlement, and general and administrative expense. 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.
The following tables present NOI for the three and nine months ended September 30, 2024 and 2023, respectively, along with reconciliations to net income (loss) in the Condensed Consolidated Financial Statements. Segment assets are also reconciled to total assets as reported in the Condensed Consolidated Financial Statements.
| (in thousands) | |||||||||||||||||
| Three Months Ended September 30, 2024 | Multifamily | All Other | Total | ||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Property operating expenses, including real estate taxes | |||||||||||||||||
| Net operating income | $ | $ | $ | ||||||||||||||
| Property management expense | ( | ||||||||||||||||
Casualty gain | |||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||
| General and administrative expenses | ( | ||||||||||||||||
| Interest expense | ( | ||||||||||||||||
| Interest and other income | |||||||||||||||||
Net loss | $ | ( | |||||||||||||||
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| (in thousands) | |||||||||||||||||
| Three Months Ended September 30, 2023 | Multifamily | All Other | Total | ||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Property operating expenses, including real estate taxes | |||||||||||||||||
| Net operating income | $ | $ | $ | ||||||||||||||
| Property management expense | ( | ||||||||||||||||
Casualty loss | ( | ||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||
| General and administrative expenses | ( | ||||||||||||||||
Gain on sale of real estate and other investments | |||||||||||||||||
| Interest expense | ( | ||||||||||||||||
Interest and other income | |||||||||||||||||
Net income | $ | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Nine Months Ended September 30, 2024 | Multifamily | All Other | Total | ||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Property operating expenses, including real estate taxes | |||||||||||||||||
| Net operating income | $ | $ | $ | ||||||||||||||
| Property management expense | ( | ||||||||||||||||
Casualty loss | ( | ||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||
| General and administrative expenses | ( | ||||||||||||||||
Loss on sale of real estate and other investments | ( | ||||||||||||||||
| Interest expense | ( | ||||||||||||||||
| Interest and other income | |||||||||||||||||
Net loss | $ | ( | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Nine Months Ended September 30, 2023 | Multifamily | All Other | Total | ||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Property operating expenses, including real estate taxes | |||||||||||||||||
| Net operating income | $ | $ | $ | ||||||||||||||
| Property management expense | ( | ||||||||||||||||
Casualty loss | ( | ||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||
| General and administrative expenses | ( | ||||||||||||||||
Gain on sale of real estate and other investments | |||||||||||||||||
| Loss on litigation settlement | ( | ||||||||||||||||
| Interest expense | ( | ||||||||||||||||
| Interest and other income | |||||||||||||||||
Net income | $ | ||||||||||||||||
Segment assets are summarized as follows as of September 30, 2024, and December 31, 2023, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:
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| (in thousands) | |||||||||||||||||
| As of September 30, 2024 | Multifamily | All Other | Total | ||||||||||||||
| Segment assets | |||||||||||||||||
| Property owned | $ | $ | $ | ||||||||||||||
| Less accumulated depreciation | ( | ( | ( | ||||||||||||||
| Total real estate investments | $ | $ | $ | ||||||||||||||
| Cash and cash equivalents | |||||||||||||||||
| Restricted cash | |||||||||||||||||
| Other assets | |||||||||||||||||
| Total Assets | $ | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| As of December 31, 2023 | Multifamily | All Other | Total | ||||||||||||||
| Segment assets | |||||||||||||||||
| Property owned | $ | $ | $ | ||||||||||||||
| Less accumulated depreciation | ( | ( | ( | ||||||||||||||
| Total real estate investments | $ | $ | $ | ||||||||||||||
| Cash and cash equivalents | |||||||||||||||||
| Restricted cash | |||||||||||||||||
| Other assets | |||||||||||||||||
| Total Assets | $ | ||||||||||||||||
NOTE 10 • COMMITMENTS AND CONTINGENCIES
Litigation. Centerspace is involved in various lawsuits arising in the normal course of business and believes that such matters will not have a material adverse effect on the condensed consolidated financial statements.
Centerspace was the named defendant in a lawsuit where the owner of a neighboring property claimed a retaining wall at one of its properties was causing water damage to the neighboring property. The claim was for damage to the property and monetary losses. During the nine months ended September 30, 2023, the Company recorded a loss on litigation settlement of $2.9 million due to a trial judgement entered against the Centerspace. In November 2023, the claimant filed motions requesting additional interest on the judgment and trial costs. The claimant was awarded an additional $1.0 million in judgment related interest and costs. The additional $1.0 million was a recognizable subsequent event for the year ended December 31, 2023 so was recorded as a loss during the year ended December 31, 2023. After the additional judgment, the claimant’s appeal was dismissed. The Company believes this matter is settled.
Environmental Matters. Under various federal, state, and local laws, ordinances, and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around, or under the property. While the Company currently has no knowledge of any material violation of environmental laws, ordinances, or regulations at any of the properties, there can be no assurance that areas of contamination will not be identified at any of its properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs.
Limitations on Taxable Dispositions. Twenty-seven properties, consisting of 5,033 apartment homes, are subject to limitations on taxable dispositions under agreements entered into with certain of the sellers or contributors of the properties and are effective for varying periods. Centerspace does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of these properties during the limitation period because it generally holds these and other properties for investment purposes rather than for sale. In addition, where the Company deems it to be in the shareholders’ best interests to dispose of such properties, it generally seeks to structure sales of such properties as tax-deferred transactions under Section 1031 of the Internal Revenue Code. Otherwise, the Company may be required to provide tax indemnification payments to the parties to these agreements.
Unfunded Commitments. Centerspace has unfunded commitments of $950,000 in two real estate technology venture funds. Refer to Note 7 - Fair Value Measurements for additional information regarding these investments.
NOTE 11 • SHARE-BASED COMPENSATION
Share-based awards are provided to officers, non-officer employees, and trustees under the 2015 Incentive Plan approved by shareholders on September 15, 2015, as amended and restated on May 18, 2021 (the “2015 Incentive Plan”), which allows for
23
awards in the form of cash, unrestricted and restricted common shares, stock options, stock appreciation rights, and RSUs up to an aggregate of 775,000 shares over the ten-year period in which the plan is in effect. Under the 2015 Incentive Plan, officers and non-officer employees may earn share awards under a long-term incentive plan (“LTIP”), which is a forward-looking program that measures long-term performance over the stated performance period. These awards are payable to the extent deemed earned in shares. The terms of the long-term incentive awards granted under the revised program may vary from year to year. Through September 30, 2024, awards under the 2015 Incentive Plan consisted of restricted and unrestricted common shares, RSUs, and stock options. The Company accounts for forfeitures of restricted and unrestricted common shares, RSUs, and stock options when they occur instead of estimating the forfeitures.
2024 LTIP Awards
Awards granted to employees on January 1, 2024, consisted of an aggregate of 21,059 time-based RSU awards and 18,876 performance RSUs based on total shareholder return (“TSR”). The time-based awards vest as to one-third of the shares on each of January 1, 2025, January 1, 2026, and January 1, 2027.
The performance RSUs are earned based on the Company’s TSR as compared to the FTSE Nareit Equity Index over a forward looking three-year period. The maximum number of performance RSUs eligible to be earned is 37,752 RSUs, which is 200 % of the performance RSUs granted. Earned awards (if any) will fully vest as of the last day of the measurement period. These awards have market conditions in addition to service conditions that must be met for the awards to vest. Compensation expense is recognized ratably based on the grant date fair value, as determined using the Monte Carlo valuation model, regardless of whether the market conditions are achieved and the awards ultimately vest. Therefore, previously recorded compensation expense is not adjusted in the event that the market conditions are not achieved. The Company based the expected volatility on a weighted average of the historical volatility of the Company’s daily closing share price and a select peer average volatility, the risk-free interest rate on the U.S. treasury bond rates with a maturity equal to the remaining performance period of the award, and the expected term on the performance period of the award. The assumptions used to value the TSR performance RSUs were an expected volatility of 27.21 %, a risk-free interest rate of 4.01 %, and an expected life of 3 years. The share price at the grant date, January 1, 2024, was $58.20 per share.
Awards granted to trustees on May 20, 2024 consist of 8,611 time-based RSUs, which vest on May 20, 2025. These awards are classified as equity awards.
Share-Based Compensation Expense
Share-based compensation expense recognized in the Condensed Consolidated Financial Statements for all outstanding share-based awards was $764,000 and $602,000 for the three months ended September 30, 2024 and 2023, respectively, and $2.2 million and $2.7 million for the nine months ended September 30, 2024 and 2023, respectively. On March 31, 2023, the Company accelerated the vesting of all unvested time-based RSUs and stock options in connection with the Separation Agreement with Mr. Decker. This resulted in the acceleration of share-based compensation expense for those awards resulting in an additional $737,000 in expense for the nine months ended September 30, 2023.
NOTE 12 • SUBSEQUENT EVENTS
On October 1, 2024, Centerspace closed on the acquisition of The Lydian in Denver, CO, for total consideration of $54.0 million. The Lydian is a 129 -home apartment community that also includes 23,000 square feet of fully leased office and street-level retail space. The acquisition was financed through the assumption of mortgage debt, issuance of common operating partnership units, and cash.
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Report”), the audited financial statements for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K filed with the SEC on February 20, 2024, and the risk factors in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2023.
This discussion and analysis and other sections of this Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “assumes,”
24
“may,” “projects,” “outlook,” “future,” and variations of those words and similar expressions are intended to identify forward-looking statements. 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 condition, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved. Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements. 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 our control and could differ materially from actual results and performance.
The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:
•price volatility in the global economy;
•uncertain global macro-economic and political conditions;
•deteriorating economic conditions, including rising unemployment rates, energy costs, and inflation, in the markets where we own apartment communities or in which we may invest in the future;
•rental conditions in our markets, including occupancy levels and rental rates, potential inability to renew residents or obtain new residents upon expiration of existing leases, changes in tax and housing laws, include rent control laws, or other factors;
•timely access to material and labor required to renovate and maintain apartment communities;
•adverse changes in our markets, including future demand for apartment homes in those markets, barriers of entry into new markets, limitations on the ability to increase rental rates, our inability to identify and consummate attractive acquisitions and dispositions on favorable terms, our ability to reinvest sales proceeds successfully, and inability to accommodate any significant decline in the market value of real estate serving as collateral for debt and mortgage obligations;
•pandemics or epidemics, including the COVID-19 pandemic, and any effects on our business, financial condition, and results of operation;
•the impact of the conflicts between Russia and Ukraine, as well as Israel, Gaza, and Iran, on inflation, trade, and general economic conditions;
•reliance on a single asset class (multifamily) and certain geographic areas (Midwest and Mountain West regions) of the U.S.;
•inability to expand operations into new or existing markets successfully;
•failure of new acquisitions to achieve anticipated results or be efficiently integrated;
•inability to complete lease-up of projects on schedule and on budget;
•inability to sell our non-core properties on terms that are acceptable;
•failure to reinvest proceeds from sales of properties into tax-deferred exchanges, which could necessitate special dividend and/or tax protection payments;
•inability to fund capital expenditures out of cash flow;
•inability to pay, or need to reduce, dividends on common shares;
•inability to raise additional equity capital, if needed;
•financing risks, including the potential inability to meet existing covenants in existing credit facilities or to obtain new debt or equity financing on favorable terms, or at all;
•level and volatility of interest or capitalization rates or capital market conditions;
•uninsured losses due to insurance deductibles, uninsured claims or casualties or losses in excess of applicable coverage;
•loss contingencies and the availability and cost of casualty insurance for losses;
•inability to continue to satisfy complex tax rules in order to maintain status as a REIT for federal income tax purposes, inability of the Operating Partnership to satisfy the rules to maintain its status as a partnership for federal income tax purposes, and the risk of changes in laws affecting REITs;
•inability to attract and retain qualified personnel;
•cyber liability or potential liability for breaches of privacy or information security systems;
•recent developments in artificial intelligence, including software used to price rent in apartment communities;
•inability to address catastrophic weather, natural events, and climate change;
•inability to comply with laws and regulations, including those related to the environment, applicable to the business and any related investigations or litigation; and
•other risks identified in this Report, in other SEC reports, or in other documents that we publicly disseminate.
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New factors may also arise from time to time that could have an adverse effect on our business and results of operations. Except as otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements to reflect events, circumstances, or changes in expectations after the date on which this Report is filed. Readers also should review the risks and uncertainties detailed from time to time in filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2023.
Executive Summary
We are a real estate investment trust, or REIT, that owns, manages, acquires, redevelops, and develops apartment communities. We primarily focus on investing in markets characterized by stable and growing economies, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for apartment homes and retention of our residents. As of September 30, 2024, we owned interests in 70 apartment communities consisting of 12,883 apartment homes. Property owned, as presented in our Condensed Consolidated Balance Sheets at historical cost, was $2.4 billion at September 30, 2024 and December 31, 2023.
Renting apartment homes is our primary source of revenue, and our business objective is to provide great homes. We strive to maximize resident satisfaction and retention by investing in high-quality assets in desirable locations and creating vibrant apartment communities through resident-centered operations. We believe that delivering superior resident experiences will enhance resident satisfaction while also driving profitability for our business and shareholders. We have paid quarterly distributions continuously since our first distribution in 1971.
Overview of the Three Months Ended September 30, 2024
•For the three months ended September 30, 2024, revenue increased by $457,000 or 0.7% to $65.0 million, compared to $64.6 million for the three months ended September 30, 2023, due to increased revenue from same-store and non-same-store communities, offset by decreased revenue from dispositions.
•Same-store revenues increased by 3.0% for the three months ended September 30, 2024, compared to the same period of the prior year, driving a 2.8% increase in same-store NOI compared to the same period of the prior year.
•During the three months ended September 30, 2024, we issued approximately 1.5 million common shares for $105.1 million, net of commissions, and an average net price of $71.12 per share under our at-the-market offering program (the “ATM Program”) and used the proceeds to redeem all outstanding Series C preferred shares for $97.0 million.
•Net loss was $0.40 per diluted share for the three months ended September 30, 2024, compared to net income of $0.41 per diluted share for the same period of the prior year.
•Non-GAAP Core Funds from Operations (“Core FFO”) applicable to common shares and Units for the three months ended September 30, 2024 increased by $245,000 or 1.1% to $22.0 million compared to $21.7 million for the three months ended September 30, 2023. See the description of Core FFO on pages 31 and 32 and the reconciliation of net income (loss) available to common shareholders to FFO and Core FFO on page 33. This increase was primarily due to increased NOI from same-store and non-same-store communities and interest income on a real estate related note receivable that did not exist in the same period of the prior year, offset by decreased NOI from dispositions. The drivers of these changes are discussed in more detail in the “Results of Operations” section below.
Results of Operations
GAAP and Non-GAAP Financial Measures
Net operating income (“NOI”) is a non-GAAP financial measure, which we define as total real estate revenues less property operating expenses, including real estate taxes and is reconciled to operating income below. We believe 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, impairment, depreciation, amortization, financing costs, property management expenses, casualty gains (losses), loss on litigation settlement, 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.
We have provided 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, we determine the composition of our same-
26
store pool for that year as well as adjust the previous year, which allows us to evaluate the performance of existing apartment communities and their contribution to net income (loss). We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of communities are performing year-over-year. We use this measure to assess whether or not we have been successful in increasing NOI, raising average rental revenue, renewing the leases with existing residents, controlling operating costs, and making prudent capital improvements. The discussion below focuses on the main factors affecting real estate revenue and expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store apartment communities are generally due to the addition of those properties to the real estate portfolio, and accordingly provide less useful information for evaluating ongoing operational performance of the real estate portfolio.
For the comparison of the nine months ended September 30, 2024 and 2023, one apartment community was non-same-store. Sold communities are included in “Dispositions,” for all periods presented, while “Other properties” includes non-multifamily properties and the non-multifamily components of mixed-use properties. During the nine months ended September 30, 2024 and 2023, we disposed of two and thirteen apartment communities, respectively, consisting of 205 and 2,279 apartment homes, respectively.
Reconciliation of Operating Income to Net Operating Income (non-GAAP)
The following table provides a reconciliation of operating income to NOI (non-GAAP), which is defined above.
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
Operating income | $ | 6,350 | $ | 17,395 | $ | (11,045) | (63.5) | % | $ | 17,617 | $ | 85,958 | $ | (68,341) | (79.5) | % | ||||||||||||||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Property management expenses | 2,242 | 2,197 | 45 | 2.0 | % | 6,794 | 7,012 | (218) | (3.1) | % | ||||||||||||||||||||||||||||||||||||||||
Casualty (gain) loss | (412) | 937 | (1,349) | (144.0) | % | 918 | 1,242 | (324) | (26.1) | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 26,084 | 24,697 | 1,387 | 5.6 | % | 78,810 | 75,061 | 3,749 | 5.0 | % | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 4,102 | 3,832 | 270 | 7.0 | % | 12,941 | 15,717 | (2,776) | (17.7) | % | ||||||||||||||||||||||||||||||||||||||||
(Gain) loss on sale of real estate and other investments | — | (11,235) | 11,235 | (100.0) | % | 577 | (71,327) | 71,904 | (100.8) | % | ||||||||||||||||||||||||||||||||||||||||
| Loss on litigation settlement | — | — | — | N/A | — | 2,864 | (2,864) | (100.0) | % | |||||||||||||||||||||||||||||||||||||||||
| Net operating income | $ | 38,366 | $ | 37,823 | $ | 543 | 1.4 | % | $ | 117,657 | $ | 116,527 | $ | 1,130 | 1.0 | % | ||||||||||||||||||||||||||||||||||
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The following consolidated results of operations, including GAAP and non-GAAP metrics, cover the three and nine months ended September 30, 2024 and 2023.
