What changed in this filing

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Item 1. Financial Statements

2022-08-01 compared with 2022-05-02 · 221 added, 110 removed, 477 unchanged (41% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Real estate investments

17 unchanged sentences

COMMITMENTS AND CONTINGENCIES (NOTE 10)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at March 31, 2022 and December 31, 2021, aggregate liquidation preference of $ 16,560 )

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at June 30, 2022 and December 31, 2021, aggregate liquidation preference of $ 16,560 )

$ 18,627 $ 25,331

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at March 31, 2022 and December 31, 2021, aggregate liquidation preference of $ 97,036 )

Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $ 25 per share liquidation preference, 3,881 shares issued and outstanding at June 30, 2022 and December 31, 2021, aggregate liquidation preference of $ 97,036 )

93,530 93,530

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,366 shares issued and outstanding at March 31, 2022 and 15,016 shares issued and outstanding at December 31, 2021)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,373 shares issued and outstanding at June 30, 2022 and 15,016 shares issued and outstanding at December 31, 2021)

1,207,849 1,157,255

10 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31,

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

2022 2021 2022 2021

REVENUE $ 63,116 $ 46,656 $ 123,430 $ 93,304

6 unchanged sentences

TOTAL EXPENSES $ 59,308 $ 43,923 $ 123,533 $ 88,930

Gain (loss) on sale of real estate and other investments 27 26,840 27 26,840

Operating income (loss) 3,835 29,573 ( 76 ) 31,214

14 unchanged sentences

(in thousands)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net income (loss) $ ( 3,743 ) $ 23,103 $ ( 14,306 ) $ 17,944

10 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31, 2021 PREFERRED

Six Months Ended June 30, 2021 PREFERRED

SHARES NUMBER

15 unchanged sentences

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

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

Other — ( 1,122 ) ( 79 ) ( 1,201 )

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

Three Months Ended March 31, 2022

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

Six Months Ended June 30, 2022

Balance December 31, 2021 $ 93,530 15,016 $ 1,157,255 $ ( 474,318 ) $ ( 4,435 ) $ 224,248 $ 996,280

12 unchanged sentences

Redemption of units for cash ( 3,230 ) ( 3,230 )

Change in value of Series D preferred units 2,919 2,919

Change in redemption value of Series D preferred units 6,704 6,704

Shares withheld for taxes ( 1,273 ) ( 1,273 )

Other — ( 253 ) ( 84 ) ( 337 )

Balance March 31, 2022 $ 93,530 15,366 $ 1,203,685 $ ( 495,732 ) $ ( 2,550 ) $ 226,973 $ 1,025,906

Balance June 30, 2022 $ 93,530 15,373 $ 1,207,849 $ ( 511,552 ) $ ( 2,362 ) $ 223,153 $ 1,010,618

See accompanying Notes to Condensed Consolidated Financial Statements.

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

(in thousands, except per share data)

Three Months Ended June 30, 2021 PREFERRED

SHARES NUMBER

SHARES COMMON

SHARES ACCUMULATED

DISTRIBUTIONS

NET INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NONCONTROLLING

INTERESTS TOTAL

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 ($ 0.4140625 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 redemption 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

Three Months Ended June 30, 2022

Balance March 31, 2022 $ 93,530 15,366 $ 1,203,685 $ ( 495,732 ) $ ( 2,550 ) $ 226,973 $ 1,025,906

Net income (loss) attributable to controlling interests and noncontrolling interests ( 2,991 ) ( 912 ) ( 3,903 )

Change in fair value of derivatives 188 188

Distributions - common shares and units ($ 0.73 per share and unit)

( 11,222 ) ( 726 ) ( 11,948 )

Distributions – Series C preferred shares ($ 0.4140625 per Series C share)

( 1,607 ) ( 1,607 )

Distributions - Series E preferred units ($ 0.96875 per unit)

( 1,758 ) ( 1,758 )

Share-based compensation, net of forfeitures 6 480 480

Redemption of units for common shares 1 13 ( 13 ) —

Redemption of units for cash ( 327 ) ( 327 )

Change in redemption value of Series D preferred units 3,785 3,785

Other — ( 114 ) ( 84 ) ( 198 )

Balance June 30, 2022 $ 93,530 15,373 $ 1,207,849 $ ( 511,552 ) $ ( 2,362 ) $ 223,153 $ 1,010,618

