What changed in this filing

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Item 1. Business

2023-02-21 compared with 2022-02-28 · 57 added, 45 removed, 103 unchanged (50% of the section changed)

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.

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 target markets, including the Minneapolis/St.

Paul and Denver metropolitan areas.

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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, formerly known as IRET Properties (the “Operating Partnership”).

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.

The 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.

Centerspace, LP holds substantially all of the assets of the Company.

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As of December 31, 2022, Centerspace, Inc.

owned a 83.3% interest in Centerspace, LP.

owned an 82.9% interest in Centerspace, LP.

The remaining interest in Centerspace, LP is held by individual limited partners.

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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.

While fulfilling our mission, we seek 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 and furthering our vision of being a premier provider of apartment homes in vibrant communities by focusing on integrity and serving others.

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• Leveraging technology and systems;

• Demonstrating an organizational commitment to ESG.

• Demonstrating an organizational commitment to Environmental, Social, and Governance (“ESG”) initiatives.

Investment Strategy

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Each of these is described below.

At-the-Market Offering

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”).

At-the-Market Offering Program

We have an equity distribution agreement in connection with a new at-the-market offering program (the “2021 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.

The proceeds from the sale of common shares under the 2021 ATM Program may be used for general corporate purposes, including the funding of future acquisitions, construction and mezzanine loans, community renovations, and the servicing of indebtedness.

During the year ended December 31, 2022, we issued 321,000 common shares under the 2021 ATM Program at an average price of $98.89 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was approximately $31.4 million.

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Issuance of Senior Securities

On October 2, 2017, we issued 4,118,460 shares of 6.625% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series C preferred shares”).

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

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.

On October 2, 2017, we issued 4.1 million shares of 6.625% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series C preferred shares”).

As of December 31, 2022, 3.9 million shares remained outstanding.

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

The Series C preferred shares are redeemable, at our option.

Bank Financing and Other Debt

As of December 31, 2022, we owned 53 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 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.

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

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

As of December 31, 2022, the additional borrowing availability was $136.5 million beyond the $113.5 million drawn, priced at an interest rate of 4.12%.

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.

We also have a $6.0 million operating line of credit with Wells Fargo Bank, N.A., which is designed to enhance treasury management activities and more effectively manage cash balances.

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.

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(in thousands)

Amount Maturity Date Interest Rate

Amount Maturity Date Fixed Interest Rate

Series A $ 75,000 September 13, 2029 3.84 %

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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%.

In November 2022, we entered into a $100.0 million term loan agreement (“Term Loan”) with PNC Bank, National Association serving as administrative agent.

The interest rate on the Term Loan is based on SOFR, plus a margin that ranges from 120 to 175 basis points based on our consolidated leverage ratio.

The Term Loan has a 364-day term but may be extended, at our option and subject to certain conditions, for one additional 364-day term.

We have a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”).

The FMCF is currently secured by mortgages on 16 apartment communities.

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

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

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

We also have a $6.0 million operating line of credit, which is designed to enhance treasury management activities and more effectively manage cash balances.

As of December 31, 2022, our ratio of total indebtedness to total gross real estate investments was 39.9%.

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

In January 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities located in Minneapolis, Minnesota.

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 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.

The Series E preferred units have an aggregate liquidation preference of $175.8 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.

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.

The holders of Series E preferred units do not have voting rights.

Distributions to Shareholders

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HUMAN CAPITAL

We strive to be a great place to work and offer competitive benefits and training programs to our team members.

Our objective is to attract and reward individuals with the talent and skills to help support our business objectives and make our communities home for our residents.

We strive to be a great place to work and offer an exceptional experience through competitive pay, benefits, and training programs to our employees, who we refer to as team members.

Our objective is to attract, develop, retain, and reward individuals with the talent and skills to help support our business objectives and make our communities home for our residents.

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, 2022, we had 471 employees (421 full-time and 50 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.

Compensation and benefits.

Our total rewards program includes competitive compensation, a robust benefits program including;

paid leave, paid holidays, volunteer time, health and dental benefits, discounted rental rates on our apartments, employee assistance program, life insurance, 401(k) plan, tuition reimbursement and more.