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Same-store | $ | 62,610 | $ | 60,789 | $ | 1,821 | 3.0 | % | $ | 186,745 | $ | 180,759 | $ | 5,986 | 3.3 | % | ||||||||||||||||||||||||||||||||||
| Non-same-store | 1,847 | — | 1,847 | N/A | 5,517 | — | 5,517 | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Other properties | 568 | 676 | (108) | (16.0) | % | 1,783 | 2,014 | (231) | (11.5) | % | ||||||||||||||||||||||||||||||||||||||||
| Dispositions | — | 3,103 | (3,103) | * | 529 | 14,468 | (13,939) | * | ||||||||||||||||||||||||||||||||||||||||||
| Total | 65,025 | 64,568 | 457 | 0.7 | % | 194,574 | 197,241 | (2,667) | (1.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Property operating expenses, including real estate taxes | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Same-store | 25,825 | 25,018 | 807 | 3.2 | % | 74,236 | 72,771 | 1,465 | 2.0 | % | ||||||||||||||||||||||||||||||||||||||||
| Non-same-store | 605 | — | 605 | N/A | 1,707 | — | 1,707 | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Other properties | 229 | 271 | (42) | (15.5) | % | 647 | 546 | 101 | 18.5 | % | ||||||||||||||||||||||||||||||||||||||||
| Dispositions | — | 1,456 | (1,456) | * | 327 | 7,397 | (7,070) | * | ||||||||||||||||||||||||||||||||||||||||||
| Total | 26,659 | 26,745 | (86) | (0.3) | % | 76,917 | 80,714 | (3,797) | (4.7) | % | ||||||||||||||||||||||||||||||||||||||||
Net operating income(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Same-store | 36,785 | 35,771 | 1,014 | 2.8 | % | 112,509 | 107,988 | 4,521 | 4.2 | % | ||||||||||||||||||||||||||||||||||||||||
| Non-same-store | 1,242 | — | 1,242 | N/A | 3,810 | — | 3,810 | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Other properties | 339 | 405 | (66) | (16.3) | % | 1,136 | 1,468 | (332) | (22.6) | % | ||||||||||||||||||||||||||||||||||||||||
| Dispositions | — | 1,647 | (1,647) | * | 202 | 7,071 | (6,869) | * | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 38,366 | $ | 37,823 | $ | 543 | 1.4 | % | $ | 117,657 | $ | 116,527 | $ | 1,130 | 1.0 | % | ||||||||||||||||||||||||||||||||||
| Property management expenses | (2,242) | (2,197) | 45 | 2.0 | % | (6,794) | (7,012) | (218) | (3.1) | % | ||||||||||||||||||||||||||||||||||||||||
Casualty gain (loss) | 412 | (937) | (1,349) | (144.0) | % | (918) | (1,242) | (324) | (26.1) | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (26,084) | (24,697) | 1,387 | 5.6 | % | (78,810) | (75,061) | 3,749 | 5.0 | % | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (4,102) | (3,832) | 270 | 7.0 | % | (12,941) | (15,717) | (2,776) | (17.7) | % | ||||||||||||||||||||||||||||||||||||||||
Gain (loss) on sale of real estate and other investments | — | 11,235 | (11,235) | (100.0) | % | (577) | 71,327 | (71,904) | 100.8 | % | ||||||||||||||||||||||||||||||||||||||||
| Loss on litigation settlement | — | — | — | — | — | (2,864) | 2,864 | (100.0) | % | |||||||||||||||||||||||||||||||||||||||||
| Interest expense | (8,946) | (8,556) | 390 | 4.6 | % | (27,485) | (27,516) | (31) | (0.1) | % | ||||||||||||||||||||||||||||||||||||||||
Interest and other income | 645 | 330 | 315 | (95.5) | % | 1,462 | 674 | 788 | 116.9 | % | ||||||||||||||||||||||||||||||||||||||||
NET INCOME (LOSS) | $ | (1,951) | $ | 9,169 | $ | (11,120) | (121.3) | % | $ | (8,406) | $ | 59,116 | $ | (67,522) | (114.2) | % | ||||||||||||||||||||||||||||||||||
| Dividends to Series D preferred unitholders | (160) | (160) | — | — | (480) | (480) | — | — | ||||||||||||||||||||||||||||||||||||||||||
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | 1,095 | (1,204) | 2,299 | 190.9 | % | 2,735 | (9,058) | 11,793 | (130.2) | % | ||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests – consolidated real estate entities | (32) | (31) | (1) | 3.2 | % | (98) | (96) | (2) | 2.1 | % | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to controlling interests | (1,048) | 7,774 | (8,822) | (113.5) | % | (6,249) | 49,482 | (55,731) | (112.6) | % | ||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred shareholders | (1,607) | (1,607) | — | — | (4,821) | (4,821) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Redemption of Preferred Shares | (3,511) | — | (3,511) | N/A | (3,511) | — | (3,511) | N/A | ||||||||||||||||||||||||||||||||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | (6,166) | $ | 6,167 | $ | (12,333) | (200.0) | % | $ | (14,581) | $ | 44,661 | $ | (59,242) | (132.6) | % | ||||||||||||||||||||||||||||||||||
(1)This is a Non-GAAP financial measure which is a component of NOI (non-GAAP), as defined above. Refer to the reconciliation of Operating Income to Net Operating Income above. Non-GAAP financial measures 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.
* Not a meaningful percentage.
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Weighted Average Occupancy(1) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Same-store | 95.3 | % | 94.6 | % | 95.1 | % | 94.9 | % | |||||||||||||||
| Non-same-store | 95.5 | % | — | 96.3 | % | — | |||||||||||||||||
| Total | 95.3 | % | 94.6 | % | 95.1 | % | 94.9 | % | |||||||||||||||
(1)Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rental revenue. Scheduled rental revenue represents the value of all apartment homes, with occupied 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 and other real estate companies.
| Number of Apartment Homes | as of September 30, 2024 | as of September 30, 2023 | |||||||||
| Same-store | 12,580 | 12,580 | |||||||||
| Non-same-store | 303 | — | |||||||||
Dispositions | — | 205 | |||||||||
| Total | 12,883 | 12,785 | |||||||||
Same-store analysis. Revenue from same-store communities increased 3.0%, or $1.8 million, in the three months ended September 30, 2024, compared to the same period in the prior year. The increase was attributable to 2.2% growth in average monthly revenue per occupied home for the three months ended September 30, 2024 and an increase of 0.7% in occupancy as weighted average occupancy increased from 94.6% for the three months ended September 30, 2023 to 95.3% for the three months ended September 30, 2024. Property operating expenses, including real estate taxes, at same-store communities increased by 3.2% or $807,000 in the three months ended September 30, 2024, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $124,000, primarily due to increases in administrative and marketing costs and utilities, offset by decreases in compensation and repairs and maintenance. Non-controllable expenses at same-store communities increased by $683,000, due to higher insurance premiums and real estate taxes. Same-store NOI increased by $1.0 million to $36.8 million for the three months ended September 30, 2024 compared to $35.8 million in the same period of the prior year.
Revenue from same-store communities increased 3.3%, or $6.0 million, in the nine months ended September 30, 2024, compared to the same period in the prior year. The increase was attributable to 3.1% growth in average monthly revenue per occupied home for the nine months ended September 30, 2024 and an increase of 0.2% in occupancy as weighted average occupancy increased from 94.9% for the nine months ended September 30, 2023 to 95.1% for the nine months ended September 30, 2024. Property operating expenses, including real estate taxes, at same-store communities increased by 2.0% or $1.5 million in the nine months ended September 30, 2024, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $711,000, primarily due to increased administrative and marketing expense, compensation costs, and repairs and maintenance, offset by lower utilities costs. Non-controllable expenses at same-store communities increased by $754,000, due to increased insurance premiums, offset by lower real estate taxes from successful real estate tax appeals. Same-store NOI increased by $4.5 million to $112.5 million for the nine months ended September 30, 2024 compared to $108.0 million in the same period of the prior year.
Non-same-store analysis. Revenue from non-same-store communities increased by $1.8 million in the three months ended September 30, 2024, compared to the same period in the prior year. Property operating expenses, including real estate taxes at non-same-store communities increased by $605,000. NOI at non-same-store communities increased by $1.2 million for the three months ended September 30, 2024 compared to the same period of the prior year. The increase in revenue, property operating expenses, and NOI from non-same-store communities is due to the addition of an apartment community during the fourth quarter of the prior year.
Revenue from non-same-store communities increased by $5.5 million in the nine months ended September 30, 2024, compared to the same period in the prior year. Property operating expenses, including real estate taxes at non-same-store communities increased by $1.7 million. NOI at non-same-store communities increased by $3.8 million for the nine months ended September 30, 2024 compared to the same period of the prior year. The increase in revenue, property operating expenses, and NOI from non-same-store communities is due to the addition of an apartment community during the fourth quarter of the prior year.
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Other properties and dispositions analysis. Revenue from dispositions decreased by $3.1 million while revenue from other properties decreased by $108,000 in the three months ended September 30, 2024, compared to the same period in the prior year. Property operating expenses, including real estate taxes, at other properties decreased by $42,000 while such expenses decreased by $1.5 million for dispositions, compared to the same period in the prior year. NOI at other properties decreased by $66,000 and NOI on dispositions decreased $1.6 million, compared to the same period in the prior year. We disposed of four apartment communities and associated commercial space in the third quarter of 2023 and two apartment communities in the first quarter of 2024.
Revenue from dispositions decreased by $13.9 million while revenue from other properties decreased by $231,000 in the nine months ended September 30, 2024, compared to the same period in the prior year. Property operating expenses, including real estate taxes, at other properties increased by $101,000 while such expenses decreased by $7.1 million for dispositions, compared to the same period in the prior year. NOI at other properties decreased by $332,000 and NOI on dispositions decreased $6.9 million, compared to the same period in the prior year. We disposed of nine apartment communities in the first quarter of 2023, an additional four apartment communities and associated commercial space in the third quarter of 2023, and two apartment communities in the first quarter of 2024.
Property management expenses. Property management expense, consisting of property management overhead and property management fees paid to third parties was comparable at $2.2 million in the three months ended September 30, 2024 and 2023.
Property management expense, consisting of property management overhead and property management fees paid to third parties decreased by 3.1% to $6.8 million in the nine months ended September 30, 2024, compared to $7.0 million in the same period of the prior year. The decrease is primarily due to fewer properties and a lower number of apartment homes due to dispositions.
Casualty gain (loss). Casualty gain (loss) was a gain of $412,000 in the three months ended September 30, 2024, compared to a loss of $937,000 in the same period of the prior year. The decrease is primarily due to increased claim activity with losses in excess of our deductibles resulting in higher estimated recoveries in the current period compared to prior year combined with revised loss estimates from previous casualty events. See Note 2 of the Notes to the Condensed Consolidated Financial Statements in the report for more details.
Casualty loss was $918,000 in the nine months ended September 30, 2024, compared to $1.2 million in the same period of the prior year. The decrease is primarily due to increased claim activity with losses in excess of our deductibles resulting in estimated recoveries in the current period compared to prior year combined with revised loss estimates from previous casualty events. See Note 2 of the Notes to the Condensed Consolidated Financial Statements in the report for more details.
Depreciation and amortization. Depreciation and amortization increased by 5.6% to $26.1 million in the three months ended September 30, 2024, compared to $24.7 million in the same period of the prior year, primarily attributable to an increase in depreciation on same-store and non-same-store apartment communities driven by the addition of an apartment community in the fourth quarter of the prior year along with value add and acquisition capital projects, offset by a decrease in depreciation from sold properties.
Depreciation and amortization increased by 5.0% to $78.8 million in the nine months ended September 30, 2024, compared to $75.1 million in the same period of the prior year, primarily attributable to an increase in depreciation on same-store and non-same-store apartment communities driven by the addition of an apartment community in the fourth quarter of the prior year with in-place lease amortization along with value add and acquisition capital projects; offset by a decrease in depreciation from sold properties.
General and administrative expenses. General and administrative expenses increased by $270,000 to $4.1 million in the three months ended September 30, 2024, compared to $3.8 million in the same period of the prior year. Compensation costs, legal and consulting fees increased in the three months ended September 30, 2024 compared to the same period of the prior year.
General and administrative expenses decreased by 17.7% to $12.9 million in the nine months ended September 30, 2024, compared to $15.7 million in the same period of the prior year, primarily attributable to $3.2 million in severance and related costs from the CEO transition in the prior year that did not occur in the nine months ended September 30, 2024 and legal expenses in the nine months ended September 30, 2024 compared to the same period of the prior year due to a litigation settlement in the prior year that did not occur in the current quarter, offset by higher incentive compensation costs.
Gain (loss) on sale of real estate and other investments. There was no gain (loss) on sale of real estate and other investments in the three months ended September 30, 2024, compared to a gain of $11.2 million in the same period of the prior year. Refer to Note 8 in the Condensed Consolidated Financial Statements for more information.
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Gain (loss) on sale of real estate and other investments decreased to a loss of $577,000 in the nine months ended September 30, 2024, compared to a gain of $71.3 million in the same period of the prior year. The decrease was primarily due to the sale of two apartment communities in the current year for a loss compared to the sale of 13 apartment communities and associated commercial space for a gain in the prior year. Refer to Note 8 in the Notes to the Condensed Consolidated Financial Statements.
Loss on Litigation Settlement. There was no loss on litigation settlement in the nine months ended September 30, 2024, compared to a $2.9 million loss on litigation settlement for the nine months ended September 30, 2023 due to a trial judgment against Centerspace for property damage and monetary losses to a neighboring property in the prior year that did not occur in the current year. Refer to Note 10 in the Condensed Consolidated Financial Statements.
Interest expense. Interest expense increased by 4.6% to $8.9 million in the three months ended September 30, 2024, compared to $8.6 million in the same period of the prior year, primarily due to higher mortgage interest and amortization of debt discount resulting from the assumption of a mortgage in connection with an acquisition in the fourth quarter of the prior year, offset by lower interest on our line of credit due to lower average outstanding balance.
Interest expense was comparable at $27.5 million in the nine months ended September 30, 2024 and 2023.
Interest and other income. Interest and other income increased to $645,000 in the three months ended September 30, 2024, compared to $330,000 in the same period of the prior year. The increase was primarily due to interest income on a real estate related note receivable in the current period that did not exist in the same period of the prior year.
Interest and other income increased to $1.5 million in the nine months ended September 30, 2024, compared to $674,000 in the same period of the prior year. The increase was primarily due to interest income on a real estate related note receivable in the current period that did not exist in the same period of the prior year, offset by a decrease from interest received on escrow funds in the prior year that did not occur in the nine months ended September 30, 2024.
Net income (loss) available to common shareholders. Net loss available to common shareholders decreased to $6.2 million for the three months ended September 30, 2024, compared to a net income of $6.2 million in the three months ended September 30, 2023.
Net loss available to common shareholders decreased to $14.6 million for the nine months ended September 30, 2024, compared to a net income of $44.7 million in the nine months ended September 30, 2023.
Funds from Operations and Core Funds from Operations.
We believe that Funds from Operations (“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 operating performance, primarily because its calculation does not assume 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.
We use 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 investments and assists management and investors in comparing those operating results between periods.
Due to limitations of the Nareit FFO definition, we have made certain interpretations in applying this definition. We believe that all such interpretations not specifically provided for 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 the main business.
While FFO is widely used by us as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO 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 (loss) or any other GAAP measurement of
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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 our ability to service indebtedness or make distributions to shareholders.
Core Funds from Operations (“Core FFO”), a non-GAAP measure, is FFO 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, we believe 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 (loss) or as 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 all cash flow needs, including the 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 that should not be considered a substitute for operating results determined in accordance with GAAP.
Net loss available to common shareholders for the three months ended September 30, 2024, decreased to $6.2 million compared to net income of $6.2 million for the same period of the prior year. FFO applicable to common shares and Units for the three months ended September 30, 2024, decreased to $18.7 million compared to $20.8 million for the comparable period of the prior year, representing a decrease of 9.8%. This FFO decrease was primarily due to the redemption of our Series C preferred shares during the current period, increased general and administrative expense and interest expense, and decreased NOI from dispositions, offset by increased NOI from same-store communities and non-same-store communities and casualty gain activity.
Net loss available to common shareholders for the nine months ended September 30, 2024, decreased to $14.6 million compared to net income of $44.7 million for the same period of the prior year. FFO applicable to common shares and Units for the nine months ended September 30, 2024, increased to $61.7 million compared to $57.2 million for the comparable period of the prior year, representing an increase of 8.0%. This FFO increase was primarily due to increased NOI from same-store communities and non-same-store communities and increased interest on a new real estate related note receivable, decreases in general and administrative expense related to the departure of Mark Decker, former CEO, and a litigation settlement in the prior year that did not occur in the current year, offset by decreased NOI from dispositions and the redemption of our Series C preferred shares.
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Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds from Operations and Core Funds from Operations
| (in thousands, except per share and unit amounts) | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
Funds from operations: | ||||||||||||||||||||||||||
Net income (loss) available to common shareholders | $ | (6,166) | $ | 6,167 | $ | (14,581) | $ | 44,661 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Noncontrolling interests – Operating Partnership and Series E preferred units | (1,095) | 1,204 | (2,735) | 9,058 | ||||||||||||||||||||||
| Depreciation and amortization | 26,084 | 24,697 | 78,810 | 75,061 | ||||||||||||||||||||||
| Less depreciation – non real estate | (81) | (56) | (248) | (236) | ||||||||||||||||||||||
| Less depreciation – partially owned entities | (25) | (20) | (74) | (58) | ||||||||||||||||||||||
(Gain) loss on sale of real estate and other assets | — | (11,235) | 577 | (71,323) | ||||||||||||||||||||||
| FFO applicable to common shares and Units | $ | 18,717 | $ | 20,757 | $ | 61,749 | $ | 57,163 | ||||||||||||||||||
| Adjustments to Core FFO: | ||||||||||||||||||||||||||
Non-cash casualty (recovery) loss | (632) | 854 | 261 | 815 | ||||||||||||||||||||||
| Interest rate swap amortization | 171 | 324 | 542 | 621 | ||||||||||||||||||||||
| Amortization of assumed debt | 263 | (116) | 789 | (348) | ||||||||||||||||||||||
| Severance and transition related costs | — | — | — | 3,180 | ||||||||||||||||||||||
Loss on litigation settlement and associated trial costs(1) | — | 34 | 37 | 3,235 | ||||||||||||||||||||||
| Redemption of preferred shares | 3,511 | — | 3,511 | — | ||||||||||||||||||||||
Other miscellaneous items(2) | (61) | (129) | (72) | (97) | ||||||||||||||||||||||
| Core FFO applicable to common shares and Units | $ | 21,969 | $ | 21,724 | $ | 66,817 | $ | 64,569 | ||||||||||||||||||
| FFO applicable to common shares and Units | $ | 18,717 | $ | 20,757 | $ | 61,749 | $ | 57,163 | ||||||||||||||||||
| Dividends to Series D preferred unitholders | 160 | 160 | 480 | 480 | ||||||||||||||||||||||
| FFO applicable to common shares and Units - diluted | $ | 18,877 | $ | 20,917 | $ | 62,229 | $ | 57,643 | ||||||||||||||||||
| Core FFO applicable to common shares and Units | $ | 21,969 | $ | 21,724 | $ | 66,817 | $ | 64,569 | ||||||||||||||||||
| Dividends to Series D preferred unitholders | 160 | 160 | 480 | 480 | ||||||||||||||||||||||
| Core FFO applicable to common shares and Units - diluted | $ | 22,129 | $ | 21,884 | $ | 67,297 | $ | 65,049 | ||||||||||||||||||
| Per Share Data | ||||||||||||||||||||||||||
Net income (loss) per common share - diluted(3) | $ | (0.40) | $ | 0.41 | $ | (0.96) | $ | 2.96 | ||||||||||||||||||
| FFO per share and Unit - diluted | $ | 1.01 | $ | 1.15 | $ | 3.40 | $ | 3.15 | ||||||||||||||||||
| Core FFO per share and Unit - diluted | $ | 1.18 | $ | 1.20 | $ | 3.68 | $ | 3.56 | ||||||||||||||||||
| Weighted average shares - basic | 15,528 | 14,989 | 15,143 | 14,988 | ||||||||||||||||||||||
Effect of redeemable operating partnership Units for FFO and Core FFO | 818 | 908 | 836 | 943 | ||||||||||||||||||||||
Effect of Series D preferred units for FFO and Core FFO | 228 | 228 | 228 | 228 | ||||||||||||||||||||||
Effect of Series E preferred units for FFO and Core FFO | 2,053 | 2,093 | 2,064 | 2,105 | ||||||||||||||||||||||
Effect of dilutive restricted stock units and stock options for FFO and Core FFO | 49 | 28 | 32 | 23 | ||||||||||||||||||||||
| Weighted average shares and Units for FFO and Core FFO - diluted | 18,676 | 18,246 | 18,303 | 18,287 | ||||||||||||||||||||||
(1)Consists of $37,000 in associated trial costs related to the litigation matter for the nine months ended September 30, 2024. Consists of a $2.9 million loss on litigation settlement for a trial judgment entered against the Company and $371,000 in associated trial costs related to the litigation matter for the nine months ended September 30, 2023
(2)Consists of (gain) loss on investments and one-time professional fees.
