CENTERSPACE 10-Q

Item 1. Financial Statements. CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) September 30, 2021 December 31, 2020 ASSETS Real estate investments Property owned $ 2,203,606 $ 1,812,557 Less accumulated depreciation ( 426,926 ) ( 399,249 ) 1,776,680 1,413,308 Mortgage loans receivable at fair value 42,160 24,661 Total real estate investments 1,818,840 1,437,969 Cash and cash equivalents 20,816 392 Restricted cash 2,376 6,918 Other assets 34,919 18,904 TOTAL ASSETS $ 1,876,951 $ 1,464,183 LIABILITIES, MEZZANINE EQUITY, AND EQUITY LIABILITIES Accounts payable and accrued expenses $ 58,092 $ 55,609 Revolving lines of credit 57,000 152,871 Notes payable, net of unamortized loan costs of $ 546 and $ 754 respectively 299,454 269,246 Mortgages payable, net of unamortized loan costs of $ 3,258 and $ 1,371 , respectively 489,140 297,074 TOTAL LIABILITIES $ 903,686 $ 774,800 COMMITMENTS AND CONTINGENCIES (NOTE 10) SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at September 30, 2021 and December 31, 2020, aggregate liquidation preference of $ 16,560 ) $ 21,585 $ 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 September 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, 14,281 shares issued and outstanding at September 30, 2021 and 13,027 shares issued and outstanding at December 31, 2020) 1,092,130 968,263 Accumulated distributions in excess of net income ( 454,691 ) ( 427,681 ) Accumulated other comprehensive income (loss) ( 5,784 ) ( 15,905 ) Total shareholders’ equity $ 725,185 $ 618,207 Noncontrolling interests – Operating Partnership and Series E preferred units 225,850 53,930 Noncontrolling interests – consolidated real estate entities 645 686 Total equity $ 951,680 $ 672,823 TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY $ 1,876,951 $ 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 REVENUE $ 50,413 $ 44,138 $ 143,717 $ 132,454 EXPENSES Property operating expenses, excluding real estate taxes 14,434 13,129 40,901 38,957 Real estate taxes 5,916 5,402 17,450 16,277 Property management expense 2,203 1,442 6,055 4,341 Casualty (gain) loss ( 10 ) 91 64 1,331 Depreciation and amortization 22,447 18,995 61,747 55,311 General and administrative expenses 4,279 3,077 11,982 9,707 TOTAL EXPENSES $ 49,269 $ 42,136 $ 138,199 $ 125,924 Operating income 1,144 2,002 5,518 6,530 Interest expense ( 7,302 ) ( 6,771 ) ( 21,622 ) ( 20,622 ) Interest and other income (loss) ( 5,082 ) 277 ( 4,032 ) ( 1,979 ) Income (loss) before gain (loss) on sale of real estate and other investments ( 11,240 ) ( 4,492 ) ( 20,136 ) ( 16,071 ) Gain (loss) on sale of real estate and other investments — 25,676 26,840 25,486 NET INCOME (LOSS) $ ( 11,240 ) $ 21,184 $ 6,704 $ 9,415 Dividends to Series D preferred unitholders ( 160 ) ( 160 ) ( 480 ) ( 480 ) Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units 1,930 ( 1,387 ) 1,013 ( 248 ) Net (income) loss attributable to noncontrolling interests – consolidated real estate entities ( 22 ) ( 8 ) ( 58 ) 132 Net income (loss) attributable to controlling interests ( 9,492 ) 19,629 7,179 8,819 Dividends to preferred shareholders ( 1,607 ) ( 1,607 ) ( 4,821 ) ( 4,921 ) Discount (premium) on redemption of preferred shares — ( 1 ) — 297 NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ ( 11,099 ) $ 18,021 $ 2,358 $ 4,195 NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ ( 0.79 ) $ 1.40 $ 0.17 $ 0.33 NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ ( 0.81 ) $ 1.38 $ 0.12 $ 0.33 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income (loss) $ ( 11,240 ) $ 21,184 $ 6,704 $ 9,415 Other comprehensive income: Unrealized gain (loss) from derivative instrument ( 70 ) ( 210 ) 1,555 ( 11,314 ) (Gain) loss on derivative instrument reclassified into earnings 6,350 1,093 8,566 1,665 Total comprehensive income (loss) $ ( 4,960 ) $ 22,067 $ 16,825 $ ( 234 ) Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units ( 3,055 ) ( 1,451 ) ( 2,389 ) 516 Net (income) loss attributable to noncontrolling interests – consolidated real estate entities ( 22 ) ( 8 ) ( 58 ) 132 Comprehensive income (loss) attributable to controlling interests $ ( 8,037 ) $ 20,608 $ 14,378 $ 414 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) Nine Months Ended September 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 8,819 116 8,935 Change in fair value of derivatives ( 9,649 ) ( 9,649 ) Distributions - common shares and units ($ 2.10 per share and unit) ( 26,576 ) ( 2,159 ) ( 28,735 ) Distributions – Series C preferred shares ($ 1.2421875 per Series C share) ( 4,921 ) ( 