What changed in this filing

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Item 1. Financial Statements

2021-08-02 compared with 2021-05-03 · 285 added, 194 removed, 403 unchanged (54% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Real estate investments

17 unchanged sentences

COMMITMENTS AND CONTINGENCIES (NOTE 10)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at March 31, 2021 and December 31, 2020, aggregate liquidation preference of $ 16,560 )

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at June 30, 2021 and December 31, 2020, aggregate liquidation preference of $ 16,560 )

$ 18,022 $ 16,560

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at March 31, 2021 and December 31, 2020, aggregate liquidation preference of $ 97,036 )

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at June 30, 2021 and December 31, 2020, aggregate liquidation preference of $ 97,036 )

93,530 93,530

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 13,220 shares issued and outstanding at March 31, 2021 and 13,027 shares issued and outstanding at December 31, 2020)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 14,045 shares issued and outstanding at June 30, 2021 and 13,027 shares issued and outstanding at December 31, 2020)

1,033,940 968,263

2 unchanged sentences

Total shareholders’ equity $ 682,096 $ 618,207

Noncontrolling interests – Operating Partnership ( 950 units at March 31, 2021 and 977 units at December 31, 2020)

Noncontrolling interests – Operating Partnership ( 881 units at June 30, 2021 and 977 units at December 31, 2020)

53,133 53,930

6 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

REVENUE $ 46,656 $ 43,910 $ 93,304 $ 88,316

2 unchanged sentences

Property management expense 2,085 1,345 3,852 2,899

Casualty loss 101 327

Casualty (gain) loss ( 27 ) 913 74 1,240

Depreciation and amortization 19,308 18,156 39,300 36,316

4 unchanged sentences

Interest and other income (loss) 619 521 1,050 ( 2,256 )

Income (loss) before gain (loss) on sale of real estate and other investments ( 3,737 ) ( 3,895 ) ( 8,896 ) ( 11,579 )

Gain (loss) on sale of real estate and other investments 26,840 ( 190 ) 26,840 ( 190 )

NET INCOME (LOSS) $ 23,103 $ ( 4,085 ) $ 17,944 $ ( 11,769 )

12 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) $ 23,103 $ ( 4,085 ) $ 17,944 $ ( 11,769 )

10 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31, 2020 PREFERRED

Six Months Ended June 30, 2020 PREFERRED

SHARES NUMBER

2 unchanged sentences

DISTRIBUTIONS

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NONREDEEMABLE

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONCONTROLLING

10 unchanged sentences

Redemption of units for common shares 36 118 ( 118 ) —

Redemption of units for cash ( 14 ) ( 14 )

Shares repurchased ( 5,877 ) 298 ( 5,579 )

1 unchanged sentence

Other — ( 750 ) ( 79 ) ( 829 )

Balance March 31, 2020 $ 96,046 12,163 $ 912,653 $ ( 407,150 ) $ ( 17,360 ) $ 55,527 $ 639,716

Three Months Ended March 31, 2021

Balance June 30, 2020 $ 93,579 12,827 $ 958,292 $ ( 421,515 ) $ ( 18,139 ) $ 53,290 $ 665,507

Six Months Ended June 30, 2021

Balance December 31, 2020 $ 93,530 13,027 $ 968,263 $ ( 427,681 ) $ ( 15,905 ) $ 54,616 $ 672,823

8 unchanged sentences

Redemption of units for common shares 95 418 ( 418 ) —

Redemption of units for cash ( 9 ) ( 9 )

Change in value of Series D preferred units ( 1,462 ) ( 1,462 )

Other — ( 1,122 ) ( 79 ) ( 1,201 )

Balance March 31, 2021 $ 93,530 13,220 $ 980,453 $ ( 443,409 ) $ ( 12,798 ) $ 53,676 $ 671,452

Balance June 30, 2021 $ 93,530 14,045 $ 1,033,940 $ ( 433,310 ) $ ( 12,064 ) $ 53,790 $ 735,886

See accompanying Notes to Condensed Consolidated Financial Statements.

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

Three Months Ended June 30, 2020 PREFERRED

SHARES NUMBER

SHARES COMMON

SHARES ACCUMULATED

DISTRIBUTIONS

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONCONTROLLING

INTERESTS TOTAL

Balance March 31, 2020 $ 96,046 12,163 $ 912,653 $ ( 407,150 ) $ ( 17,360 ) $ 55,527 $ 639,716

Net income (loss) attributable to controlling interests and noncontrolling interests ( 3,803 ) ( 442 ) ( 4,245 )

Change in fair value of derivatives ( 779 ) ( 779 )

Distributions - common shares and units ($ 0.70 per share and unit)

( 8,978 ) ( 715 ) ( 9,693 )

Distributions – Series C preferred shares ($ 0.4146250 per Series C share)

( 1,609 ) ( 1,609 )

Share-based compensation, net of forfeitures 18 502 502

Sale of common shares, net 624 44,789 44,789

Redemption of units for common shares 22 1,048 ( 1,048 ) —

Shares repurchased ( 2,467 ) 25 ( 2,442 )

Other — ( 700 ) ( 32 ) ( 732 )

Balance June 30, 2020 $ 93,579 12,827 $ 958,292 $ ( 421,515 ) $ ( 18,139 ) $ 53,290 $ 665,507

Three Months Ended June 30, 2021

Balance March 31, 2021 $ 93,530 13,220 $ 980,453 $ ( 443,409 ) $ ( 12,798 ) $ 53,676 $ 671,452

Net income (loss) attributable to controlling interests and noncontrolling interests 21,538 1,405 22,943

Change in fair value of derivatives 734 734

Distributions - common shares and units ($ 0.70 per share and unit)

( 9,832 ) ( 617 ) ( 10,449 )