(3)Refer to Note 3 of the Notes to the Condensed Consolidated Financial Statements for additional details on net income (loss) per share.
Acquisitions and Dispositions
During the nine months ended September 30, 2024, we disposed of two apartment communities located in Minnesota in two transactions for an aggregate sales price of $19.0 million. We had no acquisitions during the nine months ended September 30, 2024.
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Distributions Declared
Distributions of $0.75 and $0.73 per common share and Unit were declared during the three months ended September 30, 2024 and 2023, respectively. Distributions of $2.25 and $2.19 were declared during the nine months ended September 30, 2024 and 2023, respectively. Distributions of $0.4140625 per Series C preferred share were declared during the three months ended September 30, 2024 and 2023 and $1.2421875 per Series C preferred share for the nine months ended September 30, 2024 and 2023. Distributions of $0.9655 per Series D preferred unit were declared during the three months ended September 30, 2024 and 2023 and $2.8965 per Series D preferred unit for the nine months ended September 30, 2024 and 2023. Distributions of $0.96875 per Series E preferred unit were declared during the three months ended September 30, 2024 and 2023 and $2.90625 per Series E preferred unit for the nine months ended September 30, 2024 and 2023.
Liquidity and Capital Resources
Overview
We strive to maintain a strong balance sheet and preserve financial flexibility, which we believe should enhance our ability to capitalize on appropriate investment opportunities as they may arise. We intend to continue to focus on core fundamentals, which include generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs.
Our primary sources of liquidity are cash and cash equivalents on hand and cash flows generated from operations. Other sources include availability under the unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares, including offerings of common shares under the ATM Program, and long-term unsecured debt and secured mortgages.
Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to communities, distributions to the holders of preferred shares, common shares, Series D and Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks and Unit redemptions, funding of mezzanine loans or real estate related notes, and acquisitions of additional communities.
Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, interest rate increases, the ability to access capital and credit markets, the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.
As of September 30, 2024, we had total liquidity of approximately $235.5 million, which included $221.0 million available on the lines of credit based on the value of unencumbered properties and $14.5 million of cash and cash equivalents. As of December 31, 2023, we had total liquidity of approximately $234.6 million, which included $226.0 million available on the lines of credit based on the value of unencumbered properties and $8.6 million of cash and cash equivalents.
Debt
As of September 30, 2024, we had a multibank, revolving line of credit with total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties, (the “Unsecured Credit Facility”). As of September 30, 2024, there was $39.0 million outstanding on this line of credit and additional borrowing availability was $211.0 million. At December 31, 2023, the line of credit borrowing capacity was $250.0 million based on the value of unencumbered properties, of which $30.0 million was drawn on the line. The line of credit is utilized to refinance existing indebtedness, to finance property acquisitions, to finance capital expenditures, and for general corporate purposes. On July 26, 2024, the Unsecured Credit Facility was amended to extend maturity and to modify the leverage-based margin ratios applicable to borrowings. As amended, this credit facility matures in July 2028, with an option to extend maturity for up to two additional six-month periods and has an accordion option to increase borrowing capacity up to $400.0 million.
As amended, the interest rates on the line of credit are based on the consolidated leverage ratio, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 20-80 basis points, or the daily or term Secured Overnight Financing Rate (“SOFR”), plus a margin that ranges from 120-180 basis points, with the consolidated leverage ratio described under the Third Amended and Restated Credit Agreement, as amended.
In September 2024, we entered into a line of credit agreement with borrowing capacity of up to $10.0 million and pricing based on SOFR. This operating line of credit terminates in September 2025 and is designed to enhance treasury management activities and more effectively manage cash balances. We had a $6.0 million operating line of credit with pricing based on SOFR that matured on August 31, 2024. As of September 30, 2024 and December 31, 2023, there was no outstanding balance on these lines of credit.
34
We had a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) under which we issued $175.0 million in unsecured senior promissory notes (“Unsecured Shelf Notes”). On October 28, 2024, the shelf agreement was amended to extend the period of time during which we may borrow money to October 2027 and to increase the borrowing capacity to $300.0 million. We also had a separate private note purchase agreement with PGIM and certain other lenders for the issuance of $125.0 million of senior unsecured promissory notes (“Unsecured Club Notes”, and collectively with the Unsecured Shelf Notes, the “unsecured senior notes”), of which all $125.0 million was issued in September 2021. The following table shows the notes issued under both agreements as of September 30, 2024 and December 31, 2023.
| (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 | % | ||||||||||||
We have a $198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”). The FMCF is currently secured by mortgages on 11 apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%. As of September 30, 2024 and December 31, 2023, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.
Mortgage loan indebtedness, excluding the FMCF and unamortized premiums and discounts, was $387.3 million and $392.3 million at September 30, 2024 and December 31, 2023, respectively, on 14 apartment communities. All of our mortgage debt is collateralized by apartment communities and is non-recourse at fixed rates of interest, with staggered maturities. This decreases the exposure to changes in interest rates, which reduces the effect of interest rate fluctuations on our results of operations and cash flows. As of September 30, 2024 and December 31, 2023, the weighted average interest rate on mortgage debt was 4.05%. Further information can be found in Note 5 - Debt in the Condensed Consolidated notes.
Equity
On August 21, 2024, our Board of Trustees authorized the redemption of all of our outstanding Series C preferred shares. On August 30, 2024, we delivered notice to holders of the Series C preferred shares that we intended to redeem all 3.9 million Series C preferred shares at a redemption price equal to $25 per share plus any accrued but unpaid distributions per share up to and including the redemption date of September 30, 2024. On September 30, 2024, we completed the redemption of the Series C preferred shares for an aggregate redemption price of $97.0 million, excluding distributions, and such shares are no longer deemed outstanding as of such date and were delisted from trading on the NYSE.
We amended our equity distribution agreement in connection with the ATM Program through which we may offer and sell common shares in amounts and at times determined by management. The amendment increased the maximum aggregate offering price of common shares available for offer and sale thereunder from $250.0 million to $500.0 million. Under the ATM Program, we may enter into separate forward sale agreements. The proceeds from the sale of common shares under the ATM Program may be used for general corporate purposes, including the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. The table below provides details on the shares sold during the three and nine months ended September 30, 2024. As of September 30, 2024, common shares having an aggregate offering price of up to $262.9 million remained available under the ATM Program. Further information can be found in Note 4 - Equity and Mezzanine Equity in the Condensed Consolidated notes.
(in thousands, except per share amounts) | |||||||||||||||||
| Three Months Ended September 30, | Number of Common Shares | Net Consideration (1) | Average Net Price Per Share | ||||||||||||||
| 2024 | 1,477 | $ | 105,052 | $ | 71.12 | ||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||
| 2024 | 1,587 | $ | 112,613 | $ | 71.66 | ||||||||||||
(1)Includes 869,000 shares sold on a forward basis for $62.7 million which were physically settled during the three months ended September 30, 2024.
(2)Total consideration is net of $1.0 million and $1.1 million in commissions during the three and nine months ended September 30, 2024, respectively.
35
We have a share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $50.0 million of our outstanding common shares. Under the Share Repurchase Program, we are authorized to repurchase common shares through open market purchases, privately-negotiated transactions, block trades or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors. There were no shares repurchased under this program during the three months ended September 30, 2024 and 2023. The table below provides details on the common shares repurchased under this program during the nine months ended September 30, 2024 and 2023. As of September 30, 2024, we had $4.7 million remaining authorized for purchase under this program.
| (in thousands, except per share amounts) | ||||||||||||||
| Nine Months Ended September 30, | Number of Common Shares | Aggregate Cost(1) | Average Price Per Share(1) | |||||||||||
| 2024 | 88 | $ | 4,703 | $ | 53.62 | |||||||||
| 2023 | 124 | $ | 6,718 | $ | 54.19 | |||||||||
(1)Amount includes commissions.
Changes in Cash, Cash Equivalents, and Restricted Cash
As of September 30, 2024, we had cash and cash equivalents of $14.5 million and restricted cash consisting of $2.8 million of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in the Condensed Consolidated Statements of Cash Flows in Part I, Item 1 above.
In addition to cash flow from operations, during the nine months ended September 30, 2024, we generated capital from various activities, including:
•Receiving $18.3 million in net proceeds from the sale of two apartment communities;
•Receiving $9.0 million in net draws on the lines of credit;
•Receiving $112.2 million in net proceeds from the issuance of common shares; and
•Receiving $1.9 million in net insurance proceeds primarily due to one large casualty event that was settled.
During the nine months ended September 30, 2024, we used capital for various activities, including:
•Redeeming all of our outstanding Series C preferred shares for $97.0 million;
•Funding of mezzanine loan of $13.6 million;
•Repaying $5.0 million of mortgage principal;
•Paying distributions on common shares, Series E preferred units, Units, and Series C preferred shares of $45.1 million;
•Repurchasing 87,722 common shares for $4.7 million; and
•Funding capital improvements for apartment communities of approximately $47.4 million.
Contractual Obligations and Other Commitments
Contractual obligations and other commitments were disclosed in our Form 10-K for the year ended December 31, 2023. Refer to Note 10 of the Notes to the Condensed Consolidated Financial Statements for additional details. There have been no material changes to our contractual obligations and other commitments since that report was filed.
Inflation, Supply Chain, and Capital Markets
Our apartment leases generally have terms of one year or less, which means that, in an inflationary environment, we would have the ability, subject to market conditions, to increase rents upon the commencement of new leases or renewal of existing leases to manage the impact of inflation on our business. However, the cost to operate and maintain communities could increase
36
at a rate greater than our ability to increase rents, which could adversely affect our results of operations. High inflation could have a negative impact on our residents and their ability to absorb rent increases.
We also continue to monitor pressures surrounding supply chain challenges. Supply chain and inflationary pressures are likely to result in increasing operating expenses, specifically, increases in energy costs, labor related costs, and construction materials for repairs and maintenance or capital projects. A worsening of the current environment could contribute to delays in obtaining construction materials and result in higher than anticipated costs, which could prevent us from obtaining expected returns on value add projects.
We continue to have access to the financial markets; however, a prolonged disruption of the markets or a decline in credit and financing conditions could negatively affect our ability to access capital necessary to fund our operations or refinance maturing debt in the future. Additionally, rising interest rates could negatively impact our borrowing costs for any variable rate borrowings or refinancing activity.
Off-Balance Sheet Arrangements
As of September 30, 2024, we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies
In preparing the Condensed Consolidated Financial Statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of critical accounting policies is included in our Form 10-K for the year ended December 31, 2023, filed with the SEC on February 20, 2024 under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in this report for additional information. There have been no other significant changes to the critical accounting policies during the nine months ended September 30, 2024.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The Company’s future revenue, cash flows, and fair values of certain financial instruments are dependent upon prevailing market prices and interest rates.
Centerspace’s exposure to market risk is primarily related to fluctuations in the general level of interest rates on the current and future fixed and variable rate debt obligations. Our operating results are, therefore, affected by changes in interest rates, including SOFR. The Company does not enter into derivative instruments for trading or speculative purposes.
See our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 20, 2024, under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of the Company’s interest rate sensitivity.
38
Item 4. Controls and Procedures
Disclosure Controls and Procedures:
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting:
In connection with the evaluation required by Rule 13a-15(d), management, with the participation of the Chief Executive Officer and Chief Financial Officer, has identified no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2024 and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of the Company’s operations, the Company becomes involved in litigation. At this time, the Company knows of no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of the Company’s property is the subject.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors previously disclosed in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Securities
On July 31, 2024, August 31, 2024, and September 30, 2024 we issued 270, 6,970, and 318 unregistered common shares, respectively, to limited partners of Centerspace, LP upon exercise of their Exchange Rights for an equal number of Units. All such issuances of our common shares were exempt from registration as private placements under Section 4(a)(2) of the Securities Act. We have registered the resale of such common shares under the Securities Act.
Issuer Purchases of Equity Securities
| 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) | |||||||||||||
July 1 - 31, 2024 | — | $ | — | — | $ | 4,713,230 | |||||||||||
August 1 - 31, 2024 | — | — | — | 4,713,230 | |||||||||||||
September 1 - 30, 2024 | — | — | — | 4,713,230 | |||||||||||||
| Total | — | $ | — | — | |||||||||||||
(1)Includes Units redeemed for cash pursuant to the exercise of exchange rights.
(2)Amount is based on market prices and includes commissions paid.
(3)On March 10, 2022, the board authorized a new $50.0 million share repurchase program.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
Shelf Agreement Amendment
Centerspace had a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) under which the Company issued $175.0 million in unsecured senior promissory notes (“Unsecured Shelf Notes”). On October 28, 2024, the shelf agreement was amended to extend the period of time during which Centerspace may borrow money to October 2027 and to increase the borrowing capacity to $300.0 million. The foregoing description of the shelf agreement amendment is not complete and is qualified in its entirety by reference to the full text amendment, a copy of which is filed as an exhibit to this Quarterly Report on Form 10-Q.
Rule 10b5-1 Trading Plans
During the fiscal quarter ended September 30, 2024, none of our trustees or executive officers adopted terminated
40
Item 6. Exhibits
The following exhibits are filed as part of this Report.
EXHIBIT INDEX
* Filed herewith
** Submitted electronically herewith. Attached as Exhibit 101 are the following materials from Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Equity; (iv) the Condensed Consolidated Statements of Cash Flows; (v) notes to these Condensed Consolidated Financial Statements; and (vi) the Cover Page to Quarterly Report on our Form 10-Q.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Centerspace
(Registrant)
| /s/ Anne Olson | |||||
| Anne Olson | |||||
| President and Chief Executive Officer | |||||
| /s/ Bhairav Patel | |||||
| Bhairav Patel | |||||
| Executive Vice President and Chief Financial Officer | |||||
| Date: October 28, 2024 | |||||
42
CENTERSPACE
AMENDMENT NO. 2 TO EQUITY DISTRIBUTION AGREEMENT
July 29, 2024
| BMO Capital Markets Corp. | Nomura Securities International, Inc. | ||||
| 151 West 42nd Street, 32nd Floor | 309 West 49th Street | ||||
| New York, New York 10036 | New York, NY 10019 | ||||
| Bank of Montreal | Piper Sandler & Co. | ||||
| 55 Bloor Street West, 18th Floor | 1251 Avenue of the Americas, 6th Floor | ||||
| Toronto, Ontario MAW 1AF | New York, New York 10020 | ||||
Robert W. Baird & Co. Incorporated 777 E. Wisconsin Avenue Milwaukee, Wisconsin 53202 | Raymond James & Associates, Inc. 880 Carillon Pkwy St. Petersburg, Florida 33716 | ||||
| BofA Securities, Inc. | RBC Capital Markets, LLC | ||||
| One Bryant Park | 200 Vesey Street, 8th Floor | ||||
| New York, NY 10036 | New York, New York 10281 | ||||
| Bank of America, N.A. | Royal Bank of Canada | ||||
| One Bryant Park | 200 Vesey Street, 8th Floor | ||||
| New York, New York 10036 | New York, New York 10281 | ||||
| BTIG, LLC | UBS Securities LLC | ||||
65 East 55th Street | 1285 Avenue of the Americas | ||||
| New York, New York 10022 | New York, New York 10019 | ||||
| Jefferies LLC | UBS AG London Branch | ||||
| 520 Madison Avenue | 5 Broadgate | ||||
| New York, New York 10022 | London EC2M 2QS, United Kingdom | ||||
| Nomura Global Financial Products, Inc. | |||||
| 309 West 49th Street | |||||
| New York, NY 10019 | |||||
Ladies and Gentlemen:
This Amendment No. 2 (this “Amendment”) is being entered into by and among Centerspace, a North Dakota real estate investment trust (the “Company”), and Centerspace, LP, a North Dakota Limited Partnership (the “Operating Partnership”), on the one hand, and BMO Capital Markets Corp., Robert W. Baird & Co. Incorporated, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, Piper Sandler & Co., Raymond James & Associates, Inc., RBC Capital Markets, LLC and UBS Securities LLC, as sales agent, forward seller (except with respect to BTIG, LLC) and/or principal, and Nomura Securities International, Inc. (acting through BTIG, LLC as its agent), as forward seller to Nomura Global Financial Products, Inc., its relevant Forward Purchaser (as defined below) (in such capacity, each a “Manager” and collectively, the “Managers”) and each of Bank of Montreal, Robert W. Baird & Co. Incorporated, Bank of America N.A., Jefferies LLC, Nomura Global Financial Products, Inc., Piper Sandler & Co., Raymond James & Associates, Inc., Royal Bank of Canada and UBS AG London Branch, as forward purchaser (in such capacity, each a “Forward Purchaser” and together, the “Forward Purchasers”) (together with the Company, the Operating Partnership and the Managers, the “Parties”) to amend the Equity Distribution Agreement, dated as of September 10, 2021, as amended by Amendment No. 1 to the Equity Distribution Agreement, effective as of May 9, 2024 (collectively with this Amendment, the “Agreement”), related to the issuance and sale of the Company’s common shares, no par value per share, pursuant to the terms thereof. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement.
On the date hereof, the Company desires to add RBC Capital Markets, LLC and Robert W. Baird & Co. Incorporated, as Managers, and Royal Bank of Canada and Robert W. Baird & Co. Incorporated, as Forward Purchasers, and the Parties hereto wish to amend the Agreement through this Amendment to modify the definition of certain defined terms set forth in the Agreement with effect on and after the date hereof (the “Effective Date”).
SECTION 1. Amendments to the Agreement. The Parties hereby agree and acknowledge, from and after the Effective Date, that:
1.The definitions of the terms “Manager” and “Managers” are hereby amended and restated in their entirety to read as follows: “BMO Capital Markets Corp., Robert W. Baird & Co. Incorporated, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, Piper Sandler & Co., Raymond James & Associates, Inc., RBC Capital Markets, LLC and UBS Securities LLC, as sales agent, forward seller (except with respect to BTIG, LLC) and/or principal, and Nomura Securities International, Inc. (acting through BTIG, LLC as its agent), as forward seller to Nomura Global Financial Products, Inc., its relevant Forward Purchaser (as defined below) (in such capacity, each a “Manager” and collectively, the “Managers”).”