4,921 ) Share-based compensation, net of forfeitures 20 1,521 1,521 Sale of common shares, net 819 58,204 58,204 Redemption of units for common shares 40 ( 344 ) 344 — Shares repurchased ( 5,926 ) 297 ( 5,629 ) Acquisition of noncontrolling interests - consolidated real estate entities ( 7,584 ) ( 4,637 ) ( 12,221 ) Other ( 1 ) ( 761 ) ( 135 ) ( 896 ) Balance September 30, 2020 $ 93,530 12,976 $ 968,436 $ ( 412,577 ) $ ( 17,256 ) $ 54,378 $ 686,511 Nine Months Ended September 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 7,179 ( 955 ) 6,224 Change in fair value of derivatives 10,121 10,121 Distributions - common shares and units ($ 2.12 per share and unit) ( 29,368 ) ( 1,891 ) ( 31,259 ) Distributions – Series C preferred shares ($ 1.2421875 per Series C share) ( 4,821 ) ( 4,821 ) Distributions - Series E preferred units ($ 0.322917 per unit) ( 585 ) ( 585 ) Share-based compensation, net of forfeitures 28 2,088 2,088 Sale of common shares, net 1,095 85,864 85,864 Issuance of Series E preferred units 44,905 172,608 217,513 Redemption of units for common shares 131 ( 2,815 ) 2,815 — Change in value of Series D preferred units ( 5,025 ) ( 5,025 ) Other — ( 1,150 ) ( 113 ) ( 1,263 ) Balance September 30, 2021 $ 93,530 14,281 $ 1,092,130 $ ( 454,691 ) $ ( 5,784 ) $ 226,495 $ 951,680 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited) Three Months Ended September 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 June 30, 2020 $ 93,579 12,827 $ 958,292 $ ( 421,515 ) $ ( 18,139 ) $ 53,290 $ 665,507 Net income (loss) attributable to controlling interests and noncontrolling interests 19,629 1,395 21,024 Change in fair value of derivatives 883 883 Distributions - common shares and units ($ 0.70 per share and unit) ( 9,083 ) ( 713 ) ( 9,796 ) Distributions – Series C preferred shares ($ 0.4140625 per Series C share) ( 1,607 ) ( 1,607 ) Share-based compensation, net of forfeitures — 554 554 Sale of common shares, net 145 10,063 10,063 Redemption of units for common shares 4 ( 462 ) 462 — Shares repurchased ( 49 ) ( 1 ) ( 50 ) Other — ( 11 ) ( 56 ) ( 67 ) Balance September 30, 2020 $ 93,530 12,976 $ 968,436 $ ( 412,577 ) $ ( 17,256 ) $ 54,378 $ 686,511 Three Months Ended September 30, 2021 Balance June 30, 2021 $ 93,530 14,045 $ 1,033,940 $ ( 433,310 ) $ ( 12,064 ) $ 53,790 $ 735,886 Net income (loss) attributable to controlling interests and noncontrolling interests ( 9,492 ) ( 1,908 ) ( 11,400 ) Change in fair value of derivatives 6,280 6,280 Distributions - common shares and units ($ 0.72 per share and unit) ( 10,282 ) ( 609 ) ( 10,891 ) Distributions – Series C preferred shares ($ 0.4140625 per Series C share) ( 1,607 ) ( 1,607 ) Distributions - Series E preferred units ($ 0.322917 per unit) ( 585 ) ( 585 ) Share-based compensation, net of forfeitures 1 600 600 Sale of common shares, net 199 19,508 19,508 Issuance of Series E preferred units 44,905 172,608 217,513 Redemption of units for common shares 36 ( 3,233 ) 3,233 — Change in value of Series D preferred units ( 3,563 ) ( 3,563 ) Other — ( 27 ) ( 34 ) ( 61 ) Balance September 30, 2021 $ 93,530 14,281 $ 1,092,130 $ ( 454,691 ) $ ( 5,784 ) $ 226,495 $ 951,680 7 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 6,704 $ 9,415 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization, including amortization of capitalized loan costs 62,527 56,070 (Gain) loss on sale of real estate and other investments ( 26,840 ) ( 25,486 ) Realized (gain) loss on marketable securities — 3,378 Share-based compensation expense 2,088 1,521 Loss on termination of interest rate swaps 5,343 — Other, net 3,275 2,393 Changes in other assets and liabilities: Other assets ( 4,550 ) ( 1,632 ) Accounts payable and accrued expenses 7,808 1,599 Net cash provided by (used by) operating activities $ 56,355 $ 47,258 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of marketable securities — 3,856 Proceeds from repayment of mortgage loans and notes receivable 139 10,020 Increase in mortgages and notes receivable ( 17,498 ) ( 18,187 ) Proceeds from sale of real estate and other investments 59,233 43,669 Payments for acquisitions of real estate investments ( 209,669 ) ( 168,411 ) Payments for improvements of real estate investments ( 20,655 ) ( 20,411 ) Other investing activities ( 441 ) 892 Net cash provided by (used by) investing activities $ ( 188,891 ) $ ( 148,572 ) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from mortgages payable 196,725 — Principal payments on mortgages payable ( 27,650 ) ( 17,233 ) Proceeds from revolving lines of credit 173,733 126,578 Principal