Distributions – Series C preferred shares ($ 0.4146250 per Series C share)

( 1,607 ) ( 1,607 )

Share-based compensation, net of forfeitures 24 678 678

Sale of common shares, net 732 54,574 54,574

Redemption of units for common shares 69 638 ( 638 ) —

Change in value of Series D preferred units ( 1,462 ) ( 1,462 )

Other — ( 941 ) ( 36 ) ( 977 )

Balance June 30, 2021 $ 93,530 14,045 $ 1,033,940 $ ( 433,310 ) $ ( 12,064 ) $ 53,790 $ 735,886

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization, including amortization of capitalized loan costs 39,792 36,829

(Gain) loss on sale of real estate and other investments ( 26,840 ) 190

Realized (gain) loss on marketable securities — 3,378

Unrealized (gain) loss on marketable securities — 2,326

Share-based compensation expense 1,487 967

6 unchanged sentences

Proceeds from sale of marketable securities — 3,856

Proceeds from repayment of mortgage loans receivable — 10,020

Increase in mortgages and notes receivable ( 12,795 ) ( 11,162 )

Payments for acquisitions of real estate assets ( 77,585 ) ( 23,712 )

Payments for improvements of real estate assets ( 2,165 ) ( 2,841 )

Proceeds from sale of real estate and other investments 59,233 1,162

Payments for acquisitions of real estate investments ( 77,997 ) ( 22,770 )

Payments for improvements of real estate investments ( 8,993 ) ( 12,428 )

Other investing activities ( 240 ) 633

4 unchanged sentences

Principal payments on revolving lines of credit ( 202,575 ) ( 28,656 )

Proceeds from notes payable 49,940 —

Net proceeds from notes payable 49,940 —

Payments for acquisition of noncontrolling interests – consolidated real estate entities — ( 12,221 )

Proceeds from issuance of common shares 11,782 3,352

Net proceeds from issuance of common shares 66,356 48,141

Repurchase of Series C preferred shares — ( 5,579 )

Redemption of partnership units ( 9 ) ( 14 )

Distributions paid to common shareholders ( 18,373 ) ( 16,984 )

11 unchanged sentences

Distributions declared but not paid to common shareholders 10,449 9,694

Unrealized gain (loss) on marketable securities — ( 2,326 )

Retirement of shares withheld for taxes 905 —

Real estate assets acquired through exchange of note receivable — 17,663

5 unchanged sentences

(in thousands)

Balance sheet description March 31, 2021 December 31, 2020 March 31, 2020

Balance sheet description June 30, 2021 December 31, 2020 June 30, 2020

Cash and cash equivalents $ 5,194 $ 392 $ 52,714

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the three months ended March 31, 2021 and 2020

for the six months ended June 30, 2021 and 2020

NOTE 1 • ORGANIZATION

Investors Real Estate Trust doing business as Centerspace, collectively with our consolidated subsidiaries (“Centerspace,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.

As of March 31, 2021, we owned interests in 68 apartment communities consisting of 12,168 apartment homes.

Centerspace, collectively with its consolidated subsidiaries (“Centerspace,” “the Company,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.

As of June 30, 2021, Centerspace owned interests in 62 apartment communities consisting of 11,579 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

We conduct a majority of our business activities through our consolidated operating partnership, Centerspace, LP (f/k/a IRET Properties), 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 our accounts and the accounts of all our subsidiaries in which we maintain a controlling interest, including the Operating Partnership.

Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP (f/k/a IRET Properties), 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 certain joint venture entities in which the Operating Partnership has a general partner or controlling interest.

These entities are consolidated into our operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.

SIGNIFICANT RISKS AND UNCERTAINTIES

The COVID-19 pandemic is a source of significant risk and uncertainty that could have an adverse impact on our business.

The COVID-19 pandemic has adversely impacted the global economy and financial markets, and multifamily residents and commercial tenants have experienced financial hardship or closures.

The COVID-19 pandemic has not had a material adverse impact on our financial condition, results of operations, and cash flows for the three months ended March 31, 2021;

however, we continue to monitor the impact of the COVID-19 pandemic on all aspects of our business and cannot predict the impact it may have on our financial condition, results of operations, and cash flows in the future.

These entities are 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

Our 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”).

Centerspace’s 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 our financial position, results of operations, and cash flows for the interim periods, have been included.

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 our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 22, 2021.

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, 2020, as filed with the SEC on February 22, 2021.

USE OF ESTIMATES

8 unchanged sentences

This ASU is optional and may be elected over time.

We are currently evaluating the practical expedients and the impact they may have on our condensed consolidated financial statements.

Centerspace adopted the guidance in June 2021 on a prospective basis.

This adoption did not have a material impact on the Condensed Consolidated Financial Statements.

ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

3 unchanged sentences

Early adoption is permitted.

We are currently evaluating the ASU and the impact it may have on our condensed consolidated financial statements.

Centerspace is currently evaluating the ASU and the impact it may have on Condensed Consolidated Financial Statements.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

As of March 31, 2021, restricted cash consisted primarily of escrows held by lenders for real estate taxes, insurance, and capital additions.

As a lessor, we primarily lease multifamily apartment homes which qualify as operating leases with terms that are generally one year or less.

As of June 30, 2021 and December 31, 2020, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.

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 ASC 842, Leases , using a method that represents a straight-line basis over the term of the lease.

Rental income represents approximately 98.2 % of our total revenues and includes gross market rent less adjustments for concessions, vacancy loss, and bad debt.

Other property revenues represent the remaining 1.8 % of our total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.

Some of our apartment communities have commercial spaces available for lease.

Rental income represents approximately 98.1 % of total revenues and includes gross market rent less adjustments for concessions, vacancy loss, and bad debt.