2.The definitions of the terms “Forward Purchaser” and “Forward Purchasers” are hereby amended and restated in their entirety to read as follows: “Bank of Montreal, Robert W. Baird & Co. Incorporated, Bank of America N.A., Jefferies LLC, Nomura
Global Financial Products, Inc., Piper Sandler & Co., Raymond James & Associates, Inc., Royal Bank of Canada and UBS AG London Branch, as forward purchaser (in such capacity, each a “Forward Purchaser” and together, the “Forward Purchasers”).”
3.Section 7(a) of the Agreement is hereby amended and restated in its entirety to read: “Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed, hand delivered or telecopied and, if to the Agents, shall be sufficient in all respects if delivered or sent to BMO Capital Markets Corp., 151 West 42nd Street, 32nd Floor, New York, New York 10036, Attention: Equity Syndicate Department, with a copy to the Legal Department, Telephone: (800) 414-3627; Robert W. Baird & Co. Incorporated, 777 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202, Attention: Syndicate Department, with a copy to the Legal Department (facsimile: (414) 298-7474), Telephone: (414) 298-7474, Email: syndicate@rwbaird.com; BofA Securities, Inc., One Bryant Park, New York, NY 10036, Attention: Equity Capital Markets, Facsimile: (646) 855-5958; BTIG, LLC, 65 East 55th Street New York, New York 10022, Attention: Equity Capital Markets, Email: BTIGUSATMTrading@btig.com, with a copy, which shall not constitute notice to, General Counsel and Chief Compliance Officer (IBLegal@btig.com and BTIGcompliance@btig.com); RBC Capital Markets, LLC, Brookfield Place, 200 Vesey Street, 8th Floor, New York, New York 10281, Attention: TJ Opladen, Telephone: (212) 905-5846, Email: tj.opladen@rbcmn.com, and any notices related to the forward seller shall be provided to Nomura Securities International, Inc., 309 West 49th Street, New York, NY 10019, Attention: Structured Equity Solutions, Email: atmexecution@nomura.com, with a copy, which shall not constitute notice to, 309 West 49th Street, New York, NY 10019, Attention: Equities Legal, Email: Dan.Rosenbaum@nomura.com, and any notices related to the Forward Purchaser shall be provided to Nomura Global Financial Products, Inc., 309 West 49th Street, New York, NY 10019, Attention: Structured Equity Solutions, Email: cedamericas@nomura.com, with a copy, which shall not constitute notice to, 309 West 49th Street, New York, NY 10019, Attention: Equities Legal, Email: nyequitieslegal@nomura.com; Jefferies LLC, 520 Madison Avenue, New York, New York 10022, Attention: General Counsel; Piper Sandler & Co., 1251 Avenue of the Americas, 6th Floor, New York, New York 10020, Attention: FSG Chief Counsel; Raymond James & Associates, Inc., 880 Carillon Pkwy., St. Petersburg, Florida 33716, Attention: Brad Cole, General Counsel, Global Equities; Royal Bank of Canada, Brookfield Place, 200 Vesey Street, 8th Floor, New York, New York 10281, Attention: TJ Opladen, Telephone: (212) 905-5846, Email: tj.opladen@rbcmn.com; and UBS Securities LLC, 1285 Avenue of the Americas, New York, New York 10019 and, if to the Company or the Operating Partnership it shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at Investors Real Estate Trust, 800 LaSalle Ave., Suite 1600, Minneapolis, Minnesota 55402, Attention: General Counsel.
Any such notice shall be effective only upon receipt. Any notice under Section 5 may be made by telecopy or telephone, but if so made shall be subsequently confirmed in writing (which may include, in the case of the Agents, electronic mail to any Authorized Company Representative).”
4.Each of Exhibits A-1, A-2, B and D is hereby replaced in full with the attachments to this Amendment.
SECTION 2. No Other Amendments; References to Agreements. Except as set forth in this Amendment, all other terms and provisions of the Agreement shall continue in full force and effect. All references to the Agreement in the Agreement or in any other document executed or delivered in connection therewith shall, from the date hereof, be deemed a reference to the Agreement as amended by this Amendment.
SECTION 3. Counterparts. This Amendment may be signed by the Parties in one or more counterparts which together shall constitute one and the same agreement among the Parties.
SECTION 4. Governing Law. THIS AMENDMENT, THE AGREEMENT AND EACH TERMS AGREEMENT OR CONFIRMATION, AND ANY DISPUTE, CLAIM OR CONTROVERSY ARISING UNDER OR RELATED TO THIS AMENDMENT, THE AGREEMENT OR SUCH TERMS AGREEMENT OR CONFIRMATION, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Each party hereto hereby irrevocably submits for purposes of any action arising from this Amendment, the Agreement or any Terms Agreement or Confirmation brought by the other party hereto to the jurisdiction of the courts of New York State located in the Borough of Manhattan and the U.S. District Court for the Southern District of New York.
SECTION 5. Headings. The Section headings in this Amendment have been inserted as a matter of convenience of reference and are not a part of this Amendment.
SECTION 6. Successors and Assigns. This Amendment shall be binding upon each Party hereto and their successors and assigns and any successor or assign of any substantial portion of the Party’s respective businesses and/or assets.
[Signature Page Follows]
| Very truly yours, | ||||||||
| CENTERSPACE, A NORTH DAKOTA REAL ESTATE INVESTMENT TRUST | ||||||||
By: | /s/ Anne Olson | |||||||
Name: | Anne Olson | |||||||
Title: | President, Chief Executive Officer and Secretary | |||||||
| CENTERSPACE, LP, A NORTH DAKOTA LIMITED PARTNERSHIP | ||||||||
By: | /s/ Anne M. Olson | |||||||
Name: | Anne M. Olson | |||||||
Title: | Chief Executive Officer and Secretary of Centerspace, Inc., the General Partner | |||||||
By: | /s/ Bhairav Patel | |||||||
Name: | Bhairav Patel | |||||||
Title: | Chief Financial Officer of Centerspace, Inc., the General Partner | |||||||
[Signature Page to Amendment No. 2 to Equity Distribution Agreement]
ACCEPTED as of the date first above written
BMO CAPITAL MARKETS CORP.
By: /s/ Eric Benedict
Name: Eric Benedict
Title: Co-Head, Global Equity Capital Markets
By: /s/ Eric Benedict
Name: Eric Benedict
Title: Co-Head, Global Equity Capital Markets
BANK OF MONTREAL
By: /s Brian Riley
Name: Brian Riley
Title: Managing Director, Global Markets
By: /s Brian Riley
Name: Brian Riley
Title: Managing Director, Global Markets
ROBERT W. BAIRD & CO. INCORPORATED
By: /s/ Christopher Walter
Name: Christopher Walter
Title: Managing Director
By: /s/ Christopher Walter
Name: Christopher Walter
Title: Managing Director
BOFA SECURITIES, INC.
By: /s/ Hicham Hamdouch
Name: Hicham Hamdouch
Title: Managing Director
By: /s/ Hicham Hamdouch
Name: Hicham Hamdouch
Title: Managing Director
BANK OF AMERICA, N.A.
By: /s/ Rohan Handa
Name: Rohan Handa
Title: Managing Director
By: /s/ Rohan Handa
Name: Rohan Handa
Title: Managing Director
BTIG, LLC
By: /s/ Anthony Wayne
Name: Anthony Wayne
Title: Managing Director
By: /s/ Anthony Wayne
Name: Anthony Wayne
Title: Managing Director
JEFFERIES LLC
By: /s/ Donald Lynaugh
Name: Donald Lynaugh
Title: Managing Director
By: /s/ Donald Lynaugh
Name: Donald Lynaugh
Title: Managing Director
[Signature Page to Amendment No. 2 to Equity Distribution Agreement]
NOMURA SECURITIES INTERNATIONAL, INC.
By: /s/ Jason Eisenhauer
Name: Jason Eisenhauer
Title: Managing Director
By: /s/ Jason Eisenhauer
Name: Jason Eisenhauer
Title: Managing Director
NOMURA GLOBAL FINANCIAL PRODUCTS, INC.
By: /s/ Jeffrey Petillo
Name: Jeffrey Petillo
Title: Authorized Representative
By: /s/ Jeffrey Petillo
Name: Jeffrey Petillo
Title: Authorized Representative
PIPER SANDLER & CO.
By: /s/ Thomas S. Howland
Name: Thomas S. Howland
Title: Managing Director
Name: Thomas S. Howland
Title: Managing Director
RAYMOND JAMES & ASSOCIATES, INC.
By: /s/ Brad Butcher
Name: Brad Butcher
Title: Co-Head, Sr. Managing Director
By: /s/ Brad Butcher
Name: Brad Butcher
Title: Co-Head, Sr. Managing Director
RBC CAPITAL MARKETS, LLC
By: /s/ Asad Kazim
Name: Asad Kazim
Title: Managing Director and Group Head, U.S. Real Estate
ROYAL BANK OF CANADA
By: /s/ Brian Ward
Name: Brian Ward
Title: Managing Director
Name: Brian Ward
Title: Managing Director
[Signature Page to Amendment No. 2 to Equity Distribution Agreement]
UBS SECURITIES LLC
By: /s/ Pedro Bollmann
Name: Pedro Bollmann
Title: Executive Director
Name: Pedro Bollmann
Title: Executive Director
By: /s/ Jesse O’Neill
Name: Jesse O’Neill
Title: Executive Director
Name: Jesse O’Neill
Title: Executive Director
UBS AG LONDON BRANCH
By: /s/ Nicholas Lewis
Name: Nicholas Lewis
Title: Executive Director
By: /s/ Liam Ayre
Name: Liam Ayre
Title: Executive Director
Name: Liam Ayre
Title: Executive Director
[Signature Page to Amendment No. 2 to Equity Distribution Agreement]
EXHIBIT A-1
FORM OF REGULAR PLACEMENT NOTICE
[Company Letterhead]
[_______], 20[__]
[•]
VIA EMAIL
TRANSACTION NOTICE
Ladies and Gentlemen:
The purpose of this Transaction Notice is to propose certain terms of the Agency Transaction entered into with [•] under, and pursuant to, that certain Equity Distribution Agreement among Centerspace, a North Dakota real estate investment trust, and Centerspace, LP, each of BMO Capital Markets Corp., Robert W. Baird & Co. Incorporated, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, Piper Sandler & Co., Raymond James & Associates, Inc., RBC Capital Markets, LLC and UBS Securities LLC, as sales agent, forward seller (except with respect to BTIG, LLC) and/or principal, and Nomura Securities International, Inc. (acting through BTIG, LLC as its agent), as forward seller to Nomura Global Financial Products, Inc., its relevant forward purchaser, and each of Bank of Montreal, Robert W. Baird & Co. Incorporated, Bank of America, N.A., Jefferies LLC, Nomura Global Financial Products, Inc., Piper Sandler & Co., Raymond James & Associates, Inc., Royal Bank of Canada, and UBS AG London Branch, as forward purchaser, dated September 10, 2021, as amended by Amendment No. 1 to the Equity Distribution Agreement, effective as of May 9, 2024, and Amendment No. 2 to the Equity Distribution Agreement, effective as of July 29, 2024 (collectively, the “Agreement”). Please indicate your acceptance of the proposed terms below. Upon acceptance, the particular Agency Transaction to which this Transaction Notice relates shall supplement, form a part of, and be subject to, the Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
The terms of the particular Agency Transaction to which this Transaction Notice relates are as follows:
Trading Day(s) on which Shares may be Sold: [_______], 20[__], [_______], 20[__] . . . [_______], 20[__]
Maximum Number of Shares
to be Sold in the Aggregate: [_______]
Maximum Number of Shares
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to be Sold on each Trading Day: [_______]
Floor Price: USD[__.__]
Compensation: [_______]% of the gross proceeds from the sale of Shares
[Remainder of Page Intentionally Blank]
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Very truly yours,
| CENTERSPACE, A NORTH DAKOTA REAL ESTATE INVESTMENT TRUST | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| CENTERSPACE, LP, A NORTH DAKOTA LIMITED PARTNERSHIP | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
Accepted and agreed as of
the date first above written:
the date first above written:
[•]
By:______________________________
Name:
Title:
Name:
Title:
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769147677.3
EXHIBIT A-2
FORM OF FORWARD PLACEMENT NOTICE
| From: | Centerspace | |||||||
| Cc: | Centerspace, LP | |||||||
| To: | [•] | |||||||
| Date: | [•] | |||||||
| Subject: | Forward Placement Notice | |||||||
Ladies and Gentlemen:
Reference is made to the Equity Distribution Agreement, dated as of September 10, 2021, as amended by Amendment No. 1 to the Equity Distribution Agreement, effective as of May 9, 2024, and Amendment No. 2 to the Equity Distribution Agreement, effective as of July 29, 2024 (collectively, the “Agreement”), among Centerspace, Centerspace, LP, each of BMO Capital Markets Corp., Robert W. Baird & Co. Incorporated, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, Piper Sandler & Co., Raymond James & Associates, Inc., RBC Capital Markets, LLC and UBS Securities LLC, as sales agent, forward seller (except with respect to BTIG, LLC) and/or principal, and Nomura Securities International, Inc. (acting through BTIG, LLC as its agent), as forward seller to Nomura Global Financial Products, Inc., its relevant forward purchaser, and each of Bank of Montreal, Robert W. Baird & Co. Incorporated, Bank of America, N.A., Jefferies LLC, Nomura Global Financial Products, Inc., Piper Sandler & Co., Raymond James & Associates, Inc., Royal Bank of Canada and UBS AG London Branch, as forward purchaser. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Agreement or the [Form of Confirmation set forth in Exhibit D to the Agreement][Master Confirmation, dated as of [•], between the Company and [•] (the “Master Confirmation”)].
The Company desires to enter into a Forward, including a related [Confirmation][Supplemental Confirmation], on the following terms:
| Forward Hedge Selling Period: | [•]-[•] | |||||||
| Maximum Number of Shares to be Sold Daily: | [•] | |||||||
| Aggregate Maximum Forward Hedge Amount: | [USD][•] | |||||||
| Minimum Price per Share: | USD[•] | |||||||
| Forward Seller Commission: | [•]% | |||||||
| Spread: | [•]% | |||||||
1 Adjustable by the Company during the Forward Hedge Selling Period.
| Initial Stock Loan Rate: | [•]% | |||||||
| Maximum Stock Loan Rate: | [•]% | |||||||
| Trade Date: | [•], 20[•] | |||||||
| Maturity Date: | [•], 20[•] | |||||||
| Forward Price Reduction Dates / Amounts (USD): | [•], 20[•] / USD [•] [•], 20[•] / USD [•] [•], 20[•] / USD [•] [•], 20[•] / USD [•] | |||||||
| [Other Deviations from [Form of][Master] Confirmation:] | [•] | |||||||
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| Very truly yours, | ||||||||||||||||||||
| CENTERSPACE | ||||||||||||||||||||
| By: | ||||||||||||||||||||
| Name: | ||||||||||||||||||||
| Title: | ||||||||||||||||||||
| [Agreed and accepted by: | ||||||||||||||||||||
| [MANAGER] | ||||||||||||||||||||
| By: | ||||||||||||||||||||
| Name: | ||||||||||||||||||||
| Title: | ] | |||||||||||||||||||
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EXHIBIT B
CENTERSPACE
Common Shares of Beneficial Interest
TERMS AGREEMENT
[_______], 20[__]
[•]
Ladies and Gentlemen:
Centerspace, a North Dakota real estate investment trust (the “Company”), proposes, subject to the terms and conditions stated herein, in the Schedule hereto and in the Equity Distribution Agreement, dated September 10, 2021, as amended by Amendment No. 1 to the Equity Distribution Agreement, effective as of May 9, 2024, and Amendment No. 2 to the Equity Distribution Agreement, effective as of July 29, 2024 (collectively, the “Equity Distribution Agreement”), between the Company and Centerspace, LP a North Dakota Limited Partnership, each of BMO Capital Markets Corp., Robert W. Baird & Co. Incorporated, BofA Securities, Inc., BTIG, LLC, Jefferies LLC, Piper Sandler & Co., Raymond James & Associates, Inc., RBC Capital Markets, LLC and UBS Securities LLC, as sales agent, forward seller (except with respect to BTIG, LLC) and/or principal, and Nomura Securities International, Inc. (acting through BTIG, LLC as its agent), as forward seller to Nomura Global Financial Products, Inc., its relevant forward purchaser, and each of Bank of Montreal, Robert W. Baird & Co. Incorporated, Bank of America, N.A., Jefferies LLC, Nomura Global Financial Products, Inc., Piper Sandler & Co., Raymond James & Associates, Inc., Royal Bank of Canada and UBS AG London Branch, as forward purchaser, to issue and sell to [•] [_______] shares of the Company’s common shares of beneficial interest, no par value per share (the “Purchased Shares”) [, and, solely for the purpose of covering over-allotments, to grant to [•] the option to purchase an additional [_______] shares of such common shares of beneficial interest (the “Additional Shares”)]. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
[[•] shall have the right to purchase from the Company all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Purchased Shares at the same purchase price per share to be paid by [•] to the Company for the Purchased Shares. This option may be exercised by [•] at any time (but not more than once) on or before the 30th day following the date of this Terms Agreement, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date, the “Option Settlement Date”); provided, however, that the Option Settlement Date shall not be earlier than the Settlement Date (as set forth in the Schedule hereto) nor earlier than the second business day after the date on which the option shall have been exercised nor later
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than the fifth business day after the date on which the option shall have been exercised. Payment of the purchase price for the Additional Shares shall be made at the Option Settlement Date in the same manner and at the same office as the payment for the Purchased Shares.]
Each of the provisions of the Equity Distribution Agreement not specifically related to the solicitation by [•], as agent of the Company, of offers to purchase Shares in Agency Transactions is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein.
An amendment to the Registration Statement, or a supplement to the Prospectus, as the case may be, relating to the Purchased Shares [and the Additional Shares], in the form heretofore delivered to [•] is now proposed to be filed with the Securities and Exchange Commission.
Subject to the terms and conditions set forth herein and in the Schedule hereto and subject the terms and conditions of the Equity Distribution Agreement incorporated herein as provided in the second immediately preceding paragraph, the Company agrees to issue and sell to [•], and [•] agrees to purchase from the Company, the Purchased Shares at the time and place and at the purchase price set forth in the Schedule hereto.
[Remainder of Page Intentionally Blank]
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If the foregoing is in accordance with your understanding, please sign and return to us a counterpart hereof, whereupon this Terms Agreement, including those provisions of the Equity Distribution Agreement incorporated herein by reference, shall constitute a binding agreement between [•] and the Company.
| CENTERSPACE, A NORTH DAKOTA REAL ESTATE INVESTMENT TRUST | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| CENERSPACE LP, A NORTH DAKOTA LIMITED PARTNERSHIP | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
Accepted and agreed as of
the date first above written:
[•]
By:_____________________________
Name:
Title:
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Schedule to Terms Agreement
[Price to Public:
USD[__.__] per share]
Purchase Price by [•]:
USD[__.__] per share
Method of and Specified Funds for Payment of Purchase Price:
[By wire transfer to a bank account specified by the Company in same-day funds.]
Method of Delivery:
[To [•]’s account, or the account of [•]’s designee, at The Depository Trust Company via DWAC in return for payment of the purchase price.]