payments on revolving lines of credit ( 269,604 ) ( 41,656 ) Net proceeds from notes payable 174,544 — Principal payments on notes payable ( 145,000 ) — Payment for termination of interest rate swap ( 3,804 ) — Payments for acquisition of noncontrolling interests – consolidated real estate entities — ( 12,221 ) Net proceeds from issuance of common shares 85,864 58,204 Repurchase of Series C preferred shares — ( 5,629 ) Distributions paid to common shareholders ( 28,205 ) ( 25,962 ) Distributions paid to preferred shareholders ( 4,821 ) ( 4,921 ) Distributions paid to preferred unitholders ( 480 ) ( 480 ) Distributions paid to noncontrolling interests – Operating Partnership and Series E preferred units ( 2,550 ) ( 2,187 ) Other financing activities ( 334 ) ( 293 ) Net cash provided by (used by) financing activities $ 148,418 $ 74,200 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 15,882 ( 27,114 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,310 46,117 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $ 23,192 $ 19,003 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Accrued capital expenditures $ 1,239 $ ( 297 ) Operating partnership units converted to shares ( 2,815 ) ( 344 ) Distributions declared but not paid to common shareholders 10,891 9,796 Retirement of shares withheld for taxes 929 — Real estate assets acquired through assumption of debt 20,000 — Fair value adjustment to debt 2,367 — Real estate assets acquired through exchange of note receivable — 17,663 Note receivable exchanged through real estate acquisition — ( 17,663 ) Real estate assets acquired through issuance of Series E preferred units 217,513 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 20,050 $ 19,527 8 Table of Contents CENTERSPACE AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Balance sheet description September 30, 2021 December 31, 2020 September 30, 2020 Cash and cash equivalents $ 20,816 $ 392 $ 16,804 Restricted cash 2,376 6,918 2,199 Total cash, cash equivalents and restricted cash $ 23,192 $ 7,310 $ 19,003 See accompanying Notes to Condensed Consolidated Financial Statements. 9 Table of Contents CENTERSPACE AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) for the nine months ended September 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 September 30, 2021, Centerspace owned interests in 79 apartment communities consisting of 14,275 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 a joint venture entity in which the Operating Partnership has a general partner or controlling interest. This entity is consolidated into the Company’s operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Centerspace’s 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 early adopted this guidance in the first quarter of 2021 using the modified retrospective method. The adoption did not have a material impact on the Condensed Consolidated Financial Statements. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH As of September 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 September 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 $ 136,000 in the same period of the prior year. During the nine months ended September 30, 2021 and 2020, the Company recognized reductions of $ 47,000 and $ 538,000 , 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 September 30, 2021, was as follows: 11 Table of Contents (in thousands) 2021 (remainder) $ 593 2022 2,339 2023 2,336 2024 2,323 2025 2,292 Thereafter 2,488 Total scheduled lease income - commercial operating leases $ 12,371 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 nine months ended September 30, 2021 and 2020: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, Revenue Stream Applicable Standard 2021 2020 2021 2020 Fixed lease income - operating leases Leases $ 47,292 $ 41,712 $ 134,817 $ 125,555 Variable lease income - operating leases Leases 2,171 1,729 6,243 4,811 Other property revenue Revenue from contracts with customers 950 697 2,657 2,088 Total revenue $ 50,413 $ 44,138 $ 143,717 $ 132,454 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 nine months ended September 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 $ 6.4 million at September 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. During the three months ended September 30, 2021, construction on the project was completed and the lease-up phase began. 