What changed in this filing

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Item 1. Business

2022-02-28 compared with 2021-02-22 · 67 added, 59 removed, 81 unchanged (61% of the section changed)

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

Over the past several years, we have extensively repositioned our portfolio from a diversified, multi-segment collection of properties into a single segment concentrated on apartment communities.

Our current emphasis is on making operational enhancements that will improve our residents’ experience, redeveloping some of our existing apartment communities to meet current market demands, and acquiring new apartment communities in the Minneapolis/St.

Centerspace (“we,” “us,” “our,” “Centerspace,” or the “Company”), formerly known as Investors Real Estate Trust, is a real estate investment trust (“REIT”) organized under the laws of North Dakota, that is focused on the ownership, management, acquisition, development, and redevelopment of apartment communities.

Paul and Denver metropolitan areas.

On December 9, 2020, we announced a new name, Centerspace, and brand platform that reflects both transformation of the Company and our vision for the future.

We focus on investing in markets characterized by stable and growing economic conditions, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for our apartment homes and retention of our residents.

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We also have a corporate office in Minneapolis, Minnesota.

Effective January 1, 2019, we changed our fiscal year end from April 30 to December 31.

As a result of this change, we filed a transition report on Form 10-KT for the eight-month transition period ended December 31, 2018, in accordance with SEC rules and regulations.

The references in this Report to the terms listed below reflect the respective period noted (all other reporting periods defined separately):

Term Financial Reporting Period

Year ended December 31, 2020 January 1, 2020 through December 31, 2020

Year ended December 31, 2019 January 1, 2019 through December 31, 2019

Year ended December 31, 2018 January 1, 2018 through December 31, 2018

Transition period ended December 31, 2018 May 1, 2018 through December 31, 2018

Fiscal year ended April 30, 2018 May 1, 2017 through April 30, 2018

Website and Available Information

Our internet address is www.centerspacehomes.com.

We make available, free of charge, through the “SEC filings” tab under the Investors section of our website, our Transition Report on Form 10-KT, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, and proxy statements for our Annual Meetings of Shareholders, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after

such reports are filed with or furnished to the SEC.

We make available, free of charge, through the “SEC filings” tab under the Investors section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Transition Report on Form 10-KT, and amendments to such reports, and proxy statements for our Annual Meetings of Shareholders, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are filed with or furnished to the SEC.

These reports are also available at www.sec.gov.

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Information on our website does not constitute part of this Report.

We were organized under the laws of North Dakota on July 31, 1970, and have operated as a REIT under Sections 856-858 of the Internal Revenue Code since our formation.

On February 1, 1997, we were restructured as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”), and we conduct our daily business operations primarily through our operating partnership, Centerspace, LP (the “Operating Partnership”).

The sole general partner of Centerspace, LP is Centerspace, Inc., a North Dakota corporation and our wholly owned subsidiary.

We were organized under the laws of North Dakota on July 31, 1970, and have operated as a REIT under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the “Code”), since our formation.

sole general partner of Centerspace, LP is Centerspace, Inc., formerly known as IRET, Inc., a North Dakota corporation and our wholly owned subsidiary.

All of our assets and liabilities have been contributed to Centerspace, LP, through Centerspace, Inc., in exchange for the sole general partnership interest in Centerspace, LP.

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Centerspace, LP conducts the operations of the business and is structured as a partnership with no publicly traded equity.

Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units, which is one of the reasons the Company is structured in this manner.

Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of limited partnership units (“Units”), which is one of the reasons the Company is structured in this manner.

As of December 31, 2021, Centerspace, Inc.

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BUSINESS STRATEGIES

Our business is focused on our mission - to provide a great home - for our residents, our employees and our investors.

We fulfill this mission by providing renters well-located options that range from workforce to lifestyle housing.

Our business is focused on our mission - to provide a great home - for our residents, our team members and our investors.

We fulfill this mission by providing renters well-located options in various price ranges.

While fulfilling our mission, we are seeking consistent earnings growth through exceptional operations, disciplined capital allocation, and market knowledge and efficiencies.

Our operations and investment strategies are the foundation for fulfilling our mission.

Our operations and investment strategies are the foundation for fulfilling our mission and furthering our vision of being a premier provider of apartment homes in vibrant communities by focusing on integrity and serving others.