Settlement Date:
[_______], 20[__]
Closing Location:
[_______]
Documents To Be Delivered:
The following documents referred to in the Equity Distribution Agreement shall be delivered as a condition to the closing (which documents shall be dated on or as of the date of the Terms Agreement to which this Schedule is annexed):
•the officer’s certificate referred to in Section 4(c);
•the legal opinions referred to in Sections 4(d) and (e);
•the “comfort letter” referred to in Section 4(f); and
•such other documents as [•] shall reasonably request.
[Indemnity:
[_______]]
[Lockup:
In addition to, and without limiting the generality of, the covenant set forth in Section 3(q) of the Equity Distribution Agreement, [________].]
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EXHIBIT D
FORM OF CONFIRMATION
| To: | Centerspace | |||||||
| From: | [●] | |||||||
| Date: | [●], 20[●] | |||||||
Ladies and Gentlemen:
The purpose of this communication (this “Master Confirmation”) is to set forth the terms and conditions of the transactions to be entered into from time to time between [●] (“Dealer”) and Centerspace (“Counterparty”) on one or more Trade Dates specified herein (collectively, the “Transactions” and each, a “Transaction”). This communication constitutes a “Confirmation” as referred to in the Agreement specified below. Each Transaction will be evidenced by a supplemental confirmation, substantially in the form attached as Annex B hereto (each, a “Supplemental Confirmation,” and each such Supplemental Confirmation, together with this Master Confirmation, a “Confirmation”). Each Confirmation will be a confirmation for purposes of Rule 10b-10 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
1. Each Confirmation is subject to, and incorporates, the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”) and the 2006 ISDA Definitions (the “Swap Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”). For purposes of the Equity Definitions, each Transaction will be deemed to be a Share Forward Transaction.
Each Confirmation shall supplement, form a part of and be subject to an agreement (the “Agreement”) in the form of the 2002 ISDA Master Agreement (the “ISDA Form”), as published by ISDA, as if Dealer and Counterparty had executed the ISDA Form on the date hereof (but without any Schedule) except for (i) the election of New York law (without regard to New York’s choice of laws doctrine other than Title 14 of Article 5 of the New York General Obligations Law) as the governing law and US Dollars (“USD”) as the Termination Currency; (ii) the election that the “Cross Default” provisions of Section 5(a)(vi) of the Agreement shall apply to Counterparty and Dealer, with a “Threshold Amount” of USD 50 million for Counterparty and a “Threshold Amount” equal to 3% of [members’][shareholders’] equity of [Dealer] as of the date hereof for Dealer; provided that (a) the phrase “or becoming capable at such time of being declared” shall be deleted from clause (1) of such Section 5(a)(vi) of the Agreement, (b) the following sentence shall be added to the end thereof: “Notwithstanding the foregoing, a default under subsection (2) hereof shall not constitute an Event of Default if (x) the default was caused solely by error or omission of an administrative or operational nature; (y) funds were available to enable the party to make the payment when due; and (z) the payment is made within three Local Business Days of such party’s receipt of written notice of its failure to pay.”; (c) the term “Specified Indebtedness” shall have the meaning specified in Section 14 of
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the Agreement, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party’s banking business; and (iii) the elections set forth in Section 9 of this Master Confirmation. All provisions contained in the Agreement are incorporated into and shall govern this Master Confirmation except as expressly modified herein. This Master Confirmation, each Supplemental Confirmation and the Agreement evidence a complete and binding agreement between Dealer and Counterparty as to the terms of the applicable Transaction and replace any previous agreement between the parties with respect to the subject matter hereof and thereof.
The Transactions hereunder shall be the sole Transactions under the Agreement. If there exists any ISDA Master Agreement between Dealer or any of its Affiliates (each, a “Dealer Affiliate”) and Counterparty or any confirmation or other agreement between Dealer or a Dealer Affiliate and Counterparty pursuant to which an ISDA Master Agreement is deemed to exist between Dealer or a Dealer Affiliate and Counterparty, then notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which Dealer or a Dealer Affiliate and Counterparty are parties, each Transaction and any Additional Transaction shall not be considered a Transaction under, or otherwise governed by, such existing or deemed ISDA Master Agreement.
If, in relation to any Transaction, there is any inconsistency between the Agreement, this Master Confirmation, the relevant Supplemental Confirmation, the Equity Definitions and the Swap Definitions, the following will prevail for purposes of such Transaction in the order of precedence indicated: (i) the relevant Supplemental Confirmation; (ii) this Master Confirmation; (iii) the Equity Definitions; (iv) the Swap Definitions; and (v) the Agreement.
2. The terms of the particular Transactions to which this Master Confirmation relates are as follows:
General Terms:
| Trade Date: | For each Transaction, the first day on which Shares are sold through the Agent (as defined below) pursuant to the Sales Agreement (as defined below) to hedge Dealer’s exposure under the applicable Transaction, or another date as specified in the related Forward Placement Notice (as defined in the Sales Agreement). | ||||
| Effective Date: | For each Transaction, the date that is one Settlement Cycle following the Trade Date. | ||||
| Buyer: | Dealer. | ||||
| Seller: | Counterparty. | ||||
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| Maturity Date: | For each Transaction, the earlier of (i) the date specified in the Supplemental Confirmation (or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day) and (ii) the date on which the Number of Shares is reduced to zero. | ||||
| Shares: | The shares of common stock, no par value per Share, of Counterparty (Ticker: “CSR”). | ||||
| Number of Shares: | For each Transaction, the Initial Number of Shares; provided that on each Settlement Date, the Number of Shares shall be reduced by the number of Settlement Shares for such Settlement Date. | ||||
| Initial Number of Shares: | For each Transaction, as specified in the Supplemental Confirmation, to be the aggregate number of Shares sold through the Agent, acting as forward seller for Dealer pursuant to the Sales Agreement, during the period from and including the Trade Date through and including the Hedge Completion Date. | ||||
| Hedge Completion Date: | For each Transaction, the date specified in the Supplemental Confirmation, to be the earlier of (i) the date specified in writing as the Hedge Completion Date by Counterparty in the applicable Forward Placement Notice and (ii) the first Settlement Date. | ||||
| Settlement Currency: | USD. | ||||
| Exchange: | The New York Stock Exchange. | ||||
| Related Exchange: | All Exchanges. | ||||
| Prepayment: | Not Applicable. | ||||
| Variable Obligation: | Not Applicable. | ||||
| Forward Price: | On the Hedge Completion Date, the Initial Forward Price, and on any day thereafter, the product of the Forward Price on the immediately preceding calendar day and | ||||
1 + the Daily Rate * (1/365); | |||||
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provided that the Forward Price on each Forward Price Reduction Date shall be the Forward Price otherwise in effect on such date minus the Forward Price Reduction Amount per Share for such Forward Price Reduction Date. | |||||
| Initial Forward Price: | For each Transaction, as specified in the Supplemental Confirmation, to be the product of (i) the Net Percentage and (ii) the Volume-Weighted Hedge Price. | ||||
| Volume-Weighted Hedge Price: | For each Transaction, as specified in the Supplemental Confirmation, to be the volume weighted average of the prices at which the Shares are sold through the Agent acting as forward seller for Dealer pursuant to the Sales Agreement during the period from and including the Trade Date through and including the Hedge Completion Date, provided that, solely for the purposes of calculating the Initial Forward Price, each such price shall be subject to adjustment by the Calculation Agent in good faith, in a commercially reasonable manner and in the same manner as the Forward Price pursuant to the definition thereof during the period from the Trade Date through and including the Hedge Completion Date. | ||||
| Net Percentage: | For each Transaction, as specified in the Supplemental Confirmation, to be equal to one minus the Forward Seller Commission (as defined in the Sales Agreement) for such Transaction. | ||||
| Daily Rate: | For any day, the Overnight Bank Funding Rate minus the Spread. | ||||
| Overnight Bank Funding Rate: | For any day, the rate set forth for such day opposite the caption “Overnight bank funding rate” as such rate is displayed on the page “OBFR01 <Index> <GO>“ on the BLOOMBERG Professional Service, or any successor page; provided that if no such rate appears for such day on such page, the rate for such day will be determined by the Calculation Agent based on its estimate of the prevailing USD overnight bank funding rate for such day. | ||||
| Spread: | For each Transaction, as specified in the Supplemental Confirmation and the related Forward Placement Notice. | ||||
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| Forward Price Reduction Dates: | For each Transaction, each date listed as such in Schedule I to the Supplemental Confirmation, and as set forth in the related Forward Placement Notice. | ||||
| Forward Price Reduction Amount per Share: | For each Forward Price Reduction Date in each Transaction, the Forward Price Reduction Amount per Share set forth opposite such date on Schedule I to the Supplemental Confirmation, and as set forth in the related Forward Placement Notice. | ||||
Valuation: | |||||
| Valuation Date: | For any Settlement (as defined below), if Physical Settlement is applicable, as designated in the relevant Settlement Notice (as defined below); or if Cash Settlement or Net Share Settlement is applicable, the last Unwind Date for such Settlement. Section 6.6 of the Equity Definitions shall not apply to any Valuation Date. | ||||
| Unwind Dates: | For any Cash Settlement or Net Share Settlement, each day on which Dealer (or its agent or affiliate) purchases Shares in the market in connection with such Settlement, starting on the First Unwind Date for such Settlement. | ||||
| First Unwind Date: | For any Cash Settlement or Net Share Settlement, as designated in the relevant Settlement Notice. | ||||
| Unwind Period: | For any Cash Settlement or Net Share Settlement, the period starting on the First Unwind Date for such Settlement and ending on the Valuation Date for such Settlement. | ||||
Settlement Terms: | |||||
| Settlement: | For each Transaction, any Physical Settlement, Cash Settlement or Net Share Settlement of all or any portion of such Transaction. | ||||
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| Settlement Notice: | Subject to “Early Valuation” below, Counterparty may elect to effect a Settlement of all or any portion of the applicable Transaction by designating one or more Scheduled Trading Days following the Hedge Completion Date and on or prior to the Maturity Date to be Valuation Dates (or, with respect to Cash Settlements or Net Share Settlements, First Unwind Dates, each of which First Unwind Dates shall occur no later than the 60th Scheduled Trading Day immediately preceding the Maturity Date) in a written notice to Dealer delivered no later than the applicable Settlement Method Election Date (in the case of a Net Share Settlement or Cash Settlement) or the 5th Scheduled Trading Day immediately preceding the relevant Valuation Date (in the case of a Physical Settlement), which notice shall also specify (i) the number of Shares (the “Settlement Shares”) for such Settlement (not to exceed the number of Undesignated Shares as of the date of such Settlement Notice) and (ii) the Settlement Method applicable to such Settlement; provided that (A) Counterparty may not designate a First Unwind Date for a Cash Settlement or a Net Share Settlement if, as of the date of such Settlement Notice, any Shares have been designated as Settlement Shares for a Cash Settlement or a Net Share Settlement for which the related Relevant Settlement Date has not occurred; and (B) if the Number of Shares as of the Maturity Date is not zero, then the Maturity Date shall be a Valuation Date for a Physical Settlement and the number of Settlement Shares for such Settlement shall be the Number of Shares as of the Maturity Date (provided that if the Maturity Date occurs during any Unwind Period, then the provisions set forth below opposite “Early Valuation” shall apply as if the Maturity Date were the Early Valuation Date). | ||||
| Undesignated Shares: | For each Transaction, as of any date, the Number of Shares minus the number of Shares designated as Settlement Shares for Settlements for which the related Relevant Settlement Date has not occurred. | ||||
| Settlement Method Election: | Applicable; provided that, for each Transaction: | ||||
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(i) Net Share Settlement shall be deemed to be included as an additional settlement method under Section 7.1 of the Equity Definitions; | |||||
(ii) Counterparty may elect Cash Settlement or Net Share Settlement only if Counterparty represents and warrants to Dealer in the Settlement Notice containing such election that, as of the date of such Settlement Notice, (A) Counterparty is not aware of any material nonpublic information concerning itself or the Shares, (B) Counterparty is electing the settlement method and designating the First Unwind Date specified in such Settlement Notice in good faith and not as part of a plan or scheme to evade compliance with Rule 10b-5 under the Exchange Act (“Rule 10b-5”) or any other provision of the federal securities laws, (C) Counterparty is not “insolvent” (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”)), (D) Counterparty would be able to purchase a number of Shares equal to (x) the number of Settlement Shares designated in such Settlement Notice, in case of an election of Cash Settlement, or (y) a number of Shares with a value as of the date of such Settlement Notice equal to the product of (I) such number of Settlement Shares and (II) the then-current Forward Price, in case of an election of Net Share Settlement, in compliance with the laws of Counterparty’s jurisdiction of organization, (E) it is not electing Cash Settlement or Net Share Settlement to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares) and (F) such election, and settlement in accordance therewith, does not and will not violate or conflict with any law, regulation or supervisory guidance applicable to Counterparty, or any order or judgment of any court or other agency of government applicable to it or any of its assets, and any governmental consents that are required to have been obtained by Counterparty with respect to such election or settlement have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and | |||||
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(iii) Notwithstanding any election to the contrary in any Settlement Notice, Physical Settlement shall be applicable: | |||||
(A) to all of the Settlement Shares designated in such Settlement Notice if, on the date such Settlement Notice is received by Dealer, (I) the trading price per Share on the Exchange (as determined by the Calculation Agent in a commercially reasonable manner) is below 50% of the Initial Forward Price (the “Threshold Price”) or (II) Dealer, as Hedging Party, determines, in its reasonable good faith judgment, after using commercially reasonable efforts, that it would be unable to purchase a number of Shares in the market sufficient to unwind its commercially reasonable hedge position in respect of the portion of the applicable Transaction represented by such Settlement Shares and satisfy its delivery obligation hereunder, if any, by the Maturity Date (taking into account any additional share forward or other equity derivative transaction (each, an “Additional Equity Derivative Transaction”) Counterparty has entered into) (x) in a manner that (A) would, if Dealer were Counterparty or an affiliated purchaser of Counterparty, be subject to the safe harbor provided by Rule 10b-18(b) under the Exchange Act and (B) based on advice of counsel, would not raise material risks under applicable securities laws or (y) due to the lack of sufficient liquidity in the Shares (each, a “Trading Condition”); or | |||||
(B) to all or a portion of the Settlement Shares designated in such Settlement Notice if, on any day during the relevant Unwind Period, (I) the trading price per Share on the Exchange (as determined by the Calculation Agent in a commercially reasonable manner) is below the Threshold Price or (II) Dealer, as Hedging Party, determines, in its good faith, reasonable judgment, that a Trading Condition has occurred, in which case the provisions set forth below in the fourth paragraph opposite “Early Valuation” shall apply as if such day were the Early Valuation Date and (x) for purposes of clause (i) of such paragraph, such day shall be the last Unwind Date of such Unwind Period and the “Unwound Shares” shall be calculated to, and including, such day and (y) for purposes of clause (ii) of such paragraph, the “Remaining Shares” shall be equal to the number of Settlement Shares designated in such Settlement Notice minus the Unwound Shares determined in accordance with clause (x) of this sentence. | |||||
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| Electing Party: | Counterparty. | ||||
| Settlement Method Election Date: | With respect to any Settlement, the 5th Scheduled Trading Day immediately preceding (x) the Valuation Date, in the case of Physical Settlement, or (y) the First Unwind Date, in the case of Cash Settlement or Net Share Settlement. | ||||
| Default Settlement Method: | Physical Settlement. | ||||
| Physical Settlement: | Notwithstanding Section 9.2(a)(i) of the Equity Definitions, on the Settlement Date, Dealer shall pay to Counterparty an amount equal to the Forward Price on the relevant Valuation Date multiplied by the number of Settlement Shares for such Settlement, and Counterparty shall deliver to Dealer such Settlement Shares. | ||||
| Settlement Date: | The Valuation Date. | ||||
| Net Share Settlement: | If Net Share Settlement applies, on the Net Share Settlement Date, if the Net Share Settlement Amount is greater than zero, Counterparty shall deliver a number of Shares equal to the Net Share Settlement Amount (rounded down to the nearest integer) to Dealer, and if the Net Share Settlement Amount is less than zero, Dealer shall deliver a number of Shares equal to the absolute value of the Net Share Settlement Amount (rounded down to the nearest integer) to Counterparty, in either case, in accordance with Section 9.4 of the Equity Definitions, with the Net Share Settlement Date deemed to be a “Settlement Date” for purposes of such Section 9.4, and, in either case, plus cash in lieu of any fractional Shares included in the Net Share Settlement Amount but not delivered due to rounding required hereby, valued at the Settlement Price. | ||||
| Net Share Settlement Date: | The date that follows the Valuation Date by one Settlement Cycle. | ||||
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| Net Share Settlement Amount: | For any Net Share Settlement, an amount equal to (i) the Forward Cash Settlement Amount divided by the Settlement Price plus (ii) a number of Shares, valued at the Settlement Price (determined as if, solely for purposes of this clause (ii), the reference to the phrase “on each Unwind Date during the Unwind Period relating to such Settlement” in the definition of “Settlement Price” were instead deemed to refer, in respect of any relevant Forward Price Reduction Date, to the phrase “during a commercially reasonable period of time corresponding to the relevant Forward Price Reduction Date in order to account for the related Forward Price Reduction Amount during such period”), equal to the aggregate Unwind Adjustment Amount(s), if any, for the relevant Unwind Period, as determined by the Calculation Agent. | ||||
| Forward Cash Settlement Amount: | Notwithstanding Section 8.5(c) of the Equity Definitions, the Forward Cash Settlement Amount for any Cash Settlement or Net Share Settlement shall be equal to (i) the number of Settlement Shares for such Settlement multiplied by (ii) an amount equal to (A) the Settlement Price minus (B) the Relevant Forward Price. | ||||
| Relevant Forward Price: | For any Cash Settlement or Net Share Settlement, as determined by the Calculation Agent, the weighted average Forward Price per Share on each Unwind Date during the Unwind Period relating to such Settlement (weighted based on the number of Shares purchased by Dealer or its agent or affiliate in connection with unwinding its commercially reasonable hedge position in connection on each such Unwind Date in connection with such Settlement). | ||||