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 September 30, 2021, the Company had fully funded the $ 29.9 million construction loan and $ 11.4 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets. As of September 30, 2021, the construction loan had accrued $ 813,000 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 that 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 September 30, 2021 and December 31, 2020 the Company had no marketable securities. During the nine months ended September 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, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on the earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units). Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional 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 31,821 for the three and nine months ended September 30, 2021 and 27,506 for the three and nine months ended September 30, 2020, were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the nine months ended September 30, 2020, Series D preferred units of 228,000 and time-based RSUs of 13,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the three and nine months ended September 30, 2020, weighted average stock options of 140,554 and 68,292 , respectively, were excluded from the calculation of diluted earnings per share because they 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 and nine months ended September 30, 2021 and 2020: 13 Table of Contents (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 NUMERATOR Net income (loss) attributable to controlling interests $ ( 9,492 ) $ 19,629 $ 7,179 $ 8,819 Dividends to preferred shareholders ( 1,607 ) ( 1,607 ) ( 4,821 ) ( 4,921 ) Redemption of preferred shares — ( 1 ) — 297 Numerator for basic earnings (loss) per share – net income available to common shareholders ( 11,099 ) 18,021 2,358 4,195 Noncontrolling interests – Operating Partnership and Series E preferred units ( 1,930 ) 1,387 ( 1,013 ) 248 Dividends to preferred unitholders 160 160 480 480 Numerator for diluted earnings (loss) per share $ ( 12,869 ) $ 19,568 $ 1,825 $ 4,923 DENOMINATOR Denominator for basic earnings per share weighted average shares 14,065 12,885 13,501 12,424 Effect of redeemable operating partnership units 865 1,020 917 1,039 Effect of Series D preferred units 228 228 228 — Effect of Series E preferred units 705 — 239 — Effect of dilutive restricted stock units and stock options 59 10 32 — Denominator for diluted earnings per share 15,922 14,143 14,917 13,463 NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ ( 0.79 ) $ 1.40 $ 0.17 $ 0.33 NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ ( 0.81 ) $ 1.38 $ 0.12 $ 0.33 NOTE 4 • EQUITY AND MEZZANINE EQUITY Operating Partnership Units. The Operating Partnership had 845,000 and 977,000 outstanding Units at September 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 nine months ended September 30, 2021 and 2020 as detailed in the table below. (in thousands) Three Months Ended September 30, Number of Units Net Book Basis 2021 36 $ ( 3,233 ) 2020 4 $ ( 462 ) Nine Months Ended September 30, 2021 131 $ ( 2,815 ) 2020 40 $ ( 344 ) Series E Preferred Units (Noncontrolling interests). On September 1, 2021, Centerspace issued 1.8 million Series E preferred units with a par value of $ 100 per Series E preferred unit as partial consideration for the acquisition of 17 apartment communities. The Series E preferred unit holders receive a preferred distribution at the rate of 3.875 % per year. Each Series E preferred unit is convertible, at the holder’s option, into 1.2048 Units, representing a conversion exchange rate of $ 83.00 per unit. The Series E preferred units have an aggregate liquidation preference of $ 181.4 million. The holders of the Series E preferred units do not have voting rights and are required to hold the units for one year before they may elect to convert. Common Shares and Equity Awards . Common shares outstanding on September 30, 2021 and December 31, 2020, totaled 14.3 million and 13.0 million, respectively. There were 578 and 26,764 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and nine months ended September 30, 2021, respectively, with a total grant-date fair value of $ 32,000 and $ 946,000 , respectively. During the three and nine months ended September 30, 2020, the Company issued 297 and 20,998 shares, respectively, upon the vesting of equity awards under the 2015 Incentive Plan, with a total grant-date fair value of $ 17,000 and $ 1.0 million, respectively. These shares vest based on performance and service criteria. Equity Distribution Agreement. Centerspace had an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which it could offer and sell common shares having an aggregate sales price of up to $ 150.0 14 Table of Contents million. Under the 2019 ATM Program, we sold shares having an aggregate sales price of $ 149.9 million. During the three months ended September 30, 2021, the Company replaced the 2019 ATM Program with a new at-the-market offering (“2021 ATM Program”) through which it may offer and sell common shares having an aggregate sales price of up to $ 250.0 million, in amounts and at times determined by management. Under the 2021 ATM Program, the Company may enter into separate forward sale agreements. The proceeds from the sale of common shares under the 2021 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 nine months ended September 30, 2021 and 2020 under both the 2019 and 2021 ATM Programs. As of September 30, 2021, common shares having an aggregate offering price of up to $ 230.1 million remained available under the 2021 ATM Program. (in thousands, except per share amounts) Three Months Ended September 30, Number of Common Shares Net Consideration (1) Average Net Price Per Share 2021 199 $ 19,632 $ 98.58 2020 145 $ 10,218 $ 70.55 Nine Months Ended September 30, 2021 1,095 $ 86,127 $ 78.63 2020 819 $ 57,528 $ 70.23 (1) Total consideration is net of $ 299,000 and $ 1.0 million in commissions and issuance costs during the three and nine months ended September 30, 2021, respectively. Total consideration for the three and nine months ended September 30, 2020 is net of $ 156,000 and $ 890,000 in commissions, respectively, and issuance costs. Series C Preferred Shares. Series C preferred shares outstanding were 3.9 million shares at September 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. The Series D preferred units have an aggregate liquidation preference of $ 16.6 million. 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 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 September 30, 2021, 46 apartment communities were not encumbered by mortgages and are available to provide 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 unencumbered properties. As of September 30, 2021, the additional borrowing availability was $ 193.0 million beyond the $ 57.0 million drawn. This unsecured credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and provide for a $ 400.0 million accordion option. Prior to the amendment, the unsecured credit facility also had unsecured term loans of $ 70.0 million and $ 75.0 million, included within notes payable on the Condensed Consolidated Balance Sheets. As of September 30, 2021, these term loans had been paid in full. 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 25 - 80 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 125 - 180 basis points based on the consolidated leverage ratio, as defined under the Third 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 September 30, 2021. 15 Table of Contents In January 2021, 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 has issued $ 200.0 million unsecured senior notes with $ 25.0 million remaining available as of September 30, 2021. In September 2021, the Company entered into a note purchase agreement for the issuance of $ 125.0 million senior unsecured promissory notes. The following table shows the notes issued under both agreements. (in thousands) Amount Maturity Date Interest Rate Series A $ 75,000 September 13, 2029 3.84 % Series B $ 50,000 September 30, 2028 3.69 % Series C $ 50,000 June 6, 2030 2.70 % Series 2021-A $ 35,000 September 17, 2030 2.50 % Series 2021-B $ 50,000 September 17, 2031 2.62 % Series 2021-C $ 25,000 September 17, 2032 2.68 % Series 2021-D $ 15,000 September 17, 2034 2.78 % In September 2021, Centerspace entered into a $ 198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”) for the financing of 16 apartment communities acquired during the quarter. The FMCF is currently secured by mortgages on those apartment communities. The notes are interest-only, have varying maturity dates of 7 , 10 , and 12 years, and a blended, weighted average interest rate of 2.78 %. As of September 30, 2021, the FMCF had a balance of $ 198.9 million. The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets. As of September 30, 2021, Centerspace owned 17 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations. As of September 30, 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 November 29, 2021, with pricing based on a market spread plus the one-month LIBOR index rate. The following table summarizes indebtedness: (in thousands) September 30, 2021 December 31, 2020 Weighted Average Maturity in Years at September 30, 2021 Lines of credit $ 57,000 $ 152,871 4.00 Term loans (1) — 145,000 Unsecured senior notes (1) 300,000 125,000 8.88 Unsecured debt 357,000 422,871 8.10 Mortgages payable - Fannie Mae credit facility 198,850 — 9.81 Mortgages payable - other 293,547 298,445 5.05 Total debt $ 849,397 $ 721,316 7.46 Weighted average interest rate on lines of credit (rate with swap) 2.79 % 2.85 % Weighted average interest rate on term loans (rate with swap) 3.52 % 4.15 % Weighted average interest rate on unsecured senior notes 3.12 % 3.78 % Weighted average interest rate on mortgages payable - Fannie Mae credit facility 2.78 % — Weighted average interest rate on mortgages payable - other 3.83 % 3.93 % Weighted average interest rate on total debt 3.23 % 3.62 % (1) Included within notes payable on the Condensed Consolidated Balance Sheets. 16 Table of Contents The aggregate amount of required future principal payments on unsecured senior notes and mortgages payable as of September 30, 2021, was as follows: (in thousands) 2021 (remainder) $ 1,362 2022 34,284 2023 45,068 2024 4,054 2025 32,850 Thereafter 475,929 Total payments $ 593,547 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 debt. Changes in the fair value of derivatives designated and that qualify as 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 payments are incurred on the hedged variable rate debt. During the next twelve months, the Company estimates an additional $ 1.9 million will be reclassified as an increase to interest expense. At September 30, 2021, the Company had one interest rate swap contract designated as a cash flow hedge of interest rate risk with a total notional amount of $ 75.0 million to fix the interest rate on the line of credit. As of December 31, 2020 , Centerspace had three interest rate swap contracts designated as cash flow hedges of interest rate risk 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 fixed the interest rate on the term loans and a portion of the line of credit. During the three months ended September 30, 2021, Centerspace paid $ 3.8 million to terminate its $ 50.0 million interest rate swap and its $ 70.0 million interest rate swap in connection with the pay down of the Company’s term loans (see Note 5 - Debt for additional details). The Company accelerated the reclassification of a $ 5.4 million loss from OCI into other income loss in the Condensed Consolidated Statement of Operations as a result of the hedged transactions becoming probable not to occur. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in fair value of derivatives not designated in hedging relationships are recorded directly to earnings within other income loss in the Condensed Consolidated Statement of Operations. As of September 30, 2021, the Company had one interest rate swap with a notional amount of $ 70.0 million that is not effective until January 31, 2023 and was not designated as a hedge in a qualifying hedging relationship. For the three and nine months ended September 30, 2021, the Company recorded a gain of $ 60,000 related to the interest rate swap not designated in a hedging relationship. As of December 31, 2020, the Company did not have any outstanding interest rate derivatives that were not designated as hedges in a qualifying hedging relationships. 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 September 30, 2021 and December 31, 2020 . (in thousands) September 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 $ 6,012 $ 15,905 Total derivative instruments not designated as hedging instruments - interest rate swaps Accounts Payable and Accrued Expenses $ 1,457 $ — 17 Table of Contents The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of September 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 September 30, 2021 2020 2021 2020 Total derivatives in cash flow hedging relationships - Interest rate contracts $ ( 70 ) $ ( 210 ) Interest expense $ ( 940 ) $ ( 1,093 ) Nine months ended September 30, Total derivatives in cash flow hedging relationships - Interest rate contracts $ 1,555 $ ( 11,314 ) Interest expense $ ( 3,156 ) $ ( 1,665 ) The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. 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 September 30, 2021 Assets Mortgages and notes receivable $ 48,364 — — $ 48,364 Liabilities Derivative instruments - interest rate swaps $ 7,469 — — $ 7,469 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. 