CENTERSPACE 10-Q

Item 1. Financial Statements. CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) June 30, 2021 December 31, 2020 ASSETS Real estate investments Property owned $ 1,838,837 $ 1,812,557 Less accumulated depreciation ( 407,400 ) ( 399,249 ) 1,431,437 1,413,308 Mortgage loans receivable at fair value 37,457 24,661 Total real estate investments 1,468,894 1,437,969 Cash and cash equivalents 5,194 392 Restricted cash 8,444 6,918 Other assets 17,218 18,904 TOTAL ASSETS $ 1,499,750 $ 1,464,183 LIABILITIES, MEZZANINE EQUITY, AND EQUITY LIABILITIES Accounts payable and accrued expenses $ 52,413 $ 55,609 Revolving lines of credit 87,000 152,871 Notes payable, net of unamortized loan costs of $ 714 and $ 754 respectively 319,286 269,246 Mortgages payable, net of unamortized loan costs of $ 1,220 and $ 1,371 , respectively 287,143 297,074 TOTAL LIABILITIES $ 745,842 $ 774,800 COMMITMENTS AND CONTINGENCIES (NOTE 10) 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 EQUITY Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at 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, 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 Accumulated distributions in excess of net income ( 433,310 ) ( 427,681 ) Accumulated other comprehensive income (loss) ( 12,064 ) ( 15,905 ) Total shareholders’ equity $ 682,096 $ 618,207 Noncontrolling interests – Operating Partnership ( 881 units at June 30, 2021 and 977 units at December 31, 2020) 53,133 53,930 Noncontrolling interests – consolidated real estate entities 657 686 Total equity $ 735,886 $ 672,823 TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY $ 1,499,750 $ 1,464,183 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 REVENUE $ 46,656 $ 43,910 $ 93,304 $ 88,316 EXPENSES Property operating expenses, excluding real estate taxes 13,018 12,360 26,467 25,828 Real estate taxes 5,742 5,410 11,534 10,875 Property management expense 2,085 1,345 3,852 2,899 Casualty (gain) loss ( 27 ) 913 74 1,240 Depreciation and amortization 19,308 18,156 39,300 36,316 General and administrative expenses 3,797 3,202 7,703 6,630 TOTAL EXPENSES $ 43,923 $ 41,386 $ 88,930 $ 83,788 Operating income 2,733 2,524 4,374 4,528 Interest expense ( 7,089 ) ( 6,940 ) ( 14,320 ) ( 13,851 ) 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 ) Dividends to preferred unitholders ( 160 ) ( 160 ) ( 320 ) ( 320 ) Net (income) loss attributable to noncontrolling interests – Operating Partnership ( 1,386 ) 447 ( 917 ) 1,139 Net (income) loss attributable to noncontrolling interests – consolidated real estate entities ( 19 ) ( 5 ) ( 36 ) 140 Net income (loss) attributable to controlling interests 21,538 ( 3,803 ) 16,671 ( 10,810 ) Dividends to preferred shareholders ( 1,607 ) ( 1,609 ) ( 3,214 ) ( 3,314 ) Discount (premium) on redemption of preferred shares — 25 — 298 NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 19,931 $ ( 5,387 ) $ 13,457 $ ( 13,826 ) NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ 1.49 $ ( 0.44 ) $ 1.02 $ ( 1.13 ) NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ 1.48 $ ( 0.44 ) $ 1.02 $ ( 1.13 ) See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (in thousands) 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 ) Other comprehensive income: Unrealized gain (loss) from derivative instrument ( 386 ) ( 1,696 ) 1,625 ( 11,105 ) (Gain) loss on derivative instrument reclassified into earnings 1,120 917 2,216 573 Total comprehensive income (loss) $ 23,837 $ ( 4,864 ) $ 21,785 $ ( 22,301 ) Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership ( 1,430 ) 504 ( 1,169 ) 1,967 Net (income) loss attributable to noncontrolling interests – consolidated real estate entities ( 19 ) ( 5 ) ( 36 ) 140 Comprehensive income (loss) attributable to controlling interests $ 22,388 $ ( 4,365 ) $ 20,580 $ ( 20,194 ) See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited) (in thousands, except per share data) Six Months Ended June 30, 2020 PREFERRED SHARES NUMBER OF COMMON SHARES COMMON SHARES ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NONCONTROLLING INTERESTS TOTAL EQUITY Balance December 31, 2019 $ 99,456 12,098 $ 917,400 $ ( 390,196 ) $ ( 7,607 ) $ 60,849 $ 679,902 Net income (loss) attributable to controlling interests and noncontrolling interests ( 10,810 ) ( 1,279 ) ( 12,089 ) Change in fair value of derivatives ( 10,532 ) ( 10,532 ) Distributions - common shares and units ($ 1.40 per share and unit) ( 17,493 ) ( 1,446 ) ( 18,939 ) Distributions – Series C preferred shares ($ 0.829250 per Series C share) ( 3,314 ) ( 3,314 ) Share-based compensation, net of forfeitures 19 967 967 Sale of common shares, net 674 48,141 48,141 Redemption of units for common shares 36 118 ( 118 ) — Shares repurchased ( 5,877 ) 298 ( 5,579 ) Acquisition of noncontrolling interests - consolidated real estate entities ( 7,584 ) ( 4,637 ) ( 12,221 ) Other — ( 750 ) ( 79 ) ( 829 ) 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 Net income (loss) attributable to controlling interests and noncontrolling interests 16,671 953 17,624 Change in fair value of derivatives 3,841 3,841 Distributions - common shares and units ($ 1.40 per share and unit) ( 19,086 ) ( 1,282 ) ( 20,368 ) Distributions – Series C preferred shares ($ 0.829250 per Series C share) ( 3,214 ) ( 3,214 ) Share-based compensation, net of forfeitures 27 1,487 1,487 Sale of common shares, net 896 66,356 66,356 Redemption of units for common shares 95 418 ( 418 ) — Change in value of Series D preferred units ( 1,462 ) ( 1,462 ) Other — ( 1,122 ) ( 79 ) ( 1,201 ) 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. 