| Settlement Price: | For any Cash Settlement or Net Share Settlement, as determined by the Calculation Agent, the weighted average price per Share of the purchases of Shares made by Dealer (or its agent or affiliate) on each Unwind Date during the Unwind Period relating to such Settlement (weighted based on the number of Shares purchased by Dealer or its agent or affiliate at each such price per Share in connection with unwinding its commercially reasonable hedge position in connection with such Settlement), plus USD 0.02 per Share. | ||||
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The times and prices at which Dealer (or its agent or affiliate) purchases any Shares during any Unwind Period in connection with unwinding its commercially reasonable hedge position shall be determined by Dealer in a commercially reasonable manner. Without limiting the generality of the foregoing, in the event that Dealer concludes, in its good faith and reasonable discretion based upon advice of counsel, that it is appropriate with respect to any legal, regulatory or self-regulatory requirements or related policies and procedures generally applicable in similar situations and applied in a non-discriminatory manner (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer) for it, as Hedging Party, to refrain from purchasing Shares on any Scheduled Trading Day (a “Regulatory Disruption”), that would have been an Unwind Date but for the occurrence of a Regulatory Disruption, Dealer shall notify Counterparty in writing that a Regulatory Disruption has occurred on such Scheduled Trading Day without specifying (and Dealer shall not otherwise communicate to Counterparty) the nature of such Regulatory Disruption, and, for the avoidance of doubt, such Scheduled Trading Day shall not be an Unwind Date and such Regulatory Disruption shall be deemed to be a Market Disruption Event. | |||||
| Relevant Settlement Date: | For any Settlement, the Settlement Date, Cash Settlement Payment Date or Net Share Settlement Date, as the case may be. | ||||
| Unwind Adjustment Amount: | For any Net Share Settlement, for any Forward Price Reduction Date that occurs during the period from, and including, the date one Settlement Cycle immediately following the relevant First Unwind Date to, and including, the date one Settlement Cycle immediately following the relevant Valuation Date, an amount determined by the Calculation Agent equal to the product of (i) the Forward Price Reduction Amount per Share for such Forward Price Reduction Date multiplied by (ii)(A) if the Net Share Settlement Amount calculated as of the date immediately prior to the relevant Forward Price Reduction Date is a positive number, such Net Share Settlement Amount or (B) otherwise, zero. | ||||
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| Settlement Currency: | USD. | ||||
| Other Applicable Provisions: | To the extent Dealer or Counterparty is obligated to deliver Shares hereunder, the provisions of Sections 9.2 (last sentence only), 9.8, 9.9, 9.10 and 9.11 of the Equity Definitions will be applicable as if “Physical Settlement” applied to the applicable Transaction; provided that, in such case, with respect to any delivery of Shares by Dealer the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws that exist as a result of the fact that Counterparty is the issuer of the Shares. In addition, to the extent Counterparty is obligated to deliver Shares hereunder, the provisions of Section 9.12 of the Equity Definitions will be applicable as if “Physical Settlement” applied to such Transaction. | ||||
Share Adjustments: | |||||
| Potential Adjustment Events: | An Extraordinary Dividend shall not constitute a Potential Adjustment Event. | ||||
| Extraordinary Dividend: | For each Transaction, any dividend or distribution on the Shares with an ex-dividend date occurring on any day following the Trade Date (other than (i) any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions or (ii) a regular, quarterly cash dividend (x) in an amount per Share equal to or less than the Forward Price Reduction Amount corresponding to such quarter and (y) the ex-dividend date for which is no earlier than the Forward Price Reduction Date corresponding to such quarter). | ||||
| Method of Adjustment: | Calculation Agent Adjustment. | ||||
Extraordinary Events: | |||||
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| Extraordinary Events: | The consequences that would otherwise apply under Article 12 of the Equity Definitions to any applicable Extraordinary Event (excluding any Failure to Deliver, Increased Cost of Hedging, Increased Cost of Stock Borrow or any Extraordinary Event that also constitutes a Bankruptcy Termination Event (as defined below), but including, for the avoidance of doubt, any other applicable Additional Disruption Event) shall not apply. | ||||
| Merger Event: | Applicable; provided that Section 12.1(b) of the Equity Definitions is hereby amended by deleting the remainder of such Section beginning with the words “in each case if the Merger Date is on or before” in the fourth to last line thereof. | ||||
| Tender Offer: | Applicable, provided that Section 12.1(d) of the Equity Definitions shall be amended by replacing the reference therein to “10%” with a reference to “20%”. | ||||
| Delisting: | In addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange. | ||||
Additional Disruption Events: | |||||
| Change in Law: | Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended (i) by replacing the phrase “the interpretation” in the third line thereof with the phrase “, or public announcement of, the formal or informal interpretation”, (ii) by adding the phrase “and/or Hedge Position” after the word “Shares” in clause (X) thereof and (iii) by immediately following the word “Transaction” in clause (X) thereof, adding the phrase “in the manner contemplated by the Hedging Party on the Trade Date”; and provided further, that (i) any determination as to whether (A) the adoption of or any change in any applicable law or regulation (including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute) or (B) the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority), in each case, constitutes a “Change in Law” shall be made without regard to Section 739 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the Trade Date, and (ii) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof with the phrase “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)”. | ||||
| Failure to Deliver: | Applicable if Dealer is required to deliver Shares hereunder; otherwise, Not Applicable. | ||||
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| Hedging Disruption: | Applicable. | ||||
| Increased Cost of Hedging: | Applicable; provided that Section 12.9(b)(vi) of the Equity Definitions shall be amended by (i) deleting clause (C) of the second sentence thereof and (ii) deleting the third and fourth sentences thereof. | ||||
| Increased Cost of Stock Borrow: | Applicable; provided that Section 12.9(b)(v) of the Equity Definitions shall be amended by (i) deleting clause (C) of the second sentence thereof and (ii) deleting the third, fourth and fifth sentences thereof. For the avoidance of doubt, upon the announcement of any event that, if consummated, would result in a Merger Event or Tender Offer, the term “rate to borrow Shares” as used in Section 12.9(a)(viii) of the Equity Definitions shall include, without duplication, any commercially reasonable cost borne or amount payable by the Hedging Party in respect of maintaining or reestablishing its commercially reasonable hedge position, including, but not limited to, any assessment or other amount payable by the Hedging Party to a lender of Shares in respect of any merger or tender offer premium, as applicable. | ||||
| Initial Stock Loan Rate: | For each Transaction, as specified in the Supplemental Confirmation and the related Forward Placement Notice. | ||||
| Loss of Stock Borrow: | Applicable. | ||||
| Maximum Stock Loan Rate: | For each Transaction, as specified in the Supplemental Confirmation and the related Forward Placement Notice. | ||||
| Hedging Party: | For all applicable Additional Disruption Events, Dealer. | ||||
| Determining Party: | For all applicable Extraordinary Events, Dealer. | ||||
Early Valuation: | |||||
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| Early Valuation: | For each Transaction, notwithstanding anything to the contrary herein, in the Supplemental Confirmation, the Agreement or in the Equity Definitions, at any time (x) concurrently with or following the occurrence of a Hedging Event, the declaration by Issuer of an Extraordinary Dividend, or an ISDA Event or (y) if an Excess Section 13 Ownership Position (as defined below) or an Excess Regulatory Ownership Position (as defined below) exists, in either case, Dealer (or, in the case of an ISDA Event that is an Event of Default or Termination Event, the party entitled to designate an Early Termination Date in respect of such event pursuant to Section 6 of the Agreement) shall have the right to designate any Scheduled Trading Day to be the “Early Valuation Date”, in which case the provisions set forth in this “Early Valuation” section shall apply, in the case of an Event of Default or Termination Event, in lieu of Section 6 of the Agreement. For the avoidance of doubt, any amount calculated in connection with an “Early Valuation” (in respect of which Counterparty satisfies its payment and/or delivery obligations under this “Early Valuation” section) as a result of an Extraordinary Dividend shall not be adjusted by the value associated with such Extraordinary Dividend. | ||||
As of each Trade Date, Dealer represents and warrants to and agrees with Counterparty that, assuming the accuracy of Counterparty’s representations and warranties made hereunder and under the Sales Agreement and compliance by Counterparty with its obligations hereunder and under the Sales Agreement, (i) based upon advice of counsel, Dealer (A) does not have actual knowledge of the existence on the Trade Date of an Excess Section 13 Ownership Position or an Excess Regulatory Ownership Position and (B) based on good faith inquiry does not have actual knowledge on the Trade Date of any event or circumstance that is expected to cause the occurrence of an Excess Section 13 Ownership Position or an Excess Regulatory Ownership Position on any day during the term of the applicable Transaction; and (ii) assuming no event or circumstance by or within the control of Counterparty or its affiliates occurs in connection with which the “beneficial ownership” (within the meaning of Section 13 of the Exchange Act and the rules promulgated thereunder) of Shares by Dealer Group (as defined below) and/or the “ownership” (howsoever defined under any Applicable Restriction) of Shares by Dealer Group or another Dealer Person (as defined below) would increase, Dealer will not knowingly cause the occurrence of an Excess Section 13 Ownership Position or an Excess Regulatory Ownership Position on any day during the term of the applicable Transaction with the specific intent of causing the occurrence of an Early Valuation Date. | |||||
If the Early Valuation Date occurs on a date that is not during an Unwind Period, then the Early Valuation Date shall be a Valuation Date for a Physical Settlement, and the number of Settlement Shares for such Physical Settlement shall be the Number of Shares on such Early Valuation Date; provided that Dealer may in its good faith and reasonable discretion elect to permit Counterparty to elect Cash Settlement or Net Share Settlement, in which case Dealer, as Hedging Party, will determine, in good faith and in a commercially reasonable manner, the Scheduled Trading Day that will be the First Unwind Date for such Cash Settlement or Net Share Settlement. | |||||
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If the Early Valuation Date occurs during an Unwind Period, then (i) (A) the last Unwind Date of such Unwind Period shall be deemed to occur on the Early Valuation Date, (B) a Settlement shall occur in respect of such Unwind Period, to which the Settlement Method elected by Counterparty in respect of such Settlement shall apply (subject to the provisions under “Settlement Terms” above in respect of the applicable Settlement Method), and (C) the number of Settlement Shares for such Settlement shall be the number of Unwound Shares for such Unwind Period on the Early Valuation Date, and (ii) (A) the Early Valuation Date shall be a Valuation Date for an additional Physical Settlement (provided that Dealer may in its good faith and reasonable discretion elect that the Settlement Method elected by Counterparty for the Settlement described in clause (i) of this sentence shall apply, in which case Dealer, in its good faith and in a commercially reasonable manner, will determine the Scheduled Trading Day that will be the First Unwind Date for such Cash Settlement or Net Share Settlement) and (B) the number of Settlement Shares for such additional Settlement shall be the number of Remaining Shares on the Early Valuation Date. | |||||
Notwithstanding the foregoing, in the case of a Nationalization or Merger Event, if at the time of the related Settlement Date or Net Share Settlement Date, as applicable, the Shares have changed into cash or any other property or the right to receive cash or any other property, the Calculation Agent may adjust the terms of the applicable Transaction as appropriate to account for such change to the nature of the Shares. | |||||
| ISDA Event: | (i) Any Event of Default or Termination Event, other than an Event of Default or Termination Event that also constitutes a Bankruptcy Termination Event, that gives rise to the right of either party to designate an Early Termination Date pursuant to Section 6 of the Agreement or (ii) the announcement of any event or transaction that, if consummated, would result in a Merger Event, Tender Offer, Nationalization, Delisting or Change in Law, in each case, as determined by the Calculation Agent. | ||||
| Hedging Event: | (i) A Loss of Stock Borrow or Hedging Disruption, (ii) (A) an Increased Cost of Stock Borrow or (B) an Increased Cost of Hedging, in the case of sub-clause (A) or (B), in connection with which Counterparty does not elect, and so notify the Hedging Party of its election, in each case, within the required time period to either amend the applicable Transaction pursuant to Section 12.9(b)(v)(A) or Section 12.9(b)(vi)(A) of the Equity Definitions, as applicable, or pay an amount determined by the Calculation Agent that corresponds to the relevant Price Adjustment pursuant to Section 12.9(b)(v)(B) or Section 12.9(b)(vi)(B) of the Equity Definitions, as applicable, or (iii) the occurrence of a Market Disruption Event during an Unwind Period and the continuance of such Market Disruption Event for at least eight Scheduled Trading Days | ||||
| Remaining Shares: | For each Transaction, on any day, the Number of Shares as of such day (or, if such day occurs during an Unwind Period, the Number of Shares as of such day minus the Unwound Shares for such Unwind Period on such day). | ||||
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| Unwound Shares: | For any Unwind Period on any day, the aggregate number of Shares with respect to which Dealer has unwound its commercially reasonable hedge position in respect of the applicable Transaction in connection with the related Settlement as of such day, as determined by Dealer, as Hedging Party, acting in good faith and a commercially reasonable manner. | ||||
| Acknowledgements: | |||||
| Non-Reliance: | Applicable. | ||||
| Agreements and Acknowledgements Regarding Hedging Activities: | Applicable. | ||||
| Additional Acknowledgements: | Applicable. | ||||
| Transfer: | Dealer may assign or transfer any of its rights or delegate any of its duties hereunder to any affiliate of Dealer; provided that under the applicable law effective on the date of such transfer or assignment, Counterparty will not be required, as a result of such transfer or assignment, to pay to the transferee an amount in respect of an Indemnifiable Tax greater than the amount, if any, that Counterparty would have been required to pay Dealer in the absence of such transfer or assignment; and Counterparty will not receive a payment from which an amount has been withheld or deducted, on account of a Tax in respect of which the other party is not required to pay an additional amount, unless Counterparty would not have been entitled to receive any additional amount in respect of such payment in the absence of such transfer or assignment; provided further that (A) the affiliate’s obligations hereunder are fully and unconditionally guaranteed by Dealer or Dealer’s parent or (B) the affiliate’s long-term issuer rating is equal to or better than the credit rating of Dealer at the time of such assignment or transfer; and provided further that no Termination Event with respect to which Dealer is the Defaulting Party or an Affected Party, as the case may be, exists or would result therefrom, and no Extraordinary Event, Early Valuation, Market Disruption Event, ISDA Event, Excess Section 13 Ownership Position or Excess Regulatory Ownership Position or other event or circumstance giving rise to a right or responsibility to terminate or cancel a Transaction or to make an adjustment to the terms of a Transaction would result therefrom. Notwithstanding any other provision in this Master Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer’s obligations in respect of any Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance. | ||||
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| Calculation Agent: | Dealer. Notwithstanding anything to the contrary in the Agreement, the Equity Definitions, the Swap Definitions or this Master Confirmation, (i) whenever Dealer, acting as any of the Calculation Agent, Determining Party or Hedging Party, is required to act or to exercise judgment or discretion in any way with respect to a Transaction pursuant to the Confirmation (including, without limitation, by making calculations, adjustments or determinations with respect to such Transaction but not, for the avoidance of doubt, with respect to any election it is entitled to make), it will do so in good faith and in a commercially reasonable manner and (ii) to the extent Dealer, acting in any capacity, makes any judgment, calculation, adjustment or determination, or exercises its discretion to take into account the effect of an event on such Transaction, it shall do so taking into account its Hedge Position. Dealer shall, within five Exchange Business Days of a written request by Counterparty, provide a written explanation of any judgment, calculation, adjustment or determination made by Dealer, as to such Transaction, in its capacity as Calculation Agent, Determining Party or Hedging Party, including, where applicable, a description of the methodology and the basis for such judgment, calculation, adjustment or determination in reasonable detail, it being agreed and understood that Dealer shall not be obligated to disclose any confidential or proprietary models or other information that Dealer believes to be confidential, proprietary or subject to contractual, legal or regulatory obligations not to disclose such information, in each case, used by it for such judgment, calculation, adjustment or determination. | ||||
| Counterparty Payment Instructions: | To be provided by Counterparty. | ||||
| Dealer Payment Instructions: | To be provided by Dealer. | ||||
| Counterparty’s Contact Details for Purpose of Giving Notice: | To be provided by Counterparty. | ||||
| Dealer’s Contact Details for Purpose of Giving Notice: | To be provided by Dealer. | ||||
3. Effectiveness.
Each Transaction shall be effective if and only if Shares are sold by [AGENT NAME], acting as forward seller for Dealer (in such capacity, the “Agent”), on or after the Trade Date and on or before the Hedge Completion Date pursuant to the Equity Distribution Agreement, dated September 10, 2021, as amended on May 9, 2024 and July [29], 2024, between Dealer, Counterparty, the Agent and the other parties thereto (the “Sales Agreement”). If the Sales Agreement is terminated prior to any such sale of Shares thereunder, the parties shall have no further obligations in connection with the applicable Transaction, other than in respect of breaches of representations or covenants on or prior to such date. For the avoidance of doubt, if the Sales Agreement is terminated prior to the Hedge Completion Date, this Master Confirmation and the related Supplemental Confirmation shall remain in effect with respect to any Shares that
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had been sold by the Agent acting as forward seller for Dealer on or after the Trade Date and prior to such termination.
4. Additional Mutual Representations and Warranties.
In addition to the representations and warranties in the Agreement, each party represents and warrants to the other party that it is an “eligible contract participant”, as defined in the U.S. Commodity Exchange Act (as amended), and an “accredited investor” as defined in Section 2(a)(15)(ii) of the Securities Act of 1933 (as amended) (the “Securities Act”), and is entering into each Transaction hereunder as principal and not on behalf of any third party.