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization, including amortization of capitalized loan costs 56,124 39,792

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

Share-based compensation expense 1,199 1,487

7 unchanged sentences

Increase in mortgages and notes receivable — ( 12,795 )

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

Payments for acquisitions of real estate investments ( 9,546 ) ( 77,997 )

31 unchanged sentences

(in thousands)

Balance sheet description March 31, 2022 December 31, 2021 March 31, 2021

Balance sheet description June 30, 2022 December 31, 2021 June 30, 2021

Cash and cash equivalents $ 13,156 $ 31,267 $ 5,194

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the three months ended March 31, 2022 and 2021

for the six months ended June 30, 2022 and 2021

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 March 31, 2022, Centerspace owned interests in 83 apartment communities consisting of 14,838 apartment homes.

As of June 30, 2022, Centerspace owned interests in 83 apartment communities consisting of 14,838 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

16 unchanged sentences

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

As of March 31, 2022 and December 31, 2021, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.

As of June 30, 2022 and December 31, 2021, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.

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

8 unchanged sentences

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 March 31, 2022, was as follows:

The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of June 30, 2022, was as follows:

(in thousands)

2 unchanged sentences

Total scheduled lease income - commercial operating leases $ 12,118

REVENUES AND GAINS ON SALE OF REAL ESTATE

Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the Company expects to be entitled for those goods and services.

Revenue streams that are included in revenues from contracts with customers include:

• 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 months ended March 31, 2022 and 2021:

Revenue streams that are included in revenues from contracts with customers include other property revenue such as application fees and other miscellaneous items.

Centerspace recognizes revenue for these rental related items not included as a component of a lease as earned.

The following table presents the disaggregation of revenue streams for the three and six months ended June 30, 2022 and 2021:

(in thousands)

Three Months Ended March 31,

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

Revenue Stream Applicable Standard 2022 2021 2022 2021

3 unchanged sentences

Total revenue $ 63,116 $ 46,656 $ 123,430 $ 93,304

In addition to lease income and other property revenue, the Company recognizes gains or losses on the sale of real estate 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.

IMPAIRMENT OF LONG-LIVED ASSETS

6 unchanged sentences

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

During the three months ended March 31, 2022 and 2021, the Company recorded no impairment charges.

During the three and six months ended June 30, 2022 and 2021, 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 $ 6.1 million and $ 6.4 million at March 31, 2022 and December 31, 2021, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets.

The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $ 6.3 million and $ 6.4 million at June 30, 2022 and December 31, 2021, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets.

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

In December 2019, 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.

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.

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

During the three months ended March 31, 2022, the Company exercised its option to purchase the apartment community in exchange for the loans and cash.

As of March 31, 2022, the loans had no remaining balance.

The Company exercised its option to purchase the apartment community in exchange for the loans and cash, during the six months ended June 30, 2022.

As of June 30, 2022, the loans had no remaining balance.

As of December 31, 2021, the Company had fully funded the $ 29.9 million construction loan and $ 13.4 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets.

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.

Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are variable interest entities (each, a “VIE”), as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights.

The Company is the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on the balance sheet because the Company has a controlling financial interest in the VIEs and has both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs.

6 unchanged sentences

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.

For the three months ended March 31, 2022 and 2021, performance-based RSUs of 33,000 and 46,000 , respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended March 31, 2022, operating partnership units of 965,000 , Series D preferred units of 228,000 , Series E preferred units of 2.2 million, time-based RSUs of 14,000 , and weighted average stock options of 52,000 , were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended March 31, 2021, Series D preferred units of 228,000 , time-based RSUs of 19,000 , and weighted average stock options of 44,000 , 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 months ended March 31, 2022 and 2021:

For the three months ended June 30, 2022, operating partnership units of 995,000 , Series D preferred units of 228,000 , Series E preferred units of 2.2 million, time-based RSUs of 9,000 , weighted average stock options of 39,000 , and performance-based RSUs of 30,000 , were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended June 30, 2021, weighted average stock options of 44,000 and performance-based RSUs of 31,000 , were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the six months ended June 30, 2022, operating partnership units of 978,000 , Series D preferred units of 228,000 , Series E preferred units of 2.2 million, time-based RSUs of 11,000 , weighted average stock options of 46,000 , and performance-based RSUs of 30,000 , were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the six months ended June 30, 2021, weighted average stock options of 44,000 and performance-based RSUs of 28,000 , were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

(in thousands, except per share data)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net income (loss) attributable to controlling interests $ ( 2,991 ) $ 21,538 $ ( 11,580 ) $ 16,671

6 unchanged sentences

Effect of redeemable operating partnership units — 916 — 939

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 15,369 14,514 15,233 14,401

3 unchanged sentences

Operating Partnership Units.