Other property revenues represent the remaining 1.9 % of total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.

Some of the Company’s apartment communities have commercial spaces available for lease.

Lease terms for these spaces typically range from three to fifteen years .

The leases for commercial spaces generally include options to extend the lease for additional terms.

Beginning in April 2020, we offered multifamily residents suffering from financial hardship related to the COVID-19 pandemic the option to apply for a rent deferral.

We elected to account for these accommodations as enforceable rights and obligations existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020 related to lease modification guidance under ASC 842.

Beginning in April 2020, the Company abated rent, common area maintenance, and real estate taxes for commercial tenants that experienced government-mandated interruptions or closures of their businesses related to the COVID-19 pandemic.

The Company elected to account for these accommodations as though enforceable rights and obligations existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020.

The accommodations were recognized as variable lease payments.

As of March 31, 2021 and December 31, 2020, approximately $ 57,000 and $ 99,600 remained outstanding under the rent deferral agreements offered to multifamily residents, respectively.

We also abated rent, common area maintenance, and real estate taxes for commercial tenants that experienced government-mandated interruptions or closures of their businesses.

The accommodations were recognized as variable lease payments, as allowed by the FASB Q&A released on April 10, 2020.

During the three months ended March 31, 2021, we recognized a reduction in revenue of $ 47,000 due to the abatement of amounts due from our commercial tenants.

Many of our leases contain non-lease components for utility reimbursement from our residents and common area maintenance from our commercial tenants.

We have elected the practical expedient to combine lease and non-lease components for all asset classes.

During the three months ended June 30, 2021, the Company did not recognize a reduction in revenue due to the abatement of amounts due from commercial tenants, compared to a reduction of $ 402,000 in the same period of the prior year.

During the six months ended June 30, 2021 and 2020, the Company recognized reductions of $ 47,000 and $ 402,000 , respectively, due to the abatement of amounts due from commercial tenants.

Many of the leases contain non-lease components for utility reimbursement from residents and common area maintenance from commercial tenants.

Centerspace has elected the practical expedient to combine lease and non-lease components for all asset classes.

The combined components are included in lease income and are accounted for under ASC 842.

The aggregate amount of future scheduled lease income on our commercial operating leases, excluding any variable lease income and non-lease components, as of March 31, 2021, was as follows:

The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of June 30, 2021, was as follows:

(in thousands)

5 unchanged sentences

• O ther property revenue:

We recognize revenue for rental related income not included as a component of a lease, such as application fees, as earned.

Centerspace recognizes revenue for rental related income not included as a component of a lease, such as application fees, as earned.

• Gains or losses on sales of real estate:

A gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.

The following table presents the disaggregation of revenue streams for the three months ended March 31, 2021 and 2020:

The following table presents the disaggregation of revenue streams for the three and six months ended June 30, 2021 and 2020:

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Revenue Stream Applicable Standard 2021 2020 2021 2020

4 unchanged sentences

IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate our long-lived assets, including investments in real estate, for impairment indicators at least quarterly.

The Company evaluates long-lived assets, including investments in real estate, 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, we compare the expected future undiscounted cash flows for the property against the carrying amount of that property.

If indicators exist, the company compares the expected 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 recorded for the difference between the estimated fair value and the carrying amount.

If our anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements.

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 anticipated 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.

Reducing planned property holding periods may increase the likelihood of recording impairment losses.

During the three months ended March 31, 2021 and 2020, we recorded no impairment charges.

During the three and six months ended June 30, 2021 and 2020, the company recorded no impairment charges.

MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE

In March 2020, in connection with our acquisition of Ironwood, an apartment community in New Hope, Minnesota, we acquired a tax increment financing note receivable (“TIF”) with a principal balance of $ 6.6 million at March 31, 2021 and December 31, 2020, which appears within other assets in our condensed consolidated balance sheets.

In March 2020, in connection with the acquisition of Ironwood, an apartment community in New Hope, Minnesota, the Company acquired a tax increment financing note receivable (“TIF”) with a principal balance of $ 6.6 million at June 30, 2021 and December 31, 2020, which appears within other assets in the Condensed Consolidated Balance Sheets.

The note bears an interest rate of 4.5 % with payments due in February and August of each year.

In December 2019, we originated a $ 29.9 million construction loan and a $ 15.3 million mezzanine loan for the development of a multifamily development located in Minneapolis, Minnesota.

In conjunction with the loans, we received a guaranty for the substantial completion of the project improvements from an investment grade guarantor.

The construction and mezzanine loans bear interest at 4.5 % and 11.5 %, respectively.

As of March 31, 2021, we had funded the full $ 29.9 million of the construction loan and $ 112,000 of the mezzanine loan, which appears within mortgage loans receivable in our condensed consolidated balance sheets.

As of December 31, 2020, we had funded $ 24.7 million of the construction loan.

The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides us with an option to purchase the development.

The loans represent an investment in an unconsolidated variable interest entity.

We are not the primary beneficiary of the variable interest entity (“VIE”) as we do not have the power to direct the activities which most significantly impact the entity’s economic performance nor do we have significant influence over the entity.

In December 2019, Centerspace originated a $ 29.9 million construction loan and a $ 15.3 million mezzanine loan for the development of a multifamily community located in Minneapolis, Minnesota.

In conjunction with the loans, the Company received a guaranty for the substantial completion of the project improvements from an investment grade guarantor.

The construction and mezzanine loans bear and accrue interest at 4.5 % and 11.5 %, respectively.

As of June 30, 2021, the Company had fully funded the $ 29.9 million construction loan and $ 7.1 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets.

As of June 30, 2021, the construction loan had accrued $ 560,000 of interest which is added to the $ 29.9 million original principal balance.