5. Additional Representations and Warranties of Counterparty.
In addition to the representations and warranties in the Agreement and those contained elsewhere herein, Counterparty represents and warrants to Dealer, and agrees with Dealer, as of each Trade Date and as of each Hedge Completion Date, that:
(a) without limiting the generality of Section 13.1 of the Equity Definitions, it acknowledges that Dealer is not making any representations or warranties with respect to the treatment of any Transaction, including without limitation ASC Topic 260, Earnings Per Share, ASC Topic 815, Derivatives and Hedging, FASB Statements 128, 133, as amended, 149 or 150, EITF 00-19, 01-6, 03-6 or 07-5, ASC Topic 480, Distinguishing Liabilities from Equity, ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (or any successor issue statements) or under the Financial Accounting Standards Board’s Liabilities & Equity Project;
(b) prior to each Trade Date, Counterparty shall deliver to Dealer a resolution of Counterparty’s board of directors, or duly authorized committee thereof, authorizing the applicable Transaction. Based on such resolutions, Section 6.2.7(c) of Counterparty’s Declaration of Trust (as amended, the “Charter”) applies to Dealer (and its affiliates acting in connection with such Transaction) (i) in respect of Shares delivered to Dealer (or such respective affiliates) from time to time in connection with the settlement of such Transaction (which deliveries are necessary to facilitate the offering of Shares contemplated pursuant to the Sales Agreement, within the meaning of such Section 6.2.7(c)) and (ii) otherwise to the extent necessary to facilitate such Transaction or any other forward sale transaction pursuant to the Sales Agreement;
(c) it shall not take any action to reduce or decrease the number of authorized and unissued Shares below the sum of (i) the Capped Number (as defined below) across all Transactions hereunder plus (ii) the total number of Shares issuable upon settlement (whether by net share settlement or otherwise) of any other transaction or agreement to which it is a party;
(d) it will not repurchase any Shares if, immediately following such repurchase, the Number of Shares Percentage (as defined below) would alone or in the aggregate be equal to or greater than [7.5]% of the number of then-outstanding Shares, and it will notify Dealer immediately upon the announcement or consummation of any repurchase of Shares in an amount that, taken together with the amount of all repurchases since the date of the last such notice (or, if no such notice has been given, since the first Trade Date), exceeds 0.5% of the number of then-outstanding Shares; the “Number of Shares Percentage” as of any day is the fraction of (1) the numerator of which is the aggregate of the Number of Shares for each Transaction and each
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“Number of Shares” or comparable amount under any Additional Equity Derivative Transaction and (2) the denominator of which is the number of Shares outstanding on such day;
(e) it is not entering into any Confirmation to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares);
(f) (i) neither it nor any of its officers or directors is aware of any material non-public information regarding itself or the Shares; (ii) it is entering into each Confirmation and will provide any Settlement Notice in good faith and not as part of a plan or scheme to evade compliance with Rule 10b-5 or any other provision of the federal securities laws; (iii) it has not entered into or altered any hedging transaction relating to the Shares corresponding to or offsetting any Transaction; and (iv) it has consulted with its own advisors as to the legal aspects of its adoption and implementation of each Confirmation under Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”);
(g) it is in compliance with its reporting obligations under the Exchange Act, and its most recent Annual Report on Form 10-K, together with all reports subsequently filed by it pursuant to the Exchange Act, taken together and as amended and supplemented to the date of this representation, do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(h) no state or local (including, to the Counterparty’s knowledge, non-U.S. jurisdictions) law, rule, regulation or regulatory order applicable specifically to the Shares (and not generally to ownership of equity securities by a financial institution that is not generally applicable to holders of the Shares) would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity) as a result of Dealer or its affiliates owning or holding (however defined) Shares as a commercially reasonable Hedge Position in connection with any Transaction in accordance with the terms of the applicable Confirmation and the Agreement;
(i) as of each Trade Date and as of the date of any payment or delivery by Counterparty or Dealer hereunder, it is not and will not be “insolvent” (as such term is defined under Section 101(32) of the Bankruptcy Code);
(j) it is not, and after giving effect to the transactions contemplated hereby will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended;
(k) it: (i) is an “institutional account” as defined in FINRA Rule 4512(c), (ii) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities, and (iii) will exercise independent judgment in evaluating any recommendations of Dealer or its associated persons;
(l) it understands, agrees and acknowledges that no obligations of Dealer to it hereunder shall be entitled to the benefit of deposit insurance and that such obligations shall not
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be guaranteed by any affiliate of Dealer (subject to Section 8(b) of this Master Confirmation) or any governmental agency;
(m) IT UNDERSTANDS THAT EACH TRANSACTION IS SUBJECT TO COMPLEX RISKS WHICH MAY ARISE WITHOUT WARNING AND MAY AT TIMES BE VOLATILE AND THAT LOSSES MAY OCCUR QUICKLY AND IN UNANTICIPATED MAGNITUDE AND IS WILLING TO ACCEPT SUCH TERMS AND CONDITIONS AND ASSUME (FINANCIALLY AND OTHERWISE) SUCH RISKS; and
(n) in connection with this Master Confirmation, each Supplemental Confirmation, the Sales Agreement, each Transaction and the other transactions contemplated hereunder and thereunder (the “Relevant Transactions”), Counterparty acknowledges that none of Dealer and/or its affiliates is advising Counterparty or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction (for the avoidance of doubt, notwithstanding any advisory relationship that Dealer and/or its affiliates may have, or may have had in the past, with Counterparty and/or its affiliates). Counterparty shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the Relevant Transactions, and none of Dealer and/or its affiliates shall have any responsibility or liability to Counterparty with respect thereto. Any review by the Dealer and/or its affiliates of Counterparty, the Relevant Transactions or other matters relating to the Relevant Transactions will be performed solely for the benefit of Dealer and/or its affiliates, as the case may be, and shall not be on behalf of Counterparty. Counterparty waives to the full extent permitted by applicable law any claims it may have against Dealer and/or its affiliates arising from an alleged breach of fiduciary duty in connection with the Relevant Transactions.
6. Additional Covenants of Counterparty.
(a) Counterparty acknowledges and agrees that any Shares delivered by Counterparty to Dealer on any Settlement Date or Net Share Settlement Date will be (i) newly issued, (ii) approved for listing or quotation on the Exchange, subject to official notice of issuance, and (iii) registered under the Exchange Act, and, when delivered by Dealer (or an affiliate of Dealer) to securities lenders from whom Dealer (or an affiliate of Dealer) borrowed Shares in connection with hedging its exposure to the applicable Transaction, will be freely saleable without further registration or other restrictions under the Securities Act in the hands of those securities lenders, irrespective of whether any such stock loan is effected by Dealer or an affiliate of Dealer. Accordingly, Counterparty agrees that any Shares so delivered will not bear a restrictive legend and will be deposited in, and the delivery thereof shall be effected through the facilities of, the Clearance System. In addition (and without limitation of the representations and warranties of Counterparty made pursuant to Section 9.11 of the Equity Definitions), Counterparty represents and agrees that any such Shares have been duly authorized and shall be, upon delivery, validly issued, fully paid and non-assessable.
(b) Counterparty agrees that Counterparty shall not enter into or alter any hedging transaction relating to the Shares corresponding to or offsetting any Transaction. Without limiting the generality of the provisions set forth under the caption “Settlement Terms” in Section 2 of this Master Confirmation, Counterparty acknowledges and agrees that it will not seek to, control or influence Dealer’s decision to make any “purchases or sales” (within the
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meaning of Rule 10b5-1(c)(1)(i)(B)(3)) under or in connection with any Transaction, including, without limitation, Dealer’s decision to enter into any hedging transactions.
(c) Counterparty acknowledges and agrees that any amendment, modification, waiver or termination of any Confirmation must be effected in accordance with the requirements for the amendment or termination of a “plan” as defined in Rule 10b5-1(c) under the Exchange Act. Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5, and no such amendment, modification or waiver shall be made at any time at which Counterparty or any officer or director, of Counterparty is aware of any material non-public information regarding Counterparty or the Shares.
(d) Counterparty shall promptly provide notice to Dealer (in which notice Counterparty will be deemed to make the representation and warranty set forth in Section 5(f)(i) of this Master Confirmation as of the date of such notice) promptly after (i) the occurrence of any Event of Default, or a Termination Event in respect of which Counterparty is a Defaulting Party or an Affected Party, as the case may be, and (ii) the making of any public announcement by Counterparty or its controlled affiliates of any event that, if consummated, would constitute an Extraordinary Event or Potential Adjustment Event.
(e) Neither Counterparty nor any of its “affiliated purchasers” (as defined by Rule 10b-18 under the Exchange Act (“Rule 10b-18”)) shall take any action that would cause any purchases of Shares by Dealer or any of its Affiliates in connection with any Cash Settlement or Net Share Settlement not to meet the requirements of the safe harbor provided by Rule 10b-18 if such purchases were made by Counterparty. Without limiting the generality of the foregoing, during any Unwind Period, except with the prior written consent of Dealer, Counterparty will not, and will cause its affiliated purchasers (as defined in Rule 10b-18) not to, directly or indirectly (including, without limitation, by means of a derivative instrument) purchase, offer to purchase, place any bid or limit order that would effect a purchase of, or announce or commence any tender offer relating to, any Shares (or equivalent interest, including a unit of beneficial interest in a trust or limited partnership or a depository share) or any security convertible into or exchangeable for the Shares.
(f) Counterparty will not take, or permit to be taken, any action to cause any “restricted period” (as such term is defined in Regulation M promulgated under the Exchange Act (“Regulation M”)) to occur in respect of Shares or any security with respect to which the Shares are a “reference security” (as such term is defined in Regulation M) during any Unwind Period.
(g) Counterparty shall: (i) prior to the opening of trading in the Shares on any day on which Counterparty makes, or expects to be made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction, notify Dealer of such public announcement; (ii) promptly notify Dealer following any such announcement that such announcement has been made; (iii) promptly (but in any event prior to the next opening of the regular trading session on the Exchange) provide Dealer with written notice specifying (A) Counterparty’s average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the announcement date for the Merger Transaction that were not effected through Dealer or its affiliates and (B) the number of Shares purchased
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pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding such announcement date. Such written notice shall be deemed to be a certification by Counterparty to Dealer that such information is true and correct. In addition, Counterparty shall promptly notify Dealer of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders. Counterparty acknowledges that under the terms of any Confirmation, any such notice may result in a Regulatory Disruption, a Trading Condition or an Early Valuation or may affect the length of any ongoing Unwind Period; accordingly, Counterparty acknowledges that its delivery of such notice shall comply with the standards set forth in Section 6(c) of this Master Confirmation. “Merger Transaction” means any merger, acquisition or similar transaction involving a recapitalization with respect to the Counterparty and/or the Shares as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act.
(h) Counterparty represents and warrants to, and agrees with, Dealer that Counterparty has not and will not, without the prior written consent of Dealer, enter into any structured share purchase or sale transaction (including the purchase or sale of any option or combination of options relating to the Shares), or any other transaction similar to any Transaction described herein, where any valuation period (however defined) in such other transaction will overlap at any time (including as a result of acceleration, postponement or extension in such valuation period as provided in the relevant agreement) with any Unwind Period under any Confirmation. In the event that the valuation period in any such other transaction overlaps with any Unwind Period under any Confirmation as a result of any acceleration, postponement or extension of such Unwind Period, Counterparty shall promptly amend such transaction to avoid any such overlap.
7. Termination on Bankruptcy.
The parties hereto agree that, notwithstanding anything to the contrary in the Agreement or the Equity Definitions, each Transaction constitutes a contract to issue a security of Counterparty as contemplated by Section 365(c)(2) of the Bankruptcy Code and that each Transaction and the obligations and rights of Counterparty and Dealer (except for any liability as a result of breach of any of the representations or warranties provided by Counterparty in Section 4 or Section 5 of this Master Confirmation) shall immediately terminate, without the necessity of any notice, payment (whether directly, by netting or otherwise) or other action by Counterparty or Dealer, if, on or prior to the relevant final Settlement Date, Cash Settlement Payment Date or Net Share Settlement Date, an Insolvency Filing occurs or any other proceeding commences with respect to Counterparty under the Bankruptcy Code (a “Bankruptcy Termination Event”).
8. Additional Provisions.
(a) Dealer acknowledges and agrees that Counterparty’s obligations under the Transactions are not secured by any collateral and that no Confirmation is intended to convey to Dealer rights with respect to the transactions contemplated thereby that are senior to the claims of common stockholders in any U.S. bankruptcy proceedings of Counterparty; provided that nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to any
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Confirmation or the Agreement; provided further that nothing herein shall limit or shall be deemed to limit Dealer’s rights in respect of any transaction other than the Transactions.
(b) [Reserved.]
(c) The parties hereto intend for:
each Transaction to be a “securities contract” as defined in Section 741(7) of the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(27), 362(o), 546(e), 546(j), 555 and 561 of the Bankruptcy Code;
the rights given to Dealer pursuant to “Early Valuation” in Section 2 of this Master Confirmation to constitute “contractual rights” to cause the liquidation of a “securities contract” and to set off mutual debts and claims in connection with a “securities contract”, as such terms are used in Sections 555 and 362(b)(6) of the Bankruptcy Code;
any cash, securities or other property provided as performance assurance, credit support or collateral with respect to any Transaction to constitute “margin payments” and “transfers” under a “securities contract” as defined in the Bankruptcy Code;
all payments for, under or in connection with any Transaction, all payments for Shares and the transfer of Shares to constitute “settlement payments” and “transfers” under a “securities contract” as defined in the Bankruptcy Code; and
any or all obligations that either party has with respect to any Confirmation or the Agreement to constitute property held by or due from such party to margin, guaranty or settle obligations of the other party with respect to the transactions under the Agreement (including each Transaction) or any other agreement between such parties.
(d) Notwithstanding any other provision of the Agreement or any Confirmation, in no event will Counterparty be required to deliver in the aggregate in respect of all Settlement Dates, Net Share Settlement Dates or other dates on which Shares are delivered in respect of any amount owed under any Confirmation a number of Shares greater than two times the Initial Number of Shares (as adjusted for stock splits and similar events) (the “Capped Number”). The Capped Number shall be subject to adjustment only on account of (x) Potential Adjustment Events of the type specified in (1) Sections 11.2(e)(i) through (vi) of the Equity Definitions or (2) Section 11.2(e)(vii) of the Equity Definitions so long as, in the case of this sub-clause (2), such event is within Counterparty’s control, (y) Merger Events requiring corporate action of Counterparty (or any surviving entity of the Issuer hereunder in connection with any such Merger Event) and (z) Announcement Events that are not outside Counterparty’s control. Counterparty represents and warrants to Dealer (which representation and warranty shall be deemed to be repeated on each day that any Transaction is outstanding) that the Capped Number is equal to or less than the number of authorized but unissued Shares that are not reserved for future issuance in connection with transactions in the Shares (other than the Transactions) on the date of the determination of the Capped Number (such Shares, the “Available Shares”). In the event Counterparty shall not have delivered the Number of Shares otherwise deliverable as a
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result of this Section 8(d) (the resulting deficit, the “Deficit Shares”), Counterparty shall be continually obligated to deliver Shares, from time to time until the full number of Deficit Shares have been delivered pursuant to this paragraph, when, and to the extent that, (A) Shares are repurchased, acquired or otherwise received by Counterparty or any of its subsidiaries after the Trade Date (whether or not in exchange for cash, fair value or any other consideration), (B) authorized and unissued Shares reserved for issuance in respect of other transactions prior to such date which prior to the relevant date become no longer so reserved and (C) Counterparty additionally authorizes any unissued Shares that are not reserved for other transactions (such events as set forth in clauses (A), (B) and (C) above, collectively, the “Share Issuance Events”). Counterparty shall promptly notify Dealer of the occurrence of any of the Share Issuance Events (including the number of Shares subject to clause (A), (B) or (C) and the corresponding number of Shares to be delivered) and, as promptly as reasonably practicable, shall deliver such Shares thereafter. Counterparty shall not, until Counterparty’s Share delivery obligations under the Transactions have been satisfied in full, use any Shares that become available for potential delivery to Dealer as a result of any Share Issuance Event for the settlement or satisfaction of any transaction or obligation other than the Transactions or reserve any such Shares for future issuance for any purpose other than to satisfy Counterparty’s obligations to Dealer under the Transactions.
(e) The parties intend for each Confirmation to constitute a “Contract” as described in the letter dated October 6, 2003 submitted on behalf of Goldman, Sachs &Co. to Paula Dubberly of the staff of the Securities and Exchange Commission (the “Staff”) to which the Staff responded in an interpretive letter dated October 9, 2003.
(f) The parties intend for each Transaction (taking into account purchases of Shares in connection with any Cash Settlement or Net Share Settlement) to comply with the requirements of Rule 10b5-1(c)(1)(i)(A) under the Exchange Act and for each Confirmation to constitute a binding contract or instruction satisfying the requirements of 10b5-1(c) and to be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act.
(g) [Counterparty represents and warrants that it has received, read and understands Dealer’s “Risk Disclosure Statement Regarding OTC Derivatives Products” and acknowledges the terms thereof as if it had signed the Risk Disclosure Statement Verification contained therein as of the date hereof.]
9. [INTENTIONALLY OMITTED]
10. Beneficial Ownership.
Notwithstanding anything to the contrary in the Agreement or any Confirmation, in no event shall Dealer be entitled to receive, or be deemed to receive, Shares to the extent that, upon such receipt of such Shares, (i) the “beneficial ownership” (within the meaning of Section 13 of the Exchange Act and the rules promulgated thereunder) of Shares by Dealer, any of its affiliates’ business units subject to aggregation with Dealer for purposes of the “beneficial ownership” test under Section 13 of the Exchange Act and all persons who may form a “group” (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) with Dealer with respect to “beneficial ownership” of any Shares (collectively, “Dealer Group”) would be equal to or greater than 9.0% of the outstanding Shares (an “Excess Section 13 Ownership Position”),
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(ii) violation would occur in respect of any restriction on ownership and/or transfers set forth in Section 5(a) of the Charter or (iii) Dealer, Dealer Group or any person whose ownership position would be aggregated with that of Dealer or Dealer Group (Dealer, Dealer Group or any such person, a “Dealer Person”) under Sections 1019.01-00.1 to 10-19.152, Section 10-34-01 to 10-34-09 and 10-35-01 to 10-35-33 of the North Dakota Century Code or any state or federal bank holding company or banking laws, or any federal, state or local laws, regulations or regulatory orders or organizational documents or contracts of Counterparty, in each case, applicable to ownership of Shares (“Applicable Restrictions”), would own, beneficially own, constructively own, control, hold the power to vote or otherwise meet a relevant definition of ownership in excess of a number of Shares equal to (x) the lesser of (A) the maximum number of Shares that would be permitted under Applicable Restrictions and (B) the number of Shares that would give rise to reporting or registration obligations or other requirements (including obtaining prior approval by a state or federal regulator) of a Dealer Person under Applicable Restrictions and with respect to which such requirements have not been met or the relevant approval has not been received or that would give rise to any consequences under the constitutive documents of Counterparty or any contract or agreement to which Counterparty is a party, in each case minus (y) 1% of the number of Shares outstanding on the date of determination (such condition described in clause (iii), an “Excess Regulatory Ownership Position”). If any delivery owed to Dealer hereunder is not made, in whole or in part, as a result of this provision, (i) Counterparty’s obligation to make such delivery shall not be extinguished and Counterparty shall make such delivery as promptly as practicable after, but in no event later than one Exchange Business Day after, Dealer gives notice to Counterparty that such delivery would not result in (x) Dealer Group directly or indirectly so beneficially owning in excess of 9.0% of the outstanding Shares and (y) the occurrence of an Excess Regulatory Ownership Position and (ii) if such delivery relates to a Physical Settlement, notwithstanding anything to the contrary herein, Dealer shall not be obligated to satisfy the portion of its payment obligation corresponding to any Shares required to be so delivered until the date Counterparty makes such delivery.
11. Non-Confidentiality.
The parties hereby agree that (i) effective from the date of commencement of discussions concerning any Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of such Transaction and all materials of any kind, including opinions or other tax analyses, provided by Dealer and its affiliates to Counterparty relating to such tax treatment and tax structure and (ii) Dealer does not assert any claim of proprietary ownership in respect of any description contained herein or therein relating to the use of any entities, plans or arrangements to give rise to a particular United States federal income tax treatment for Counterparty.
12. Use of Shares.
Dealer acknowledges and agrees that, except in the case of a Private Placement Settlement, Dealer (or its agents or affiliates, as applicable) shall use any Shares delivered by Counterparty to Dealer on any Settlement Date to return to securities lenders to close out borrowings created by Dealer (or its agents or affiliates, as applicable) in connection with its hedging activities related to exposure under the applicable Transaction or in a manner that Dealer
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otherwise believes in good faith and based on the advice of counsel to be in compliance with applicable securities law.
13. Restricted Shares.
If Counterparty is unable to comply with the covenant of Counterparty contained in Section 6(a) of this Master Confirmation or Dealer otherwise determines in its reasonable opinion, based on advice of counsel, that any Shares to be delivered to Dealer by Counterparty may not be freely returned by Dealer to securities lenders as described in Section 6(a) of this Master Confirmation, then delivery of any such Settlement Shares (the “Unregistered Settlement Shares”) shall be effected pursuant to Annex A hereto, unless waived by Dealer.
14. Set-Off.
Notwithstanding Section 6(f) of the Agreement, Dealer agrees not to set off or net amounts due from Counterparty with respect to any Transaction against amounts due from Dealer to Counterparty with respect to contracts or instruments that are not Equity Contracts. “Equity Contract” means any transaction or instrument that does not convey to Dealer rights, or the ability to assert claims, that are senior to the rights and claims of common stockholders in the event of Counterparty’s bankruptcy.