The Operating Partnership had 997,000 and 832,000 outstanding Units at March 31, 2022 and December 31, 2021, respectively.

During the three months ended March 31, 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities.

The Operating Partnership had 995,000 and 832,000 outstanding Units at June 30, 2022 and December 31, 2021, respectively.

During the six months ended June 30, 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities.

Exchange Rights .

Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three months ended March 31, 2022 and 2021 as detailed in the table below.

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, 2022 and 2021 as detailed in the table below.

(in thousands)

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

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

2022 1 $ ( 13 )

2021 69 $ 639

Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three months ended March 31, 2022 and 2021 as detailed in the table below.

(in thousands)

Three Months Ended March 31, Number of Units Aggregate Cost Average Price Per Unit

Six Months Ended June 30,

2022 11 $ 375

2021 95 $ 418

Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three and six months ended June 30, 2022 and 2021 as detailed in the table below.

(in thousands, except per Unit data)

Three Months Ended June 30, Number of Units Aggregate Cost Average Price Per Unit

2022 4 $ 327 $ 92.03

Six Months Ended June 30,

2022 35 $ 3,230 $ 93.03

Series E Preferred Units (Noncontrolling Interests).

5 unchanged sentences

Common Shares and Equity Awards .

Common shares outstanding on March 31, 2022 and December 31, 2021, totaled 15.4 million and 15.0 million, respectively.

There were 18,759 and 2,801 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three months ended March 31, 2022 and 2021, respectively, with a total grant-date fair value of $ 1.5 million and $ 164,000 , respectively.

Common shares outstanding on June 30, 2022 and December 31, 2021, totaled 15.4 million and 15.0 million, respectively.

There were 5,538 and 24,297 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2022, respectively, with a total grant-date fair value of $ 397,000 and $ 619,000 , 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.

These shares vested based on performance and service criteria.

2 unchanged sentences

In September 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 months ended March 31, 2022 and 2021 under both the 2019 and 2021 ATM Programs.

As of March 31, 2022, common shares having an aggregate offering price of up to $ 126.6 million remained available under the 2021 ATM Program.

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 may be used for general corporate purposes, including the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness.

The table below provides details on the sale of common shares during the three and six months ended June 30, 2022 and 2021 under both the 2019 and 2021 ATM Programs.

As of June 30, 2022, common shares having an aggregate offering price of up to $ 126.6 million remained available under the 2021 ATM Program.

(in thousands, except per share amounts)

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

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

Average Net Price Per Share

1 unchanged sentence

2021 731 $ 54,636 $ 74.64

(1) Total consideration is net of $ 338 and $ 181 in commissions and issuance costs during the three months ended March 31, 2022 and 2021, respectively.

Six Months Ended June 30,

2022 321 $ 31,732 $ 98.89

2021 896 $ 66,495 $ 74.19

(1) Total consideration is net of $ 338 in commissions and issuance costs during the six months ended June 30, 2022 and $ 528 and $ 709 for the three and six months ended June 30, 2021, respectively.

Share Repurchase Program.

On June 13, 2022, the Board of Trustees approved a new share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $ 50.0 million of the Company's outstanding common shares.

Under the Share Repurchase Program, the Company is authorized to repurchase common shares through open market purchases, privately-negotiated transactions, block trades or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities and Exchange Act of 1934, as amended.

The repurchases have no time limit and may be suspended or discontinued completely at any time.

The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors.

During the six months ended June 30, 2022, the Company had no share repurchases under this program.

As of June 30, 2022, the Company had $ 50.0 million remaining authorized for purchase under this program.

Series C Preferred Shares.

Series C preferred shares outstanding were 3.9 million shares at March 31, 2022 and December 31, 2021.

Series C preferred shares outstanding were 3.9 million shares at June 30, 2022 and December 31, 2021.

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

2 unchanged sentences

Series D Preferred Units (Mezzanine Equity).

Series D preferred units outstanding were 165,600 preferred units at March 31, 2022 and December 31, 2021.

Series D preferred units outstanding were 165,600 preferred units at June 30, 2022 and December 31, 2021.

The Series D preferred units have a par value price of $ 100 per preferred unit.

7 unchanged sentences

NOTE 5 • DEBT

As of March 31, 2022, 49 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.

As of June 30, 2022, 52 apartment communities were not encumbered by mortgages and were available to provide credit support for the unsecured borrowings.

The Company’s primary unsecured credit facility (“unsecured credit facility”) 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 March 31, 2022, the additional borrowing availability was $ 204.0 million beyond the $ 46.0 million drawn.

This unsecured credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and to provide for a $ 400.0 million accordion option.

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.

As of June 30, 2022, the additional borrowing availability was $ 177.0 million beyond the $ 73.0 million drawn.

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

The interest rates on the line of credit is 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 March 31, 2022.

The Company believes that it was in compliance with all such financial covenants and limitations as of June 30, 2022.

In January 2021, Centerspace amended and expanded its 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 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 March 31, 2022.

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

Under the private shelf agreement with PGIM, the Company has issued $ 200.0 million unsecured senior notes with $ 25.0 million remaining available as of June 30, 2022.

The following table shows the notes issued under both private shelf agreements.

(in thousands)

9 unchanged sentences

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 March 31, 2022, the FMCF had a balance of $ 198.9 million.

The notes are interest-only, with varying maturity dates of 7 , 10 , and 12 years, and a blended, weighted average interest rate of 2.78 %.

As of June 30, 2022, the FMCF had a balance of $ 198.9 million.

The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.

As of March 31, 2022, Centerspace owned 18 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF.

As of June 30, 2022, Centerspace owned 15 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 March 31, 2022, the Company believes that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

As of June 30, 2022, the Company believes that there were 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.

3 unchanged sentences

(in thousands)

March 31, 2022 December 31, 2021 Weighted Average Maturity in Years at March 31, 2022

June 30, 2022 December 31, 2021 Weighted Average Maturity in Years at June 30, 2022

Lines of credit $ 73,000 $ 76,000 3.25

12 unchanged sentences

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

(2) The interest rate swap was terminated during the three months ended March 31, 2022 .

The aggregate amount of required future principal payments on unsecured senior notes and mortgages payable as of March 31, 2022, was as follows:

(2) The interest rate swap was terminated in February 2022.

Refer to Note 6 - Derivative Instruments for additional information.

The aggregate amount of required future principal payments as of June 30, 2022, was as follows:

(in thousands)

3 unchanged sentences

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 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.

Centerspace used interest rate derivatives to stabilize interest expense and to manage its exposure to interest rate fluctuations.

To accomplish this objective, the Company primarily used interest rate swap contracts to fix variable interest rate debt.

Changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (“OCI”).

Amounts recorded in accumulated other comprehensive income will be reclassified to interest expense in the periods in which interest payments are incurred on variable rate debt.

During the next twelve months, the Company estimates an additional $ 604,000 will be reclassified as an increase to interest expense.

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.

During the three months ended March 31, 2022, the Company recorded a gain of $ 582,000 related to the interest rate swap not designated in a hedging relationship, prior to its termination.

During the three months ended March 31, 2022, the Company paid $ 3.2 million to terminate its $ 75.0 million interest rate swap and its $ 70.0 million forward swap.

As of March 31, 2022 the Company had no remaining interest rate swaps.

Derivatives not designated as hedges were not speculative and were used to manage the Company’s exposure to interest rate movements and other identified risks but did not meet the strict hedge accounting requirements.

Changes in fair value of derivatives not designated in hedging relationships were recorded directly to earnings within other income (loss) in the Condensed Consolidated Statement of Operations.

During the six months ended June 30, 2022, the Company recorded a gain of $ 582,000 related to the interest rate swap not designated in a hedging relationship, prior to its termination.

In February 2022, the Company paid $ 3.2 million to terminate its $ 75.0 million interest rate swap and its $ 70.0 million forward swap.

As of June 30, 2022 the Company had no remaining interest rate swaps.

As of December 31, 2021 , Centerspace had one interest rate swap contract designated as a cash flow hedge of interest rate risk with a notional amount of $ 75.0 million to fix the interest rate on the line of credit.

The Company also had one additional interest rate swap with an effective date of January 31, 2023 and a notional amount of $ 70.0 million which was not designated as a hedge in a qualifying hedging relationship.

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 March 31, 2022 and December 31, 2021 .

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, 2022 and December 31, 2021 .

(in thousands)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Balance Sheet Location Fair Value Fair Value

1 unchanged sentence

Total derivative instruments not designated as hedging instruments - interest rate swaps Accounts Payable and Accrued Expenses $ — $ 1,097

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of March 31, 2022 and 2021.

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2022 and 2021.

(in thousands)

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

Three months ended March 31, 2022 2021 2022 2021

Three months ended June 30, 2022 2021 2022 2021

Total derivatives in cash flow hedging relationships - Interest rate contracts $ — $ ( 386 ) Interest expense $ ( 188 ) $ ( 1,120 )

The Company had 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.

Six months ended June 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts $ 1,581 $ 1,625 Interest expense $ ( 492 ) $ ( 2,216 )

NOTE 7 • FAIR VALUE MEASUREMENTS

2 unchanged sentences

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.

2 unchanged sentences

Total Level 1 Level 2 Level 3

March 31, 2022

June 30, 2022

Notes receivable $ 6,072 — — $ 6,072

9 unchanged sentences

(in thousands)

Fair Value Measurement at March 31, Other Gains (Losses) Interest Income Total Changes in Fair Value Included in Current-Period Earnings

Three months ended March 31, 2022

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, 2022

Notes receivable $ 6,072 $ 7 $ 142 $ 149

Three months ended March 31, 2021

Six months ended June 30, 2021

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

As of March 31, 2022 and December 31, 2021, Centerspace has an investment of $ 890,000 and $ 903,000 , respectively, in a real estate technology venture consisting of privately held entities that develop technology related to the real estate industry.

As of June 30, 2022 and December 31, 2021, Centerspace had an investment of $ 966,000 and $ 903,000 , respectively, 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 March 31, 2022, the Company had unfunded commitments of $ 1.2 million.

As of June 30, 2022, the Company had unfunded commitments of $ 1.0 million.

Fair Value Measurements on a Nonrecurring Basis

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021.

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.

Financial Assets and Liabilities Not Measured at Fair Value

The fair value of unsecured senior notes and mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates, excluding any prepayment penalties (Level 3).

The estimated fair values of the Company’s financial instruments as of March 31, 2022 and December 31, 2021, respectively, are as follows:

The estimated fair values of the Company’s financial instruments as of June 30, 2022 and December 31, 2021, respectively, are as follows:

(in thousands)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Carrying Amount Fair Value Carrying Amount Fair Value

11 unchanged sentences

NOTE 8 • ACQUISITIONS AND DISPOSITIONS

Centerspace acquired four new apartment communities for an aggregate acquisition cost of $ 116.9 million during the three months ended March 31, 2022 compared to acquisitions of $ 76.9 million in the three months ended March 31, 2021.

The acquisitions during the three months ended March 31, 2022 and 2021 are detailed below.

Three Months Ended March 31, 2022

Centerspace had no acquisitions during the three months ended June 30, 2022 and 2021.

The acquisitions during the six months ended June 30, 2022 and 2021 are detailed below.

Six Months Ended June 30, 2022

Acquired (in thousands)

5 unchanged sentences

January 4, 2022 $ 49,825 $ 3,031 $ 18,885 $ 27,909 $ 3,547 $ 45,212 $ 1,813 $ ( 747 )

31 homes - Zest - Minneapolis, MN

January 4, 2022 9,066 1,290 1,748 6,028 941 7,853 335 ( 63 )

31 homes - Elements - Minneapolis, MN

January 4, 2022 9,066 1,290 1,748 6,028 941 7,853 335 ( 63 )

45 homes - Zest - Minneapolis, MN

January 4, 2022 11,364 1,429 2,249 7,686 936 10,261 574 ( 407 )

130 homes - Noko Apartments - Minneapolis, MN

5 unchanged sentences

(3) Debt discount on assumed mortgage.

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Acquired (in thousands)

3 unchanged sentences

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

During the three months ended March 31, 2022 and 2021, Centerspace disposed of no real estate.

During the three and six months ended June 30, 2022, Centerspace disposed of no real estate compared to $ 60.0 million in the three and six months ended June 30, 2021.

The dispositions during the six months ended June 30, 2021 are detailed below.

Six Months Ended June 30, 2021

(in thousands)

Dispositions Date

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

76 homes - Crystal Bay-Rochester, MN

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

40 homes - French Creek-Rochester, MN

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

182 homes - Heritage Manor-Rochester, MN

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

140 homes - Olympik Village-Rochester, MN

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

151 homes-Winchester/Village Green-Rochester, MN

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

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

NOTE 9 • SEGMENT REPORTING

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The members of the executive management team are the chief operating decision-makers.

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

This team measures the performance of the reportable segment based on net operating income (“NOI”), a non-GAAP measure, which the Company defines as total

real estate revenues less property operating expenses, including real estate taxes.

Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expense.

NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

The following tables present NOI for the three months ended March 31, 2022 and 2021, respectively, along with reconciliations to net income in the Condensed Consolidated Financial Statements.

The following tables present NOI for the three and six months ended June 30, 2022 and 2021, respectively, along with reconciliations to net income in the Condensed Consolidated Financial Statements.

Segment assets are also reconciled to total assets as reported in the Condensed Consolidated Financial Statements.

(in thousands)

Three Months Ended March 31, 2022 Multifamily All Other Total

Three Months Ended June 30, 2022 Multifamily All Other Total

Revenue $ 62,201 $ 915 $ 63,116

5 unchanged sentences

General and administrative expenses ( 5,221 )

Gain (loss) on sale of real estate and other investments 27

Interest expense ( 7,561 )

2 unchanged sentences

(in thousands)

Three Months Ended March 31, 2021 Multifamily All Other Total

Three Months Ended June 30, 2021 Multifamily All Other Total

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

5 unchanged sentences

General and administrative expenses ( 3,797 )

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

Interest expense ( 7,089 )

1 unchanged sentence

Net income (loss) $ 23,103

(in thousands)

Six Months Ended June 30, 2022 Multifamily All Other Total

Revenue $ 121,599 $ 1,831 $ 123,430

Property operating expenses, including real estate taxes 51,529 560 52,089

Net operating income $ 70,070 $ 1,271 $ 71,341

Property management expenses ( 4,974 )

Casualty gain (loss) ( 980 )

Depreciation and amortization ( 55,769 )

General and administrative expenses ( 9,721 )

Gain (loss) on sale of real estate and other investments 27

Interest expense ( 15,276 )

Interest and other income 1,046

Net income (loss) $ ( 14,306 )

(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 )

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

Interest expense ( 14,320 )

Interest and other income 1,050

Net income (loss) $ 17,944

Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of March 31, 2022, and December 31, 2021, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

Segment assets are summarized as follows as of June 30, 2022, and December 31, 2021, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

(in thousands)

As of March 31, 2022 Multifamily All Other Total

As of June 30, 2022 Multifamily All Other Total

Segment assets

34 unchanged sentences

2022 LTIP Awards

Awards granted to employees on January 1, 2022, consist of an aggregate of 5,849 time-based RSU awards, 13,407 performance RSUs based on total shareholder return (“TSR”), and 30,002 stock options.

Awards granted to employees on January 1, 2022, consisted of an aggregate of 5,849 time-based RSU awards, 13,407 performance RSUs based on total shareholder return (“TSR”), and 30,002 stock options.

The time-based awards vest as to one-third of the shares on each of January 1, 2023, January 1, 2024, and January 1, 2025.

17 unchanged sentences

Awards granted to employees on February 1, 2022, consist of an aggregate of 1,295 time-based RSU awards which vest as to one-third of the RSUs on each of January 1, 2023, January 1, 2024, and January 1, 2025.

Awards granted to trustees on May 17, 2022 consist of 6,563 time-based RSUs, which vest on May 17, 2023.

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 $ 719,000 and $ 810,000 for the three months ended March 31, 2022 and 2021, respectively.

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $ 1.2 million and $ 1.5 million for the six months ended June 30, 2022 and 2021, respectively.

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

What changed 10-Q

Item 1. Financial Statements