As of December 31, 2020, the Company had funded $ 24.7 million of the construction loan.

The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides Centerspace with an option to purchase the development.

The loans represent an investment in an unconsolidated variable interest entity (“VIE”).

The Company is not the primary beneficiary of the VIE as it does not have the power to direct the activities which most significantly impact the entity’s economic performance nor does it have significant influence over the entity.

VARIABLE INTEREST ENTITIES

We have determined that our Operating Partnership and each of our less-than-wholly owned real estate partnerships are VIEs, as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights.

We are the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on our balance sheet because we have a controlling financial interest in the VIEs and have 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 our Operating Partnership is a VIE, all of our assets and liabilities are held through a VIE.

During the three months ended March 31, 2020, we acquired the 47.4 % noncontrolling interests in the real estate partnership that owns 71 France for $ 12.2 million.

Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are VIEs, 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.

MARKETABLE SECURITIES

Marketable securities consisted of equity securities.

We report equity securities at fair value based on quoted market prices (Level 1 inputs).

Equity securities are reported at fair value based on quoted market prices (Level 1 inputs).

Any unrealized gains or losses are included in interest and other income on the consolidated statements of operations.

As of March 31, 2021 and December 31, 2020 we had no marketable securities.

During the three months ended March 31, 2020, we had a realized loss of $ 1.2 million arising from the disposal of such securities which appears in interest and other income (loss) in the Condensed Consolidated Statements of Operations.

As of June 30, 2021 and December 31, 2020 the Company had no marketable securities.

During the six months ended June 30, 2020, the Company had a realized loss of $ 3.4 million arising from the disposal of such securities which appears in interest and other income (loss) in the Condensed Consolidated Statements of Operations.

NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of our common shares of beneficial interest (“common shares”) outstanding during the period.

We have issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under our 2015 Incentive Plan and Series D Convertible Preferred Units (“Series D preferred units”), which could have a dilutive effect on our earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units).

Other than the issuance of RSUs, ISOs, and Series D preferred units, we have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings.

Basic earnings per share is computed by dividing net income 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 and Series D Convertible Preferred Units (“Series D preferred units”), which could have a dilutive effect on the earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units).

Other than the issuance of RSUs, ISOs, and Series D preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings.

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 our sole discretion, we may issue common shares in exchange for Units on a one -for-one basis.

Performance-based RSUs of 46,218 and 37,822 for the three months ended March 31, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended March 31, 2021 and 2020, Series D preferred units of 228,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended March 31, 2020 and 2020, time-based RSUs of 19,000 and 16,000 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended March 31, 2021, weighted average stock options of 43,629 were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of common shares for the periods ended and, therefore were anti-dilutive.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the condensed consolidated financial statements for the three months ended March 31, 2021 and 2020:

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.

Performance-based RSUs of 31,030 and 27,964 for the three and six months ended June 30, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2020, Series D preferred units of 228,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2020, time-based RSUs of 13,000 and 15,000 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2021, weighted average stock options of 43,629 were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of common shares for the periods ended and, therefore were anti-dilutive.

For the three and six months ended June 30, 2020, weighted average stock options of 63,527 and 31,764 , respectively, were excluded from the calculation of diluted earnings per share.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020:

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) attributable to controlling interests $ 21,538 $ ( 3,803 ) $ 16,671 $ ( 10,810 )

7 unchanged sentences

Effect of redeemable operating partnership units 916 1,037 939 1,047

Effect of Series D preferred units 228 — 228 —

Effect of dilutive restricted stock units and stock options 17 — 18 —

Denominator for diluted earnings per share 14,514 13,317 14,401 13,239

3 unchanged sentences

Operating Partnership Units.

The Operating Partnership had 950,000 and 977,000 outstanding Units at March 31, 2021 and December 31, 2020, respectively.

The Operating Partnership had 881,000 and 977,000 outstanding Units at June 30, 2021 and December 31, 2020, respectively.

Exchange Rights .

Pursuant to the exercise of exchange rights, we redeemed Units for cash during the three months ended March 31, 2021 and 2020 as detailed in the table below.

(in thousands, except per Unit amounts)

Three Months Ended March 31, Number of Units Aggregate Cost (1)

Average Price Per Unit

Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three and six months ended June 30, 2021 and 2020 as detailed in the table below.

(in thousands)

Three Months Ended June 30, Number of Units Net Book Basis

2021 69 $ 639

2020 22 $ 1,048

(1) The redemption price is determined using the volume weighted average price for the ten trading days prior to the date a unitholder provides notification of their intent to redeem units.

We also redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three months ended March 31, 2021 and 2020 as detailed in the table below.

(in thousands)

Three Months Ended March 31, Number of Units Net Book Basis

Six Months Ended June 30,

2021 95 $ 418

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Common Shares and Equity Awards .

Common shares outstanding on March 31, 2021 and December 31, 2020, totaled 13.2 million and 13.0 million, respectively.

There were 2,801 shares issued upon the vesting of equity awards under our 2015 Incentive Plan during the three months ended March 31, 2021, with a total grant-date fair value of $ 164,000 .

During the three months ended March 31, 2020, we issued 1,193 shares upon the vesting of equity awards under our 2015 Incentive Plan, with a total grant-date fair value of $ 125,000 .

Common shares outstanding on June 30, 2021 and December 31, 2020, totaled 14.0 million and 13.0 million, respectively.

There were 23,385 and 26,186 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2021, respectively, with a total grant-date fair value of $ 750,000 and $ 914,000 , respectively.

During the three and six months ended June 30, 2020, the Company issued 19,508 and 20,701 shares, respectively, upon the vesting of equity awards under the 2015 Incentive Plan, with a total grant-date fair value of $ 956,000 and $ 1.0 million, respectively.