6 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited) Three Months Ended June 30, 2020 PREFERRED SHARES NUMBER OF COMMON SHARES COMMON SHARES ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NONCONTROLLING INTERESTS TOTAL EQUITY Balance 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 7 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 17,944 $ ( 11,769 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: 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 Share-based compensation expense 1,487 967 Other, net 2,177 909 Changes in other assets and liabilities: Other assets ( 858 ) ( 2,036 ) Accounts payable and accrued expenses ( 3,128 ) ( 3,192 ) Net cash provided by (used by) operating activities $ 30,574 $ 25,276 CASH FLOWS FROM INVESTING ACTIVITIES 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 ) 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 Net cash provided by (used by) investing activities $ ( 40,792 ) $ ( 30,689 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgages payable ( 10,326 ) ( 6,392 ) Proceeds from revolving lines of credit 136,704 41,578 Principal payments on revolving lines of credit ( 202,575 ) ( 28,656 ) Net proceeds from notes payable 49,940 — Payments for acquisition of noncontrolling interests – consolidated real estate entities — ( 12,221 ) Net proceeds from issuance of common shares 66,356 48,141 Repurchase of Series C preferred shares — ( 5,579 ) Distributions paid to common shareholders ( 18,373 ) ( 16,984 ) Distributions paid to preferred shareholders ( 3,214 ) ( 3,314 ) Distributions paid to preferred unitholders ( 320 ) ( 320 ) Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership ( 1,348 ) ( 1,472 ) Other financing activities ( 298 ) ( 236 ) Net cash provided by (used by) financing activities $ 16,546 $ 14,545 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 6,328 9,132 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,310 46,117 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $ 13,638 $ 55,249 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Accrued capital expenditures $ 2,034 $ ( 458 ) Operating partnership units converted to shares 418 118 Distributions declared but not paid to common shareholders 10,449 9,694 Retirement of shares withheld for taxes 905 — Real estate assets acquired through exchange of note receivable — 17,663 Note receivable exchanged through real estate acquisition — ( 17,663 ) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 13,541 $ 13,120 8 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Balance sheet description June 30, 2021 December 31, 2020 June 30, 2020 Cash and cash equivalents $ 5,194 $ 392 $ 52,714 Restricted cash 8,444 6,918 2,535 Total cash, cash equivalents and restricted cash $ 13,638 $ 7,310 $ 55,249 See accompanying Notes to Condensed Consolidated Financial Statements. 9 Table of Contents CENTERSPACE AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) for the six months ended June 30, 2021 and 2020 NOTE 1 • ORGANIZATION 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 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 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 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, 2020, as filed with the SEC on February 22, 2021. 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. 10 Table of Contents RECENT ACCOUNTING PRONOUNCEMENTS The following table provides a brief description of recent accounting standards updates (“ASUs”). Standard Description Date of Adoption Effect on the Financial Statements or Other Significant Matters ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. This ASU is optional and may be elected over time. 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 This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements. This ASU is effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted. 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 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. 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 ASC 842, Leases , using a method that represents a straight-line basis over the term of the 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, 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. 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 commercial operating leases, excluding any variable lease income and non-lease components, as of June 30, 2021, was as follows: 11 Table of Contents (in thousands) 2021 (remainder) $ 1,185 2022 2,339 2023 2,336 2024 2,323 2025 2,291 Thereafter 2,488 Total scheduled lease income - commercial operating leases $ 12,962 REVENUES 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: • O ther property revenue: 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 and six months ended June 30, 2021 and 2020: (in thousands) Three Months Ended June 30, Six Months Ended June 30, Revenue Stream Applicable Standard 2021 2020 2021 2020 Fixed lease income - operating leases Leases $ 43,659 $ 41,910 $ 87,499 $ 83,843 Variable lease income - operating leases Leases 2,103 1,302 4,072 3,082 Other property revenue Revenue from contracts with customers 894 698 1,733 1,391 Total revenue $ 46,656 $ 43,910 $ 93,304 $ 88,316 IMPAIRMENT OF LONG-LIVED ASSETS 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, 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 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 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 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. 12 Table of Contents 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 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. 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 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 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 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. 13 Table of Contents 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 NUMERATOR Net income (loss) attributable to controlling interests $ 21,538 $ ( 3,803 ) $ 16,671 $ ( 10,810 ) Dividends to preferred shareholders ( 1,607 ) ( 1,609 ) ( 3,214 ) ( 3,314 ) Redemption of preferred shares — 25 — 298 Numerator for basic earnings (loss) per share – net income available to common shareholders 19,931 ( 5,387 ) 13,457 ( 13,826 ) Noncontrolling interests – Operating Partnership 1,386 ( 447 ) 917 ( 1,139 ) Dividends to preferred unitholders 160 160 320 320 Numerator for diluted earnings (loss) per share $ 21,477 $ ( 5,674 ) $ 14,694 $ ( 14,645 ) DENOMINATOR Denominator for basic earnings per share weighted average shares 13,353 12,280 13,216 12,192 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 NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ 1.49 $ ( 0.44 ) $ 1.02 $ ( 1.13 ) NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ 1.48 $ ( 0.44 ) $ 1.02 $ ( 1.13 ) NOTE 4 • EQUITY AND MEZZANINE EQUITY Operating Partnership Units. The Operating Partnership had 881,000 and 977,000 outstanding Units at June 30, 2021 and December 31, 2020, respectively. Exchange Rights . 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 Six Months Ended June 30, 2021 95 $ 418 2020 36 $ 118 Common Shares and Equity Awards . 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. 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. 14 Table of Contents (in thousands, except per share amounts) 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 Six Months Ended June 30, 2021 896 $ 66,495 $ 74.19 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 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). Distributions accrue at an annual rate of $ 1.65625 per share, which is equal to 6.625 % of the $ 25.00 per share liquidation preference ($ 97.0 million liquidation preference in the aggregate). Series D Preferred Units (Mezzanine Equity). 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. 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, representing a conversion exchange rate of $ 72.50 per unit. 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. 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. NOTE 5 • DEBT 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. 15 Table of Contents 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 indebtedness: (in thousands) June 30, 2021 December 31, 2020 Weighted Average Maturity in Years at June 30, 2021 Lines of credit $ 87,000 $ 152,871 1.17 Term loans (1) 145,000 145,000 3.39 Unsecured senior notes (1) 175,000 125,000 8.15 Unsecured debt 407,000 422,871 4.96 Mortgages payable - fixed 288,363 298,445 4.87 Total debt $ 695,363 $ 721,316 4.92 Weighted average interest rate on lines of credit (rate with swap) 2.21 % 2.85 % Weighted average interest rate on term loans (rate with swap) 4.15 % 4.15 % Weighted average interest rate on unsecured senior notes 3.47 % 3.78 % Weighted average interest rate on mortgages payable 3.90 % 3.93 % Weighted average interest rate on total debt 3.70 % 3.62 % (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) 2021 (remainder) $ 15,583 2022 37,219 2023 45,068 2024 3,777 2025 102,505 Thereafter 404,211 Total payments $ 608,363 NOTE 6 • DERIVATIVE INSTRUMENTS 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 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 . 16 Table of Contents (in thousands) 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 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 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 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) Total Level 1 Level 2 Level 3 June 30, 2021 Assets Mortgages and notes receivable $ 43,796 — — $ 43,796 Liabilities Derivative instruments - interest rate swaps $ 12,064 — — $ 12,064 December 31, 2020 Assets Mortgages and notes receivable $ 30,994 — — $ 30,994 Liabilities Derivative instruments - interest rate swaps $ 15,905 $ — — $ 15,905 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. 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 the Condensed Consolidated Statements of Operations. 17 Table of Contents (in thousands) 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 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 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 the Company's financial instruments as of June 30, 2021 and December 31, 2020, respectively, are as follows: (in thousands) June 30, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount Fair Value FINANCIAL ASSETS Cash and cash equivalents $ 5,194 $ 5,194 $ 392 $ 392 Restricted cash $ 8,444 $ 8,444 $ 6,918 $ 6,918 FINANCIAL LIABILITIES Revolving lines of credit (1) $ 87,000 $ 87,000 $ 152,871 $ 152,871 Term loans (1) $ 145,000 $ 145,000 $ 145,000 $ 145,000 Unsecured senior notes $ 175,000 $ 183,259 $ 125,000 $ 133,181 Mortgages payable $ 288,363 $ 297,683 $ 298,445 $ 308,855 (1) Excluding the effect of interest rate swap agreements. Refer to Note 6 for discussion on the fair value of the interest rate swap agreements. NOTE 8 • ACQUISITIONS AND DISPOSITIONS ACQUISITIONS 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. 18 Table of Contents Six Months Ended June 30, 2021 Date Acquired (in thousands) Total Acquisition Cost Form of Consideration Investment Allocation Acquisitions Cash Land Building Intangible Assets 256 homes - Union Pointe - Longmont, CO January 6, 2021 $ 76,900 $ 76,900 $ 5,727 $ 69,966 $ 1,207 Six Months Ended June 30, 2020 Date Acquired (in thousands) Total Acquisition Cost Form of Consideration Investment Allocation Acquisitions Cash Other (1) Land Building Intangible Assets Other (2) 182 homes - Ironwood - New Hope, MN March 5, 2020 $ 46,263 $ 28,600 $ 17,663 $ 2,165 $ 36,869 $ 824 $ 6,405 (1) Payoff at closing of note receivable and accrued interest due from seller. (2) Consists of TIF note acquired. Refer to Note 2 for further discussion. 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) Multifamily 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 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 sold. 19 Table of Contents 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 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 June 30, 2021 Multifamily All Other Total Revenue $ 44,957 $ 1,699 $ 46,656 Property operating expenses, including real estate taxes 17,967 793 18,760 Net operating income $ 26,990 $ 906 $ 27,896 Property management ( 2,085 ) Casualty gain (loss) 27 Depreciation and amortization ( 19,308 ) General and administrative expenses ( 3,797 ) Interest expense ( 7,089 ) 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 June 30, 2020 Multifamily All Other Total Revenue $ 40,213 $ 3,697 $ 43,910 Property operating expenses, including real estate taxes 15,952 1,818 17,770 Net operating income $ 24,261 $ 1,879 $ 26,140 Property management ( 1,345 ) Casualty gain (loss) ( 913 ) Depreciation and amortization ( 18,156 ) General and administrative expenses ( 3,202 ) Interest expense ( 6,940 ) 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 20 Table of Contents (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 June 30, 2021, and December 31, 2020, respectively, along with reconciliations to the Condensed Consolidated Financial Statements: (in thousands) As of June 30, 2021 Multifamily All Other Total Segment assets Property owned $ 1,805,592 $ 33,245 $ 1,838,837 Less accumulated depreciation ( 395,716 ) ( 11,684 ) ( 407,400 ) Total property owned $ 1,409,876 $ 21,561 $ 1,431,437 Mortgage loans receivable 37,457 Cash and cash equivalents 5,194 Restricted cash 8,444 Other assets 17,218 Total Assets $ 1,499,750 (in thousands) As of December 31, 2020 Multifamily All Other Total Segment assets Property owned $ 1,727,229 $ 85,328 $ 1,812,557 Less accumulated depreciation ( 368,717 ) ( 30,532 ) ( 399,249 ) Total property owned $ 1,358,512 $ 54,796 $ 1,413,308 Mortgage loans receivable 24,661 Cash and cash equivalents 392 Restricted cash 6,918 Other assets 18,904 Total Assets $ 1,464,183 NOTE 10 • COMMITMENTS AND CONTINGENCIES Litigation. 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 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. 21 Table of Contents Restrictions on Taxable Dispositions. 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 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. The terms of the long-term incentive awards granted under the revised program may vary from year to year. 2021 LTIP Awards Awards granted to employees on January 1, 2021, consist of an aggregate of 6,410 time-based RSU awards, 19,224 performance RSUs based on total shareholder return (“TSR”), and 43,629 stock options. The time-based awards vest as to one-third of the shares on each of January 1, 2022, January 1, 2023, and January 1, 2024. The stock options vest as to 25 % on each of January 1, 2022, January 1, 2023, January 1, 2024, and January 1, 2025. The fair value of stock options was $ 7.383 per share and was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 2021 Exercise price $ 70.64 Risk-free rate 0.65 % Expected term 6.25 years Expected volatility 21.08 % Dividend yield 3.963 % 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. 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 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. The assumptions used to value the TSR performance RSUs were an expected volatility of 20.63 %, a risk-free interest rate of 0.17 %, and an expected life of 3 years. 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 $ 1.5 million and $ 967,000 for the six months ended June 30, 2021 and 2020, respectively.