15. Staggered Settlement.
Notwithstanding anything to the contrary herein, Dealer may, by prior notice to Counterparty, satisfy its obligation to deliver any Shares or other securities on any date due (an “Original Delivery Date”) by making separate deliveries of Shares or such securities, as the case may be, at more than one time on or prior to such Original Delivery Date, so long as the aggregate number of Shares and other securities so delivered on or prior to such Original Delivery Date is equal to the number required to be delivered on such Original Delivery Date.
16. [INTENTIONALLY OMITTED]
17. Waiver of Jury Trial.
EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE AGREEMENT, ANY CONFIRMATION, ANY TRANSACTION HEREUNDER AND/OR ALL MATTERS ARISING IN CONNECTION WITH THE AGREEMENT, ANY CONFIRMATION AND/OR ANY TRANSACTION HEREUNDER. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS PROVIDED HEREIN.
18. Submission to Jurisdiction.
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Section 13(b) of the Agreement is deleted in its entirety and replaced by the following:
“Each party hereby irrevocably and unconditionally submits for itself and its property in any suit, legal action or proceeding relating to this Agreement and/or any Transaction, or for recognition and enforcement of any judgment in respect thereof, (each, “Proceedings”) to the exclusive jurisdiction of the Supreme Court of the State of New York, sitting in New York County, the courts of the United States of America for the Southern District of New York and appellate courts from any thereof. Nothing in the Confirmation or this Agreement precludes either party from bringing Proceedings in any other jurisdiction if (A) the courts of the State of New York or the United States of America for the Southern District of New York lack jurisdiction over the parties or the subject matter of the Proceedings or declines to accept the Proceedings on the grounds of lacking such jurisdiction; (B) the Proceedings are commenced by a party for the purpose of enforcing against the other party’s property, assets or estate any decision or judgment rendered by any court in which Proceedings may be brought as provided hereunder; (C) the Proceedings are commenced to appeal any such court’s decision or judgment to any higher court with competent appellate jurisdiction over that court’s decisions or judgments if that higher court is located outside the State of New York or Borough of Manhattan, such as a federal court of appeals or the U.S. Supreme Court; or (D) any suit, action or proceeding has been commenced in another jurisdiction by or against the other party or against its property, assets or estate and, in order to exercise or protect its rights, interests or remedies under this Agreement or the Confirmation, the party (1) joins, files a claim, or takes any other action, in any such suit, action or proceeding, or (2) otherwise commences any Proceeding in that other jurisdiction as the result of that other suit, action or proceeding having commenced in that other jurisdiction.”
19. Counterparts.
This Master Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Master Confirmation by signing and delivering one or more counterparts. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com (any such signature, an “Electronic Signature”)) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. The words “execution,” “signed,” “signature,” and words of like import in this Master Confirmation or in any other certificate, agreement or document related to this Master Confirmation shall include any Electronic Signature[, except to the extent electronic notices are expressly prohibited under this Master Confirmation or the Agreement].
20. Taxes.
(a) For the purpose of Section 3(f) of the Agreement, Dealer makes the following representations:
1.[It [(or its regarded owner for U.S. federal income tax purposes)] is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii) of the United States
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Treasury Regulations) for U.S. federal income tax purposes.] [It is a “U.S. person” (as that term is used in section 7701(a)(30) of the Code (as defined below) and in section.1441-4(a)(3)(ii) of the United States Treasury Regulations) for U.S. federal income tax purposes.]
2. [It is a national banking association organized and existing under the laws of the United States of America, and is an exempt recipient under section 1.6049-4(c)(1)(ii)(M) of the United States Treasury Regulations.]
3. [It is acting through a dependent agent located in the United States (including only the States thereof and the District of Columbia); it is a “foreign person” (as that term is used in section 1.6041-4(a)(4) of the United States Treasury Regulations) for U.S. federal income tax purposes; and each payment received or to be received by it in connection with any Confirmation will be effectively connected with its conduct of a trade or business in the United States.]
4. [●]
(b) For the purpose of Section 3(f) of the Agreement, Counterparty makes the following representations:
1.(i) It is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii) of the United States Treasury Regulations) for U.S. federal income tax purposes.
2.(ii) It is a real estate investment trust for U.S. federal income tax purposes, it is organized under the laws of the State of Maryland, and it is an exempt recipient under section 1.6049-4(c)(1)(ii)(J) of the United States Treasury Regulations.
(c) For the purpose of Sections 4(a)(i) and (ii) of the Agreement, Dealer agrees to deliver to Counterparty one duly executed and completed United States Internal Revenue Service [Form W-9][Form W-8ECI] [●] (or successor thereto) upon execution of this Master Confirmation and shall provide a new form promptly upon (i) reasonable request of Counterparty or (ii) learning that any form previously provided has become obsolete or incorrect. For the purpose of Sections 4(a)(i) and (ii) of the Agreement, Counterparty agrees to deliver to Dealer one duly executed and completed United States Internal Revenue Service Form W-9 (or successor thereto) upon execution of this Master Confirmation and shall provide a new form promptly upon (i) reasonable request of Dealer or (ii) learning that any form previously provided has become obsolete or incorrect.
(d) “Indemnifiable Tax” as defined in Section 14 of the Agreement shall not include any withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the United States Internal Revenue Code (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax
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the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of the Agreement.
(e) To the extent that either party to the Agreement with respect to each Transaction is not an adhering party to the ISDA 2015 Section 871(m) Protocol published by the ISDA on November 2, 2015 and available at www.isda.org, as may be amended, supplemented, replaced or superseded from time to time (the “871(m) Protocol”), the parties agree that the provisions and amendments contained in the Attachment to the 871(m) Protocol are incorporated into and apply to the Agreement with respect to each Transaction as if set forth in full herein. The parties further agree that, solely for purposes of applying such provisions and amendments to the Agreement with respect to each Transaction, references to “each Covered Master Agreement” in the 871(m) Protocol will be deemed to be references to the Agreement with respect to each Transaction, and references to the “Implementation Date” in the 871(m) Protocol will be deemed to be references to the Trade Date of each Transaction. For greater certainty, if there is any inconsistency between this provision and the provisions contained in any other agreement between the parties with respect to each Transaction, this provision shall prevail unless such other agreement expressly overrides the provisions of the Attachment to the 871(m) Protocol.
21. US Resolution Stay Protocol.
The parties agree that the terms of Section 1 and Section 2 and the related defined terms (together, the “Bilateral Terms”) of the form of bilateral template entitled “Full-Length Omnibus (for use between U.S. G-SIBs and Corporate Groups)” published by ISDA on November 2, 2018 (currently available on the 2018 ISDA U.S. Resolution Stay Protocol (the “Protocol”) page at www.isda.org and, a copy of which is available upon request), the effect of which is to amend the qualified financial contracts between the parties thereto to conform with the requirements of the QFC Stay Rules, are hereby incorporated into and form a part of the Agreement, and for such purposes the Agreement shall be deemed a “Covered Agreement,” Dealer shall be deemed a “Covered Entity” and Counterparty shall be deemed a “Counterparty Entity” and for the avoidance of doubt shall be the only Counterparty Entity. In the event that, after the date of the Agreement, both parties hereto become adhering parties to the Protocol, the terms of the Protocol will replace the terms of this paragraph. In the event of any inconsistencies between the Agreement and the terms of the Protocol, the Bilateral Agreement or the Bilateral Terms (each, the “QFC Stay Terms”), as applicable, the QFC Stay Terms will govern. Terms used in this paragraph without definition shall have the meanings assigned to them under the QFC Stay Rules. For purposes of this paragraph, references to “the Agreement” include any related credit enhancements entered into between the parties or provided by one to the other. In addition, the parties agree that the terms of this paragraph shall be incorporated into any related covered affiliate credit enhancements, with all references to Dealer replaced by references to the covered affiliate support provider.
“QFC Stay Rules” mean the regulations codified at 12 C.F.R. 252.2, 252.81–8, 12 C.F.R. 382.1- 7 and 12 C.F.R. 47.1-8, which, subject to limited exceptions, require an express recognition of the stay-and-transfer powers of the FDIC under the Federal Deposit Insurance Act and the Orderly Liquidation Authority under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act and the override of default rights related directly or indirectly to the
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entry of an affiliate into certain insolvency proceedings and any restrictions on the transfer of any covered affiliate credit enhancements.
Please confirm that the foregoing correctly sets forth the terms of the agreement between Dealer and Counterparty by executing one original copy of this Master Confirmation and returning such copy to Dealer and retaining the other original copy bearing the signature of Dealer for your records.
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EXECUTION VERSION
October 28, 2024
Centerspace, LP
800 LaSalle Avenue, Suite 1600
Minneapolis, MN 55402
Re: Amendment No. 4 to Note Purchase and Private Shelf Agreement
Ladies and Gentlemen:
Reference is made to the Note Purchase and Private Shelf Agreement, dated as of September 13, 2019 (as amended by (i) Amendment No. 1 thereto dated as of January 6, 2021, (ii) Amendment No. 2 thereto dated as of September 17, 2021 and (iii) Amendment No. 3 thereto dated as of November 22, 2022, as amended, the “Note Agreement”), between Centerspace, LP, a North Dakota limited partnership (formerly known as IRET Properties, a North Dakota Limited Partnership, the “Company”), Centerspace, a real estate investment trust organized under the laws of North Dakota (formerly known as Investors Real Estate Trust, the “Parent”), Centerspace, Inc., a North Dakota corporation (formerly known as IRET, Inc., the “General Partner”) and the other Guarantors party thereto (such Guarantors, the Company, the Parent and the General Partner, each a “Transaction Party” and collectively, the “Transaction Parties” ), on the one hand, and PGIM, Inc. (“Prudential”), the Initial Purchasers named in the Purchaser Schedule attached thereto, and each Prudential Affiliate which has become or hereafter becomes a party thereto, on the other hand. Capitalized terms used herein that are not otherwise defined herein shall have the meaning specified in the Note Agreement.
The Company has requested that Prudential amend the Note Agreement as set forth below. Subject to the terms and conditions hereof, and provided that the Company agrees to the modifications of the Note Agreement set forth below, Prudential is willing to agree to the Company’s request.
Accordingly, and in accordance with the provisions of paragraph 11C of the Note Agreement, and in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendments to the Note Agreement. Effective upon the Effective Date (as defined in Section 2 hereof), the parties hereto agree that the Note Agreement is amended as follows:
1.1. Paragraph 2B(1) of the Note Agreement is amended and restated in its entirety as follows:
2B(1). Facility. Prudential is willing to consider, in its sole discretion and within limits which may be authorized for purchase by Prudential Affiliates from time to time, the purchase of Shelf Notes pursuant to this Agreement. The willingness of Prudential to consider such purchase of Shelf Notes is herein called the “Facility”. At any time, (i) $300,000,000 minus (ii) the aggregate principal amount of Notes outstanding pursuant to this Agreement, minus (iii) the aggregate principal amount of Accepted Notes (as hereinafter defined) which have not yet been purchased and sold hereunder prior to such time minus (iv) the aggregate outstanding principal amount of the notes of the Company or any other Transaction Party under the Club NPA held by Prudential or any Prudential Affiliate, is herein called the “Available Facility Amount” at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF NOTES BY PRUDENTIAL AFFILIATES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
1.2. Clause (i) of paragraph 2B(2) of the Note Agreement is amended and restated in its entirety as follows:
(i) October 28, 2027 (or if such date is not a Business Day, the Business Day next preceding such date)
SECTION 2. Effectiveness. The amendments described in Section 1 above shall become effective on the date (the “Effective Date”) when each of the following conditions has been satisfied:
2.1. Documents. Prudential shall have received original counterparts or, if satisfactory to Prudential, certified or other copies of all of the following, each duly executed and delivered by the party or parties thereto, in form and substance satisfactory to Prudential, dated the date hereof unless otherwise indicated, and on the date hereof in full force and effect:
(a) a counterpart hereof duly executed by the Transaction Parties and Prudential; and
(b) such other certificates, documents and agreements as Prudential may reasonably request.
2.2. Fees and Expenses. The Company shall have paid the reasonable fees, charges and disbursements of ArentFox Schiff LLP, special counsel to Prudential incurred in connection
with this letter, provided that the Company shall have received the invoice therefor at least one Business Day in advance.
2.3. Representations and Warranties. The representations and warranties of the Transaction Parties in Section 3 hereof shall be true and correct on the Effective Date.
2.4. Structuring Fee. Prudential shall have received payment of the structuring fee referred to in Section 4.
2.5. Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to Prudential and its counsel, and Prudential shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.
SECTION 3. Representations and Warranties. To induce Prudential to execute and deliver this letter, the Transaction Parties hereby jointly and severally represents, warrants and covenants that (a) the execution and delivery of this letter have been duly authorized by all necessary corporate, limited liability company, limited partnership or trust action on behalf each Transaction Party and this letter has been executed and delivered by a duly authorized officer of each Transaction Party, and all necessary or required consents to this letter have been obtained and are in full force and effect, (b) after giving effect to the amendments to the Note Agreement in Section 1 hereof, the representations and warranties contained in paragraph 8 of the Note Agreement are true and correct on and as of the Effective Date with the same effect as if made on such date and (c) both before and after giving effect to this letter, no Event of Default or Default exists or has occurred and is continuing on the date hereof.
SECTION 4. Structuring Fee. The Company agrees to pay to Prudential (or at the direction of Prudential) a structuring fee equal to $50,000 by wire transfer of immediately available funds.
SECTION 5. Reference to and Effect on Note Agreement and Notes. Upon the effectiveness of the amendments in this letter, each reference to the Note Agreement in any other document, instrument or agreement shall mean and be a reference to the Note Agreement as modified by this letter. Except as specifically set forth in Section 1 of this letter, the Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. Except as specifically set forth in Section 1 of this letter, the execution, delivery and effectiveness of this letter shall not (a) amend the Note Agreement, any Note or any other Transaction Document, (b) operate as a waiver of any right, power or remedy of Prudential, or (c) constitute a waiver of, or consent to any departure from, any provision of the Note Agreement, any Note or any other Transaction Document at any time. The Company acknowledges and agrees that Prudential is not under any duty or obligation of any kind or nature whatsoever to grant the Company any additional waivers or consents of any type, whether or not
under similar circumstances, and no course of dealing or course of performance shall be deemed to have occurred as a result of the amendments herein.
SECTION 6. Release. Each of the Transaction Parties hereby absolutely and unconditionally releases and forever discharges Prudential, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, counterclaims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Transaction Party has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter or cause arising from the Note Agreement or any other Transaction Document on or prior to the date of this letter, whether such claims, counterclaims, demands or causes of action are matured or unmatured or known or unknown.
SECTION 7. Expenses. The Company hereby confirms its obligation under the Note Agreement, whether or not the transactions hereby contemplated are consummated, to pay, promptly after request by Prudential, all reasonable out-of-pocket costs and expenses, including attorneys’ fees and expenses, incurred by Prudential in connection with this letter agreement or the transactions contemplated hereby, in enforcing any rights under this letter, or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this letter or the transactions contemplated hereby. The obligations of the Company under this Section 7 shall survive transfer by any holder of any Note and payment of any Note.
SECTION 8. Reaffirmation. Each of the Parent and the General Partner hereby consents to the foregoing amendments to the Note Agreement and hereby ratifies and reaffirms all of their payment and performance obligations, contingent or otherwise, under the Guaranty Agreement to which it is a party after giving effect to such amendments. Each Guarantor hereby acknowledges that, notwithstanding the foregoing amendments, that the Guaranty Agreement to which it is a party remains in full force and effect and is hereby ratified and confirmed. Without limiting the generality of the foregoing, each of the Parent and the General Partner agree and confirms that the Guaranty Agreement to which it is a party continues to guaranty the obligations of the Company arising under or in connection with the Note Agreement, as amended by this letter agreement. The execution of this letter agreement shall not operate as a novation, waiver of any right, power or remedy of any holder of Notes under any Guaranty Agreement.
SECTION 9. Governing Law. THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD PERMIT THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
SECTION 10. Counterparts; Facsimile Signature Pages; Section Titles. This letter may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of a signature page to this letter by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart of this letter. The section titles contained in this letter are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.
SECTION 11. Letter Agreement as Transaction Document. This letter agreement shall constitute a Transaction Document under the Note Agreement, and, accordingly, it shall be an Event of Default under the Note Agreement if the Transaction Parties fail to perform or comply with any covenant or agreement contained herein or any representation or warranty made or reaffirmed herein proves to be materially inaccurate. Any provision of any Transaction Document which applies to Transaction Documents generally shall apply to this letter agreement.
(Signature Page Follows)
Very truly yours,
PGIM, INC.
By: _/s/ J. Alex Stuart____________________
Vice President
By: _/s/ J. Alex Stuart____________________
Vice President
[Signature Page to Amendment No. 4 Note Purchase and Private Shelf Agreement]
The foregoing letter agreement is
hereby accepted as of the
date first above written:
hereby accepted as of the
date first above written:
CENTERSPACE, LP
By: Centerspace, Inc.
Its: General Partner
Its: General Partner
By: _/s/ Bhairav Patel__________________
Name: Bhairav Patel
Title: Chief Financial Officer and Executive Vice President
GUARANTORS:
CENTERSPACE
By: _/s/ Bhairav Patel___________________
Name: Bhairav Patel
Title: Chief Financial Officer and Executive Vice President
CENTERSPACE, INC.
By: _/s/ Bhairav Patel___________________
Name: Bhairav Patel
Title: Chief Financial Officer and Executive Vice President
[Signature Page to Amendment No. 4 Note Purchase and Private Shelf Agreement]
Exhibit 31.1
Certifications
I, Anne Olson, certify that:
| 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: | ||||
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||||||||
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||||||||
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||||||||
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||||||||||
| 5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||||||||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | ||||||||||
Date: October 28, 2024
| By: | /s/ Anne Olson | |||||||
| Anne Olson, President and Chief Executive Officer | ||||||||
Exhibit 31.2
Certifications
I, Bhairav Patel, certify that:
| 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: | ||||
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||||||||
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||||||||
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||||||||
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||||||||||
| 5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||||||||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | ||||||||||
Date: October 28, 2024
| By: | /s/ Bhairav Patel | |||||||
| Bhairav Patel, Executive Vice President and Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Centerspace (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anne Olson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Anne Olson | |||||
| Anne Olson | |||||
| President and Chief Executive Officer | |||||
| October 28, 2024 | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification is furnished, and shall not be deemed filed, as provided by Rule 13a-14(b) promulgated under the Securities Act of 1934 and Item 601(b) (32) (ii) of Regulation S-K.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Centerspace (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bhairav Patel, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Bhairav Patel | |||||
| Bhairav Patel | |||||
| Executive Vice President and Chief Financial Officer | |||||
| October 28, 2024 | |||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification is furnished, and shall not be deemed filed, as provided by Rule 13a-14(b) promulgated under the Securities Act of 1934 and Item 601(b) (32) (ii) of Regulation S-K.