Operations Strategy

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Our initiatives to optimize our operations include:

• Providing excellent customer service to enhance resident satisfaction and retention;

• Employing new technologies that make our communities more efficient and more accessible to residents;

• Optimizing revenues;

• Controlling operating costs;

• Unlocking value within the portfolio through redevelopment and enhancement of existing assets.

• Providing an exceptional customer experience to enhance resident satisfaction and retention;

• Attracting, developing, and retaining diverse talent to enable a culture of engagement;

• Scaling our business to enhance efficiencies;

• Leveraging technology and systems;

• Demonstrating an organizational commitment to ESG.

Investment Strategy

Our business objective under our current strategic plan is to employ an investment strategy that includes the following elements:

• Investing in income-producing apartment communities that grow distributable cash flow and are located in key geographic markets with populations ranking in the top 50 U.S.

metropolitan statistical areas, including expansion in the Minneapolis and Denver markets and our planned entrance into the Nashville market;

• Selecting markets with favorable market characteristics, including strong growth prospects and employment forecasts, high occupancy rates, strong rent growth potential, and institutional liquidity;

• Leveraging our portfolio to take advantage of our heightened market knowledge and regional experience;

• Building a strong market presence in new markets;

• Reducing our exposure to tertiary markets.

Our business objective under our current strategic plan is to employ an investment strategy that encompasses:

• Seeking opportunities to increase distributable cash flow;

• Managing our balance sheet to maintain flexibility and enhance growth opportunities;

• Investing in high-quality and efficient rental communities.

FINANCING AND DISTRIBUTIONS

To fund our investment and capital activities, we rely on a combination of issuance of common shares, preferred shares, OP Units in exchange for property, and borrowed funds.

To fund our investment and capital activities, we rely on a combination of issuance of common shares, preferred shares, Units in exchange for property, and borrowed funds.

We regularly issue dividends to our shareholders.

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At-the-Market Offering

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

The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general corporate purposes, which may include the funding of future acquisitions and the repayment of indebtedness.

During the year ended December 31, 2020, we issued 829,078 common shares under the 2019 ATM Program at an average price of $71.39 per share, net of commissions.

In September 2021, we entered into an equity distribution agreement in connection with a new at-the-market offering program (the “2021 ATM Program”), replacing our prior at-the-market offering program (the “2019 ATM Program”).

Under the 2021 ATM Program, we 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, we 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 corporate purposes, which may include the funding of future acquisitions, construction and mezzanine loans, community renovations, and the repayment of indebtedness.

During the year ended December 31, 2021, we issued 1.8 million common shares under both the 2019 ATM Program and 2021 ATM Program at an average price of $86.13 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was approximately $156.4 million.

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As of December 31, 2021, 3,881,453 shares remained outstanding.

Depending on future interest rates and market conditions, we may issue additional preferred shares or other senior securities which would have dividend and liquidation preference over our common shares.

future interest rates and market conditions, we may issue additional preferred shares or other senior securities which would have dividend and liquidation preference over our common shares.

The Series C preferred shares are redeemable, at our option, on October 2, 2022.

Bank Financing and Other Debt

As of December 31, 2020, we owned 47 apartment communities that were not encumbered by mortgages, with 34 of these properties providing credit support for our unsecured borrowings.

As of December 31, 2021, we owned 48 apartment communities that were not encumbered by mortgages and which were available to provide credit support for our unsecured borrowings.

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

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

As of December 31, 2020, the additional borrowing availability was $97.1 million beyond the $152.9 million drawn, including the balance on our operating line of credit (discussed below), priced at an interest rate of 2.85%, including the impact of our interest rate swap.

This credit facility matures on August 31, 2022, with one 12-month option to extend the maturity date at our election.

Under our primary unsecured credit facility, we also have a $70.0 million unsecured term loan, which matures on January 15, 2024, and a $75.0 million unsecured term loan, which matures on August 31, 2025.

We have a private shelf agreement for the issuance of up to $150.0 million of unsecured senior promissory notes (“unsecured senior notes”).

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

As of December 31, 2020, we had $25.0 million remaining available under the private shelf agreement.

As of December 31, 2020, we owned 20 apartment communities that served as collateral for mortgage loans.

Our line of credit has total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties.

As of December 31, 2021, the additional borrowing availability was $173.5 million beyond the $76.0 million drawn, priced at an interest rate of 2.74%, including the impact of our interest rate swap.

This credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and provide for an accordion option to increase borrowing capacity up to $400.0 million.

Prior to the amendment, the unsecured credit facility also had unsecured term loans of $70.0 million and $75.0 million.

During the year ended December 31, 2021, these term loans were paid in full.

In January 2021, we amended and expanded our private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.

(collectively, PGIM) to increase the aggregate amount available for the issuance of unsecured senior promissory notes (“unsecured senior notes”) to $225.0 million.

We also issued $50.0 million of unsecured senior notes in connection with the amendment.

Under this agreement, we issued $200.0 million unsecured senior notes with $25.0 million remaining available as of December 31, 2021.

In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM.

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, we entered into a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”) for financing the acquisition of 16 apartment communities.

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, at a blended weighted average interest rate of 2.78%.

As of December 31, 2021, the FMCF had a balance of $198.9 million.

As of December 31, 2021, we owned 15 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF.

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

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Issuance of Securities in Exchange for Property

Our organizational structure allows us to issue shares and limited partnership units (or “OP Units”) of Centerspace, LP in exchange for real estate.

The OP Units generally are redeemable, at our option for cash or common shares on a one-for-one basis.

Generally, OP Units receive the same per unit cash distributions as the per share dividends paid on common shares.

Our organizational structure allows us to issue shares and Units of Centerspace, LP in exchange for real estate.

The Units generally are redeemable, at our option for cash or common shares on a one-for-one basis.

Generally, Units receive the same per unit cash distributions as the per share dividends paid on common shares.

Our Declaration of Trust, as amended (our “Declaration of Trust”), does not contain any restrictions on our ability to offer limited partnership units of Centerspace, LP in exchange for property.

As a result, any decision to do so is vested solely in our Board of Trustees.

On February 26, 2019, we issued 165,600 newly created Series D preferred units as partial consideration for the acquisition of SouthFork Townhomes.

On September 1, 2021, we 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 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.

On February 26, 2019, we issued 165,600 Series D preferred units 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 issue price.

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

For the years ended December 31, 2020 and 2019, the transition period ended December 31, 2018 and the fiscal year ended April 30, 2018, we did not issue any regular OP Units of Centerspace, LP in exchange for properties.

Distributions to Shareholders

The Internal Revenue Code requires a REIT to distribute 90% of its net taxable income, excluding net capital gains, to its shareholders, and a separate requirement to distribute 100% net capital gains or pay a corporate level tax in lieu thereof.

The Code requires a REIT to distribute 90% of its net taxable income, excluding net capital gains, to its shareholders, and a separate requirement to distribute 100% net capital gains or pay a corporate level tax in lieu thereof.

We have distributed, and intend to continue to distribute, enough of our taxable income to satisfy these requirements.

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Our total rewards program includes competitive compensation, paid leave, paid holidays, volunteer time, health and dental benefits, discounted rental rates on our apartments, employee assistance program, life insurance, 401(k) plan, and more.

As of December 31, 2020, we had 365 employees (340 full-time and 25 part-time) across six states.

As of December 31, 2021, we had 462 employees (394 full-time and 68 part-time) across multiple states.

Training is important, and we facilitate that through a learning management system which allows us to provide custom training as well as utilize a library of multifamily focused courses specializing in customer service, sales, leadership, diversity, and fair housing.

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The results of these assessments are a component of the merit increase and pay for performance strategy.

We are committed to providing a workplace that is safe and free from any form of discrimination or harassment and embraces inclusiveness.

As part of our Environmental, Social, and Governance (ESG) initiatives, we publish an annual ESG report detailing our efforts related to furthering our mission - through providing corporate sponsorship in the communities which we serve, offering paid time off for team members to volunteer, training and compensation programs, and our commitment to diversity, equity, and inclusion.

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• Over 12,000 training courses were completed by team members;

• Our online reputation management scores increased from 504 to 605;

• 76.5% of our team members participated in our engagement management survey;

• Our online reputation management scores increased from 3.46 out of 5 stars to 3.48 out of 5 stars;

• 479 volunteer hours were completed by team members.

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

What changed 10-K

Item 1. Business