These shares vest based on performance and service criteria.

Equity Distribution Agreement.

We have an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which we may offer and sell common shares having an aggregate sales price of up to $ 150.0 million, in amounts and at times as we determine.

The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general purposes, which may include the funding of future 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 months ended March 31, 2021 and 2020.

As of March 31, 2021, common shares having an aggregate offering price of up to $ 55.3 million remained available under the 2019 ATM Program.

Centerspace has an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which it may offer and sell common shares having an aggregate sales price of up to $ 150.0 million, in amounts and at times as determined by management.

The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general purposes, which may include 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 six months ended June 30, 2021 and 2020.

As of June 30, 2021, common shares having an aggregate offering price of up to $ 99,000 remained available under the 2019 ATM Program.

(in thousands, except per share amounts)

Three Months Ended March 31, Number of Common Shares Total Consideration (1)

Average Price Per Share

Three Months Ended June 30, Number of Common Shares Total Consideration (1)

Average Net Price Per Share

2021 731 $ 54,636 $ 74.64

2020 624 $ 44,848 $ 71.84

(1) Total consideration is net of $ 181,000 and $ 52,000 in commissions during the three months ended March 31, 2021 and 2020, respectively, and issuance costs.

Share Repurchase Program .

On December 5, 2019, our Board of Trustees terminated the existing share repurchase program and authorized a new share repurchase program to repurchase up to $ 50 million of our common or preferred shares over a one-year period.

Under this repurchase program, we were able to repurchase common or preferred shares in open-market purchases, including pursuant to Rule 10b5-1 and Rule 10b-18 plans, as determined by management and in accordance with the requirements of the SEC.

This program expired on December 5, 2020.

Series C Preferred Shares repurchased during the three months ended March 31, 2020 are detailed in the table below.

(in thousands, except per share amounts)

Three Months Ended March 31, Number of Preferred Shares Aggregate Cost (1)

Average Price Per Share (1)

Six Months Ended June 30,

2021 896 $ 66,495 $ 74.19

(1) Amount includes commissions.

2020 674 $ 48,250 $ 71.56

(1) Total consideration is net of $ 528,000 and $ 709,000 in commissions during the three and six months ended June 30, 2021, respectively, and issuance costs.

Total consideration for the three and six months ended June 30, 2020 is net of $ 683,000 and $ 735,000 in commissions, respectively, and issuance costs.

Series C Preferred Shares.

Series C preferred shares outstanding were 3.9 million shares at March 31, 2021 and December 31, 2020.

The Series C preferred shares are nonvoting and redeemable for cash at $ 25.00 per share at our option after October 2,

Series C preferred shares outstanding were 3.9 million shares at June 30, 2021 and December 31, 2020.

The Series C preferred shares are nonvoting and redeemable for cash at $ 25.00 per share at Centerspace’s option after October 2, 2022.

Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees).

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Series D Preferred Units (Mezzanine Equity).

On February 26, 2019, we issued 165,600 newly created Series D preferred units at an issuance price of $ 100 per preferred unit as partial consideration for the acquisition of SouthFork Townhomes.

On February 26, 2019, Centerspace issued 165,600 newly created Series D preferred units at an issuance price of $ 100 per preferred unit as partial consideration for the acquisition of SouthFork Townhomes.

The Series D preferred unit holders receive a preferred distribution at the rate of 3.862 % per year.

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Each Series D preferred unit is convertible, at the holder's option, into 1.37931 Units, representing a conversion exchange rate of $ 72.50 per unit.

Changes in the redemption value are charged to common shares on our condensed consolidated balance sheets from period to period.

Changes in the redemption value are charged to common shares on the Condensed Consolidated Balance Sheets from period to period.

The holders of the Series D preferred units do not have any voting rights.

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NOTE 5 • DEBT

As of March 31, 2021, 49 of our apartment communities were not encumbered by mortgages, with 34 of those properties providing credit support for our unsecured borrowings.

Our primary unsecured credit facility (“unsecured credit facility”) is a revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent.

Our line of credit has total commitments and borrowing capacity of $ 250.0 million, based on the value of properties contained in the unencumbered asset pool (“UAP”).

As of March 31, 2021, the additional borrowing availability was $ 68.5 million beyond the $ 181.5 million drawn, including the balance on our operating line of credit (discussed below).

The unsecured credit facility matures on August 31, 2022, with one twelve-month option to extend the maturity date at our election.

Under our unsecured credit facility, we also have unsecured term loans of $ 70.0 million and $ 75.0 million, included within notes payable on the condensed consolidated balance sheets, which mature on January 15, 2024 and on August 31, 2025, respectively.

The interest rates on the line of credit and term loans are based, at our option, on either the lender’s base rate plus a margin, ranging from 35 - 85 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 135 - 190 basis points based on our consolidated leverage ratio, as defined under our Second Amended and Restated Credit Agreement.

Our unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations.

We believe that we are in compliance with all such financial covenants and limitations as of March 31, 2021.

In January, we amended and expanded our private shelf agreement to increase the aggregate amount available for issuance of unsecured senior promissory notes (“unsecured senior notes”) to $ 225.0 million.

Under this agreement, we issued $ 75.0 million of Series A notes due September 13, 2029 bearing interest at a rate of 3.84 % annually, $ 50.0 million of Series B notes due September 30, 2028 bearing interest at a rate of 3.69 % annually, and $ 50.0 million of Series C notes due June 6, 2030 bearing interest at a rate of 2.70 % annually.

We have $ 50.0 million remaining available under the private shelf agreement.

As of March 31, 2021, we owned 19 apartment communities that served as collateral for mortgage loans.

All of these mortgage loans were non-recourse to us other than for standard carve-out obligations.