We take great pride in our pay for performance strategy where team members are aligned with overall company performance as well as specific performance metrics based on roles.

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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.

As of December 31, 2021:

• The average tenure of our team members is 4.3 years;

• 52% of our total team members, 55% of our senior management, and 43% of our Board of Trustees are female;

• We have over 200 custom courses on our learning management system;

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

• 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.

As of December 31, 2022, the average tenure of our team members is 3.88 years.

As part of our 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.

During the year ended December 31, 2022, 1,676 volunteer hours were completed by team members.

Training and development .

As of December 31, 2022, we had 113 custom courses on our learning management system and over 23,000 training courses were completed by team members.

Team member engagement.

We conduct a team member engagement survey annually, where we encourage all team members to provide feedback on our performance.

The survey and others conducted throughout the year allows team members to provide feedback anonymously.

The results are discussed and presented within functional teams and company-wide.

Diversity, Equity, & Inclusion .

We are committed to create a culture that is inclusive, equitable, and diverse by fostering an environment where every great idea can be heard and everybody belongs.

We are committed to becoming a better reflection of the world we live in and the communities we serve.

We strive to develop enduring change by recognizing talent with different backgrounds and experiences with shared goals, and by nurturing an environment where every team member can bring their whole selves to work.

It is through an active focus on policies, procedures, and best practices along with increased awareness and education.

As of December 31, 2022, 76.6% of our team members self-identified as white, 7.4% as Hispanic or Latino, 5.9% as Black or African American, and 7.0% other ethnicities.

As of December 31, 2022, 52.0% of our total team members, 54.0% of our senior management, and 33.3% of our Board of Trustees self-identified as female.

We purchase general liability and property insurance coverage for each of our properties.

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Although we believe that we have adequate insurance coverage on our properties, we may incur losses, which could be material, due to uninsured risks, deductibles and/or losses in excess of coverage limits, any of which could have a material adverse effect on our business.

Risk Factors - “ Our current or future insurance may not protect us against possible losses.

There are numerous housing alternatives that compete with our apartment communities in attracting residents.

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This competition affects our ability to acquire properties we want to add to our portfolio and the cost of those acquisitions.

Risk Factors - “ Competition may negatively impact our earnings.

GOVERNMENT REGULATION

See the discussion under the caption “ Risks Related to Our Properties and Operations -- We may be responsible for potential liabilities under environmental laws” in Item 1A, Risk Factors, for information concerning the potential effects of environmental matters on our business, “ Complying with laws benefiting disabled persons or other safety regulations and requirements may affect our costs and investment strategies ” in Item 1A, Risk Factors, for information concerning the potential effects of compliance with disabled persons and other safety regulations on our business, “ Changes in federal or state laws and regulations relating to climate change could result in increased costs to our business, including capital expenditures to improve the energy efficiency of our existing communities or new development communities without a corresponding increase in revenue ” in Item 1A, Risk Factors, for information concerning the potential effects of climate change regulation on our business, “ Complying with zoning and permitting law may affect our acquisition, redevelopment, and development costs ” in Item 1A.

Risk Factors, for information concerning the potential costs associated with zoning and permitting regulations, and “ The current pandemic of COVID-19 and the potential future outbreak of other highly infectious or contagious diseases may materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our equityholders ” in Item 1A Risk Factors, for information concerning the potential effects of regulations related to the COVID-19 pandemic, which discussions thereunder are incorporated by reference into this Item 1.

Risk Factors, for information concerning the potential costs associated with zoning and permitting regulations, “ The ongoing pandemic of COVID-19 and the potential future outbreak of other highly infectious or contagious diseases may materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our equityholders ” in Item 1A Risk Factors, for information concerning the potential effects of regulations related to the COVID-19 pandemic, and “ Multifamily residential properties may be subject to rent stabilization regulations, now or in the future, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by residents that their rents exceed such specified maximum amounts ” in Item 1A.

Risk Factors for information concerning potential rent control regulations.

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