18 Table of Contents (in thousands) Fair Value Measurement at September 30, Other Gains (Losses) Interest Income Total Changes in Fair Value Included in Current-Period Earnings Nine months ended September 30, 2021 Mortgage loans and notes receivable $ 48,364 $ 11 $ 1,759 $ 1,770 Nine months ended September 30, 2020 Mortgage loans and notes receivable $ 24,315 $ 3 $ 260 $ 263 As of September 30, 2021, Centerspace has an investment of $ 604,000 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 September 30, 2021, the Company had unfunded commitments of $ 1.4 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 September 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 September 30, 2021 and December 31, 2020, respectively, are as follows: (in thousands) September 30, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount Fair Value FINANCIAL ASSETS Cash and cash equivalents $ 20,816 $ 20,816 $ 392 $ 392 Restricted cash $ 2,376 $ 2,376 $ 6,918 $ 6,918 FINANCIAL LIABILITIES Revolving lines of credit (1) $ 57,000 $ 57,000 $ 152,871 $ 152,871 Term loans (1) $ — $ — $ 145,000 $ 145,000 Unsecured senior notes $ 300,000 $ 308,560 $ 125,000 $ 133,181 Mortgages payable - Fannie Mae $ 198,850 $ 198,850 $ — $ — Mortgages payable - other $ 293,547 $ 297,988 $ 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 17 new apartment communities for an aggregate acquisition cost of $ 359.9 million during the three months ended September 30, 2021 compared to acquisitions of $ 144.8 million in the three months ended September 30, 2020. The acquisitions during the nine months ended September 30, 2021 and 2020 are detailed below. 19 Table of Contents Nine Months Ended September 30, 2021 Date Acquired (in thousands) Total Acquisition Cost (1) Form of Consideration Investment Allocation Acquisitions Cash Units (2) Other (3) Land Building Intangible Assets Other (4) 256 homes - Union Pointe - Longmont, CO January 6, 2021 $ 76,900 $ 76,900 $ — $ — $ 5,727 $ 69,966 $ 1,207 $ — 120 homes - Bayberry Place - Minneapolis, MN September 1, 2021 16,673 898 9,855 5,920 1,807 14,113 753 — 251 homes - Burgandy & Hillsboro Court - Minneapolis, MN September 1, 2021 35,569 2,092 22,542 10,935 2,834 31,148 1,587 — 97 homes - Venue on Knox - Minneapolis, MN September 1, 2021 18,896 500 11,375 7,021 3,438 14,743 715 — 120 homes - Gatewood - St. Cloud, MN September 1, 2021 7,781 378 3,388 4,015 327 6,858 596 — 84 homes - Grove Ridge - Minneapolis, MN September 1, 2021 12,060 121 8,579 3,360 1,250 10,271 539 — 119 homes - The Legacy - St. Cloud, MN September 1, 2021 10,560 229 5,714 4,617 412 9,556 592 — 151 homes - New Hope Garden & Village - Minneapolis, MN September 1, 2021 15,006 1,435 10,812 2,759 1,603 12,578 825 — 330 homes - Palisades - Minneapolis, MN September 1, 2021 53,354 2,884 30,470 20,000 6,919 46,577 2,211 ( 2,353 ) 96 homes - Plymouth Pointe - Minneapolis, MN September 1, 2021 14,450 370 9,061 5,019 1,042 12,809 599 — 93 homes - Pointe West - St. Cloud, MN September 1, 2021 7,558 91 3,605 3,862 246 6,849 463 — 301 homes - River Pointe - Minneapolis MN September 1, 2021 38,348 2,249 21,653 14,446 3,346 33,117 1,885 — 70 homes - Southdale Parc - Minneapolis, MN September 1, 2021 9,670 165 7,907 1,598 1,569 7,740 361 — 62 homes - Portage - Minneapolis, MN September 1, 2021 9,171 323 5,588 3,260 2,133 6,685 353 — 200 homes - Windsor Gates - Minneapolis, MN September 1, 2021 22,231 1,122 12,080 9,029 2,140 18,943 1,148 — 136 homes - Wingate - Minneapolis, MN September 1, 2021 15,784 723 10,246 4,815 1,480 13,530 774 — 178 homes - Woodhaven - Minneapolis, MN September 1, 2021 25,009 1,682 15,200 8,127 3,940 20,080 989 — 288 homes - Woodland Pointe - Minneapolis, MN September 1, 2021 47,796 437 29,438 17,921 5,367 40,422 2,007 — $ 436,816 $ 92,599 $ 217,513 $ 126,704 $ 45,580 $ 375,985 $ 17,604 $ ( 2,353 ) Total Acquisitions $ 436,816 $ 92,599 $ 217,513 $ 126,704 $ 45,580 $ 375,985 $ 17,604 $ ( 2,353 ) (1) Includes $ 36.1 million for additional fair value of Series E preferred units for the September 1, 2021 portfolio acquisition (2) Fair value of Series E preferred units at the acquisition date (3) Payoff of debt or assumption of seller's debt upon closing (4) Debt discount on assumed mortgage 20 Table of Contents Nine Months Ended September 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 $ 6,405 465 homes - Parkhouse Apartment Homes - Thornton, CO September 22, 2020 144,750 144,750 — 10,474 132,105 2,171 — Total Acquisitions $ 191,013 $ 173,350 $ 17,663 $ 12,639 $ 168,974 $ 2,995 $ 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 September 30, 2021, Centerspace disposed of no real estate. During the three months ended September 30, 2020, the Company disposed of four apartment communities and one commercial property for a total sale price of $ 43.0 million. The following tables detail the dispositions for the nine months ended had September 30, 2021 and 2020. Nine Months Ended September 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 Nine Months Ended September 30, 2020 (in thousands) Dispositions Date Disposed Sale Price Book Value and Sales Cost Gain/(Loss) Multifamily 268 homes - Forest Park - Grand Forks, ND August 18, 2020 $ 19,625 $ 6,884 $ 12,741 90 homes - Landmark - Grand Forks, ND August 18, 2020 3,725 1,348 2,377 164 homes - Southwind - Grand Forks, ND August 18, 2020 10,850 4,573 6,277 168 homes - Valley Park - Grand Forks, ND August 18, 2020 8,300 4,059 4,241 $ 42,500 $ 16,864 $ 25,636 Other Dakota West August 7, 2020 $ 500 $ 474 $ 26 Unimproved Land Rapid City Land - Rapid City, SD June 29, 2020 $ 1,300 $ 1,490 $ ( 190 ) Total Dispositions $ 44,300 $ 18,828 $ 25,472 21 Table of Contents 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. 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 nine months ended September 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 September 30, 2021 Multifamily All Other Total Revenue $ 49,248 $ 1,165 $ 50,413 Property operating expenses, including real estate taxes 20,066 284 20,350 Net operating income $ 29,182 $ 881 $ 30,063 Property management ( 2,203 ) Casualty gain (loss) 10 Depreciation and amortization ( 22,447 ) General and administrative expenses ( 4,279 ) Interest expense ( 7,302 ) Interest and other income ( 5,082 ) Net income (loss) $ ( 11,240 ) (in thousands) Three Months Ended September 30, 2020 Multifamily All Other Total Revenue $ 40,688 $ 3,450 $ 44,138 Property operating expenses, including real estate taxes 16,900 1,631 18,531 Net operating income $ 23,788 $ 1,819 $ 25,607 Property management ( 1,442 ) Casualty gain (loss) ( 91 ) Depreciation and amortization ( 18,995 ) General and administrative expenses ( 3,077 ) Interest expense ( 6,771 ) Interest and other income 277 Income (loss) before gain (loss) on sale of real estate and other investments ( 4,492 ) Gain (loss) on sale of real estate and other investments 25,676 Net income (loss) $ 21,184 22 Table of Contents (in thousands) Nine Months Ended September 30, 2021 Multifamily All Other Total Revenue $ 138,447 $ 5,270 $ 143,717 Property operating expenses, including real estate taxes 55,907 2,444 58,351 Net operating income $ 82,540 $ 2,826 $ 85,366 Property management expenses ( 6,055 ) Casualty gain (loss) ( 64 ) Depreciation and amortization ( 61,747 ) General and administrative expenses ( 11,982 ) Interest expense ( 21,622 ) Interest and other income ( 4,032 ) Income (loss) before gain (loss) on sale of real estate and other investments ( 20,136 ) Gain (loss) on sale of real estate and other investments 26,840 Net income (loss) $ 6,704 (in thousands) Nine Months Ended September 30, 2020 Multifamily All Other Total Revenue $ 120,946 $ 11,508 $ 132,454 Property operating expenses, including real estate taxes 49,626 5,608 55,234 Net operating income $ 71,320 $ 5,900 $ 77,220 Property management expenses ( 4,341 ) Casualty gain (loss) ( 1,331 ) Depreciation and amortization ( 55,311 ) General and administrative expenses ( 9,707 ) Interest expense ( 20,622 ) Interest and other income ( 1,979 ) Income (loss) before gain (loss) on sale of real estate and other investments ( 16,071 ) Gain (loss) on sale of real estate and other investments 25,486 Net income (loss) $ 9,415 Segment Assets and Accumulated Depreciation Segment assets are summarized as follows as of September 30, 2021, and December 31, 2020, respectively, along with reconciliations to the Condensed Consolidated Financial Statements: (in thousands) As of September 30, 2021 Multifamily All Other Total Segment assets Property owned $ 2,170,321 $ 33,285 $ 2,203,606 Less accumulated depreciation ( 414,829 ) ( 12,097 ) ( 426,926 ) Total property owned $ 1,755,492 $ 21,188 $ 1,776,680 Mortgage loans receivable 42,160 Cash and cash equivalents 20,816 Restricted cash 2,376 Other assets 34,919 Total Assets $ 1,876,951 23 Table of Contents (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. Restrictions on Taxable Dispositions. Thirty-four properties, consisting of 6,511 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: 24 Table of Contents 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 in May 2021, consist of 6,948 time-based RSUs with a one-year vesting period. 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 $ 2.1 million and $ 1.5 million for the nine months ended September 30, 2021 and 2020, respectively.