As of March 31, 2021, we believe that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

We also have a $ 6.0 million operating line of credit.

As of June 30, 2021, 44 apartment communities were not encumbered by mortgages, with 29 of those properties providing credit support for the unsecured borrowings.

The Company’s primary unsecured credit facility (“unsecured credit 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 properties contained in the unencumbered asset pool (“UAP”).

As of June 30, 2021, the additional borrowing availability was $ 163.0 million beyond the $ 87.0 million drawn, including the balance on the operating line of credit (discussed below).

The unsecured credit facility matures on August 31, 2022, with one twelve-month option to extend the maturity date at the Company’s election.

Under the unsecured credit facility, the Company also has unsecured term loans of $ 70.0 million and $ 75.0 million, included within notes payable on the Condensed Consolidated Balance Sheets, which mature on January 15, 2024 and on August 31, 2025, respectively.

The interest rates on the line of credit and term loans are based, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 35 - 85 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 135 - 190 basis points based on the consolidated leverage ratio, as defined under the Second Amended and Restated Credit Agreement.

The unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations.

The Company believes that it is in compliance with all such financial covenants and limitations as of June 30, 2021.

In January, Centerspace amended and expanded its private shelf agreement to increase the aggregate amount available for issuance of unsecured senior promissory notes (“unsecured senior notes”) to $ 225.0 million.

Under this agreement, the Company issued $ 75.0 million of Series A notes due September 13, 2029 bearing interest at a rate of 3.84 % annually, $ 50.0 million of Series B notes due September 30, 2028 bearing interest at a rate of 3.69 % annually, and $ 50.0 million of Series C notes due June 6, 2030 bearing interest at a rate of 2.70 % annually.

Under the private shelf agreement, there is $ 50.0 million remaining available.

As of June 30, 2021, Centerspace owned 18 apartment communities that served as collateral for mortgage loans.

All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations.

As of June 30, 2021, the Company believes that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

Centerspace also has a $ 6.0 million operating line of credit.

This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances.

This operating line matures on August 31, 2021, with pricing based on a market spread plus the one-month LIBOR index rate.

The following table summarizes our indebtedness:

The following table summarizes indebtedness:

(in thousands)

March 31, 2021 December 31, 2020 Weighted Average Maturity in Years at March 31, 2021

June 30, 2021 December 31, 2020 Weighted Average Maturity in Years at June 30, 2021

Lines of credit $ 87,000 $ 152,871 1.17

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Weighted average interest rate on total debt 3.70 % 3.62 %

(1) Included within notes payable on our condensed consolidated balance sheets.

The aggregate amount of required future principal payments on term loans, unsecured senior notes, and mortgages payable as of March 31, 2021, was as follows:

(1) Included within notes payable on the Condensed Consolidated Balance Sheets.

The aggregate amount of required future principal payments on term loans, unsecured senior notes, and mortgages payable as of June 30, 2021, was as follows:

(in thousands)

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NOTE 6 • DERIVATIVE INSTRUMENTS

Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate fluctuations.

To accomplish this objective, we primarily use interest rate swap contracts to fix the variable interest rate on our term loans and a portion of our primary line of credit.

Centerspace’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate fluctuations.

To accomplish this objective, the Company primarily uses interest rate swap contracts to fix the variable interest rate on its term loans and a portion of its primary line of credit.

The interest rate swap contracts qualify as cash flow hedges.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (“OCI”) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income for our interest rate swaps will be reclassified to interest expense as interest expense is incurred on our term loans and the hedged portion of our primary line of credit.

During the next twelve months, we estimate an additional $ 4.4 million will be reclassified as an increase to interest expense.

At March 31, 2021 and December 31, 2020 , we had a $ 50.0 million interest rate swap to fix the interest rate on a portion of our primary line of credit.

At March 31, 2021 and December 31, 2020 , we had three interest rate swap contracts in effect with a notional amount of $ 195.0 million and one additional interest rate swap that becomes effective on January 31, 2023, with a notional amount of $ 70.0 million.

The table below presents the fair value of our derivative financial instruments as well as their classification on our Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 .

Amounts reported in accumulated other comprehensive income for the interest rate swaps will be reclassified to interest expense as interest expense is incurred on the term loans and the hedged portion of the primary line of credit.

During the next twelve months, the company estimates an additional $ 4.4 million will be reclassified as an increase to interest expense.

At June 30, 2021 and December 31, 2020 , Centerspace had a $ 50.0 million interest rate swap to fix the interest rate on a portion of the primary line of credit.

At June 30, 2021 and December 31, 2020 , Centerspace had three interest rate swap contracts in effect with a notional amount of $ 195.0 million and one additional interest rate swap that becomes effective on January 31, 2023, with a notional amount of $ 70.0 million.

These interest rate swaps are to fix the interest rate on the term loans.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 .

(in thousands)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Balance Sheet Location Fair Value Fair Value

Total derivative instruments designated as hedging instruments - interest rate swaps Accounts Payable and Accrued Expenses $ 12,064 $ 15,905

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of March 31, 2021 and 2020.

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2021 and 2020.

(in thousands)

Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from Accumulated OCI into Income Gain (Loss) Reclassified from Accumulated OCI into Income

Three months ended March 31, 2021 2020 2021 2020

Three months ended June 30, 2021 2020 2021 2020

Total derivatives in cash flow hedging relationships - Interest rate contracts $ ( 386 ) $ ( 1,696 ) Interest expense $ ( 1,120 ) $ ( 917 )

Six months ended June 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts $ 1,625 $ ( 11,105 ) Interest expense $ ( 2,216 ) $ ( 573 )

NOTE 7 • FAIR VALUE MEASUREMENTS

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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, we apply FASB ASC 820, “ Fair Value Measurement and Disclosures.

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).

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Total Level 1 Level 2 Level 3

March 31, 2021

June 30, 2021

Mortgages and notes receivable $ 43,796 — — $ 43,796

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Derivative instruments - interest rate swaps $ 15,905 $ — — $ 15,905

The fair value of our interest rate swaps is determined using the market standard methodology of netting discounted expected variable cash payments and receipts.

The fair value of the interest rate swaps is determined using the market standard methodology of netting discounted expected variable cash payments and receipts.

The variable cash payments and receipts are based on an expectation of future interest rates (a forward curve) derived from observable market interest rate curves.

We also consider both our own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurement (Level 3).

We utilize an income approach with level 3 inputs based on expected future cash flows to value these instruments.

The Company also considers both its own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurement (Level 3).

Centerspace utilizes an income approach with level 3 inputs based on expected future cash flows to value mortgages and notes receivable.

The inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 3.75 % to 10.75 %), 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 our condensed consolidated statements of operations.

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 at March 31, Other Gains (Losses) Interest

Income Total Changes in Fair Value Included in Current-Period Earnings

Three months ended March 31, 2021

Fair Value Measurement at June 30, Other Gains (Losses) Interest Income Total Changes in Fair Value Included in Current-Period Earnings

Six months ended June 30, 2021

Mortgage loans and notes receivable $ 43,796 $ 7 $ 990 $ 997

Three months ended March 31, 2020

Six months ended June 30, 2020

Mortgage loans and notes receivable $ 17,535 $ 5 $ 858 $ 863

As of June 30, 2021, Centerspace has an investment of $ 400,000 in a real estate technology venture consisting of privately held entities that develop technology related to the real estate industry.

This investment is measured at net asset value ("NAV") as a practical expedient under ASC 820.

As of June 30, 2021, the Company had unfunded commitments of $ 1.6 million.

Fair Value Measurements on a Nonrecurring Basis

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020.

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2021 and December 31, 2020.

Financial Assets and Liabilities Not Measured at Fair Value

The fair value of mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates (Level 3).

The estimated fair values of our financial instruments as of March 31, 2021 and December 31, 2020, respectively, are as follows:

The estimated fair values of the Company's financial instruments as of June 30, 2021 and December 31, 2020, respectively, are as follows:

(in thousands)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Carrying Amount Fair Value Carrying Amount Fair Value

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NOTE 8 • ACQUISITIONS AND DISPOSITIONS

We acquired $ 76.9 million in new real estate during the three months ended March 31, 2021, compared to $ 46.3 million in the three months ended March 31, 2020.

Our acquisitions during the three months ended March 31, 2021 and 2020 are detailed below.

Three Months Ended March 31, 2021

Centerspace acquired no new real estate during the three months ended June 30, 2021 and 2020.

The acquisitions during the six months ended June 30, 2021 and 2020 are detailed below.

Six Months Ended June 30, 2021

Acquired (in thousands)

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January 6, 2021 $ 76,900 $ 76,900 $ 5,727 $ 69,966 $ 1,207

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Acquired (in thousands)

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Refer to Note 2 for further discussion.

During the three months ended March 31, 2021 and 2020, we had no dispositions.

During the three months ended June 30, 2021, Centerspace disposed of five apartment communities for a total sale price of $ 60.0 million.

During the three months ended June 30, 2020, the company disposed of one parcel of unimproved land for a total sale price of $ 1.3 million.

The following tables detail the dispositions for the six months ended had June 30, 2021 and 2020.

Six Months Ended June 30, 2021

(in thousands)

Dispositions Date

Disposed Sale Price Book Value and Sales Cost Gain/(Loss)

76 homes - Crystal Bay-Rochester, MN

May 25, 2021 $ 13,650 $ 10,255 $ 3,395

40 homes - French Creek-Rochester, MN

May 25, 2021 6,700 4,474 2,226

182 homes - Heritage Manor-Rochester, MN

May 25, 2021 14,125 4,892 9,233

140 homes - Olympik Village-Rochester, MN

May 25, 2021 10,725 6,529 4,196

151 homes-Winchester/Village Green-Rochester, MN

May 25, 2021 14,800 7,010 7,790

Total Dispositions $ 60,000 $ 33,160 $ 26,840

Six Months Ended June 30, 2020

(in thousands)

Dispositions Date

Disposed Sale Price Book Value and Sales Cost Gain/(Loss)

Unimproved Land

Rapid City Land - Rapid City, SD June 29, 2020 $ 1,300 $ 1,490 $ ( 190 )

NOTE 9 • SEGMENT REPORTING

We operate in a single reportable segment which includes the ownership, management, development, redevelopment, and acquisition of apartment communities.

Each of our operating properties is considered a separate operating segment because each property earns revenues, incurs expenses, and has discrete financial information.

Our 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.

Our apartment communities have similar long-term economic characteristics and provide similar products and services to our residents.

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, our apartment communities are aggregated into a single reportable segment.

“All other” includes non-multifamily components of mixed-use properties and apartment communities we have sold.

Our executive management team comprises our chief operating decision-makers.

This team measures the performance of our reportable segment based on net operating income (“NOI”), which we define as total real estate revenues less property operating expenses, including real estate taxes.

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 depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expense.

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 sold.

The executive management team comprises the chief operating decision-makers.

This team measures the performance of the reportable segment based on net operating income (“NOI”), which the company defines as total real estate revenues less property operating expenses, including real estate taxes.

Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, 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, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

The following tables present NOI for the three months ended March 31, 2021 and 2020, respectively, along with reconciliations to net income in the condensed consolidated financial statements.

The following tables present NOI for the three and six months ended June 30, 2021 and 2020, respectively, along with reconciliations to net income 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 March 31, 2021 Multifamily All Other Total

Three Months Ended June 30, 2021 Multifamily All Other Total

Revenue $ 44,957 $ 1,699 $ 46,656

7 unchanged sentences

Interest and other income 619

Income (loss) before gain (loss) on sale of real estate and other investments ( 3,737 )

Gain (loss) on sale of real estate and other investments 26,840

Net income (loss) $ 23,103

(in thousands)

Three Months Ended March 31, 2020 Multifamily All Other Total

Three Months Ended June 30, 2020 Multifamily All Other Total

Revenue $ 40,213 $ 3,697 $ 43,910

7 unchanged sentences

Interest and other income 521

Income (loss) before gain (loss) on sale of real estate and other investments ( 3,895 )

Gain (loss) on sale of real estate and other investments ( 190 )

Net income (loss) $ ( 4,085 )

(in thousands)

Six Months Ended June 30, 2021 Multifamily All Other Total

Revenue $ 89,198 $ 4,106 $ 93,304

Property operating expenses, including real estate taxes 35,841 2,160 38,001

Net operating income $ 53,357 $ 1,946 $ 55,303

Property management expenses ( 3,852 )

Casualty gain (loss) ( 74 )

Depreciation and amortization ( 39,300 )

General and administrative expenses ( 7,703 )

Interest expense ( 14,320 )

Interest and other income 1,050

Income (loss) before gain (loss) on sale of real estate and other investments ( 8,896 )

Gain (loss) on sale of real estate and other investments 26,840

Net income (loss) $ 17,944

(in thousands)

Six Months Ended June 30, 2020 Multifamily All Other Total

Revenue $ 80,258 $ 8,058 $ 88,316

Property operating expenses, including real estate taxes 32,726 3,977 36,703

Net operating income $ 47,532 $ 4,081 $ 51,613

Property management expenses ( 2,899 )

Casualty gain (loss) ( 1,240 )

Depreciation and amortization ( 36,316 )

General and administrative expenses ( 6,630 )

Interest expense ( 13,851 )

Interest and other income ( 2,256 )

Income (loss) before gain (loss) on sale of real estate and other investments ( 11,579 )

Gain (loss) on sale of real estate and other investments ( 190 )

Net income (loss) $ ( 11,769 )

Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of March 31, 2021, and December 31, 2020, respectively, along with reconciliations to the condensed consolidated financial statements:

Segment assets are summarized as follows as of June 30, 2021, and December 31, 2020, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

(in thousands)

As of March 31, 2021 Multifamily All Other Total

As of June 30, 2021 Multifamily All Other Total

Segment assets

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NOTE 10 • COMMITMENTS AND CONTINGENCIES

In the ordinary course of our operations, we become involved in litigation.

At this time, we know of no material pending or threatened legal proceedings, or other proceedings contemplated by governmental authorities, that would have a material impact on us.

In the ordinary course of operations, Centerspace becomes involved in litigation.

At this time, the Company knows of no material pending or threatened legal proceedings, or other proceedings contemplated by governmental authorities, that would have a material impact on it.

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 we currently have no knowledge of any material violation of environmental laws, ordinances, or regulations at any of our properties, there can be no assurance that areas of contamination will not be identified at any of our properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs to us.

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.

Restrictions on Taxable Dispositions.

Twenty of our properties, consisting of 4,032 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties and are effective for varying periods.

We do not believe that the agreements materially affect the conduct of our business or our decisions whether to dispose of restricted properties during the restriction period because we generally hold these and our other properties for investment purposes rather than for sale.

In addition, where we deem it to be in our shareholders' best interests to dispose of such properties, we generally seek to structure sales of such properties as tax deferred transactions under Section 1031 of the Internal Revenue Code.

Otherwise, we may be required to provide tax indemnification payments to the parties to these agreements.

Seventeen properties, consisting of 3,559 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with some 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 restricted properties during the restriction 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.

NOTE 11 • SHARE-BASED COMPENSATION

Share-based awards are provided to officers, non-officer employees, and trustees under our 2015 Incentive Plan approved by shareholders on September 15, 2015, as amended and restated on May 19, 2020 (the “2015 Incentive Plan”) which allows for awards in the form of cash, unrestricted and restricted common shares, stock options, stock appreciation rights, and RSUs up to an aggregate of 425,000 shares over the ten-year period in which the plan is in effect.

Under our 2015 Incentive Plan, officers and non-officer employees may earn share awards under a long-term incentive plan, which is a forward-looking program that measures long-term performance over the stated performance period.

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 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, 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.

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Dividend yield 3.963 %

The TSR performance RSUs are earned based on our TSR as compared to the FTSE Nareit Apartment Index over a forward looking three-year period.

The TSR performance RSUs are earned based on the Company’s TSR as compared to the FTSE Nareit Apartment Index over a forward looking three-year period.

The maximum number of RSUs eligible to be earned is 38,448 RSUs, which is 200 % of the RSUs granted.

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These awards have market conditions in addition to service conditions that must be met for the awards to vest.

We recognize compensation expense 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.

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.

We based the expected volatility on a weighted average of the historical volatility of our daily closing share price and a select peer average volatility, the risk-free interest rate on the interest rates on U.S.

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 interest rates on U.S.

treasury bonds with a maturity equal to the remaining performance period of the award, and the expected term on the performance period of the award.

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The share price at the grant date, January 1, 2021, was $ 70.64 per share.

Awards granted to trustees on May 18, 2021, consist of 6,061 time-based RSUs, which vest on May 18, 2022.

These awards are classified as equity awards.

Share-Based Compensation Expense

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 810,000 and $ 465,000 for the three months ended March 31, 2021 and 2020, respectively.

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.5 million and $ 967,000 for the six months ended June 30, 2021 and 2020, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements