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Item 1. Financial Statements

2023-10-30 compared with 2023-07-31 · 163 added, 141 removed, 662 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

ASSETS (Unaudited)

16 unchanged sentences

COMMITMENTS AND CONTINGENCIES (NOTE 10)

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at June 30, 2023 and December 31, 2022, aggregate liquidation preference of $ 16,560 )

SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $ 100 par value, 166 units issued and outstanding at September 30, 2023 and December 31, 2022, aggregate liquidation preference of $ 16,560 )

$ 16,560 $ 16,560

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, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, aggregate liquidation preference of $ 97,036 )

93,530 93,530

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 14,949 shares issued and outstanding at June 30, 2023 and 15,020 shares issued and outstanding at December 31, 2022)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,052 shares issued and outstanding at September 30, 2023 and 15,020 shares issued and outstanding at December 31, 2022)

1,169,025 1,177,484

10 unchanged sentences

(in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

8 unchanged sentences

TOTAL EXPENSES $ 58,408 $ 58,407 $ 179,746 $ 181,940

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

Gain on sale of real estate and other investments

11,235 — 71,327 27

Loss on litigation settlement — — ( 2,864 ) —

Operating income (loss)

Operating income

17,395 7,031 85,958 6,955

Interest expense ( 8,556 ) ( 7,871 ) ( 27,516 ) ( 23,147 )

Interest and other income (loss)

Interest and other income

330 70 674 1,116

19 unchanged sentences

(in thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

1 unchanged sentence

$ 9,169 $ ( 770 ) $ 59,116 $ ( 15,076 )

Other comprehensive income:

Other comprehensive income (loss):

Unrealized gain from derivative instrument

13 unchanged sentences

(in thousands, except per share data)

Six Months Ended June 30, 2022 PREFERRED

Nine Months Ended September 30, 2022 PREFERRED

SHARES NUMBER

20 unchanged sentences

Redemption of Units for cash ( 3,837 ) ( 3,837 )

Shares repurchased — ( 5 ) ( 359 ) — ( 359 )

Change in redemption value of Series D preferred units 8,771 8,771

1 unchanged sentence

Other ( 254 ) ( 120 ) ( 374 )

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

Six Months Ended June 30, 2023

Balance at September 30, 2022 $ 93,530 15,376 $ 1,209,732 $ ( 524,905 ) $ ( 2,158 ) $ 220,087 $ 996,286

Nine Months Ended September 30, 2023

Balance at December 31, 2022 $ 93,530 15,020 $ 1,177,484 $ ( 539,422 ) $ ( 2,055 ) $ 220,759 $ 950,296

14 unchanged sentences

Other ( 1 ) ( 56 ) ( 162 ) ( 218 )

Balance at June 30, 2023 $ 93,530 14,949 $ 1,169,501 $ ( 522,796 ) $ ( 1,758 ) $ 226,931 $ 965,408

Balance at September 30, 2023 $ 93,530 15,052 $ 1,169,025 $ ( 527,586 ) $ ( 1,434 ) $ 226,824 $ 960,359

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, 2022 PREFERRED

Three Months Ended September 30, 2022 PREFERRED

SHARES NUMBER

5 unchanged sentences

INTERESTS TOTAL

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

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

Net (loss) attributable to controlling interests and noncontrolling interests

10 unchanged sentences

Redemption of Units for cash ( 607 ) ( 607 )

Shares repurchased — ( 5 ) ( 359 ) — ( 359 )

Change in redemption value of Series D preferred units 2,067 2,067

Other ( 78 ) ( 36 ) ( 114 )

Balance at September 30, 2022 $ 93,530 15,376 $ 1,209,732 $ ( 524,905 ) $ ( 2,158 ) $ 220,087 $ 996,286

Three Months Ended September 30, 2023

Balance at June 30, 2023 $ 93,530 14,949 $ 1,169,501 $ ( 522,796 ) $ ( 1,758 ) $ 226,931 $ 965,408

Three Months Ended June 30, 2023

Balance at March 31, 2023 $ 93,530 15,032 $ 1,176,059 $ ( 508,420 ) $ ( 1,917 ) $ 228,553 $ 987,805

Net (loss) attributable to controlling interests and noncontrolling interests

Net income attributable to controlling interests and noncontrolling interests

7,774 1,235 9,009

9 unchanged sentences

Redemption of Series E preferred units for common shares 6 ( 176 ) 176 —

Shares repurchased ( 105 ) ( 5,696 ) ( 5,696 )

Other ( 4 ) ( 76 ) ( 80 )

Balance at June 30, 2023 $ 93,530 14,949 $ 1,169,501 $ ( 522,796 ) $ ( 1,758 ) $ 226,931 $ 965,408

Balance at September 30, 2023 $ 93,530 15,052 $ 1,169,025 $ ( 527,586 ) $ ( 1,434 ) $ 226,824 $ 960,359

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

14 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of real estate and other investments 141,587 —

Proceeds from repayment of mortgage loans and notes receivable 430 353

Net proceeds from sale of real estate and other investments

Payments for acquisitions of real estate investments — ( 104,666 )

18 unchanged sentences

Other financing activities ( 179 ) ( 374 )

Net cash used by financing activities

Net cash provided by (used by) financing activities

$ ( 222,485 ) $ 45,916

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

40,306 ( 22,251 )

7 unchanged sentences

Retirement of shares withheld for taxes 182 1,280

Loss on litigation settlement 2,864 —

Involuntary conversion of assets ( 1,986 ) —

10 unchanged sentences

(in thousands)

Balance sheet description June 30, 2023 December 31, 2022 June 30, 2022

Balance sheet description September 30, 2023 December 31, 2022 September 30, 2022

Cash and cash equivalents $ 29,701 $ 10,458 $ 14,957

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2023

September 30, 2023

NOTE 1 • ORGANIZATION

Centerspace, collectively with its consolidated subsidiaries (“Centerspace,” “the Company,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.

As of June 30, 2023, Centerspace owned interests in 75 apartment communities consisting of 13,497 apartment homes.

As of September 30, 2023, Centerspace owned interests in 71 apartment communities consisting of 12,785 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.

Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP, 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.

23 unchanged sentences

Cash and cash equivalents consist of our bank deposits and our deposits in a money market mutual fund.

As of June 30, 2023 and December 31, 2022, restricted cash consisted primarily of escrows held by lenders for real estate taxes, insurance, and capital additions.

As of September 30, 2023 restricted cash consisted primarily of net tax-deferred exchange proceeds remaining from a portion of our dispositions, real estate deposits, and escrows held by lenders.

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

We are potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed federally insured limits.

2 unchanged sentences

Rental revenues are recognized in accordance with FASB Accounting Standards Codification (“ASC”) ASC 842, Leases , using a method that represents a straight-line basis over the term of the lease.

For the three months ended June 30, 2023 and 2022, rental income represented approximately 98.3 % and 97.7 % of total revenues, respectively, and included gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt.

For the three months ended June 30, 2023 and 2022, other property revenues represented the remaining 1.7 % and 2.3 % of total revenues, respectively, and were primarily driven by other fee income, which is typically recognized when earned, at a point in time.

For the six months ended June 30, 2023 and 2022, rental income represented approximately 98.3 % and 97.9 % of total revenues, respectively.

For the six months ended June 30, 2023 and 2022, other property revenues represented the remaining 1.7 % and 2.1 % of total revenues, respectively.

For the three months ended September 30, 2023 and 2022, rental income represented approximately 98.1 % and 97.4 % of total revenues, respectively, and included gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt.

For the three months ended September 30, 2023 and 2022, other property revenues represented the remaining 1.9 % and 2.6 % of total revenues, respectively, and were primarily driven by other fee income, which is typically recognized when earned, at a point in time.

For the nine months ended September 30, 2023 and 2022, rental income represented approximately 98.2 % and 97.8 % of total revenues, respectively.

For the nine months ended September 30, 2023 and 2022, other property revenues represented the remaining 1.8 % and 2.2 % of total revenues, respectively.

Some of the Company’s apartment communities have commercial spaces available for lease.

4 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 June 30, 2023, 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 September 30, 2023, was as follows:

(in thousands)

6 unchanged sentences

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, 2023 and 2022:

The following table presents the disaggregation of revenue streams for the three and nine months ended September 30, 2023 and 2022:

(in thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

Revenue Stream Applicable Standard 2023 2022 2023 2022

4 unchanged sentences

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.

For the six months ended June 30, 2023, we recognized $ 60.1 million as a gain on the sale of real estate and other investments.

For the three months ended September 30, 2023, the Company recognized $ 11.2 million as a gain on the sale of real estate and other investments.

For the three months ended September 30, 2022, the Company did not recognize any gain on the sale of real estate and other investments.

For the nine months ended September 30, 2023 and 2022, the Company recognized $ 71.3 million and $ 27,000 , respectively, as a gain on the sale of real estate and other investments.

MARKET CONCENTRATION RISK

We are subject to increased exposure from economic and other competitive factors specific to markets where we hold a significant percentage of the carrying value of our real estate portfolio.

As of June 30, 2023, we held more than 10% of the carrying value of our real estate portfolio in each of the following markets:

As of September 30, 2023, we held more than 10% of the carrying value of our real estate portfolio in each of the following markets:

Minneapolis, Minnesota and Denver, Colorado.

7 unchanged sentences

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

During the three and six months ended June 30, 2023 and 2022, the Company recorded no impairment charges.

During the three and nine months ended September 30, 2023 and 2022, the Company recorded no impairment charges.

NOTES RECEIVABLE

The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $ 5.9 million and $ 6.1 million at June 30, 2023 and December 31, 2022, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets at fair value.

The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $ 5.7 million and $ 6.1 million at September 30, 2023 and December 31, 2022, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets at fair value.

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

1 unchanged sentence

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

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, 2023 and December 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 nine months ended September 30, 2022.

As of September 30, 2023 and December 31, 2022, the loans had no remaining balance.

ADVERTISING COSTS

Advertising costs are expensed as incurred and reported on the Condensed Consolidated Statements of Operations within the Property operating expenses, excluding real estate taxes line item.

During the three months ended June 30, 2023 and 2022, total advertising expense was $ 744,000 and $ 894,000 , respectively.

During the six months ended June 30, 2023 and 2022, total advertising expense was $ 1.4 million and $ 1.6 million, respectively.

During the three months ended September 30, 2023 and 2022, total advertising expense was $ 878,000 and $ 795,000 , respectively.

During the nine months ended September 30, 2023 and 2022, total advertising expense was $ 2.3 million and $ 2.4 million, respectively.

SEVERANCE AND TRANSITION

On March 23, 2023, the Company entered into a Separation and General Release Agreement (the “Separation Agreement”) in connection with the departure of former CEO, Mark Decker, Jr.

During the six months ended June 30, 2023, the Company incurred total severance costs of $ 2.2 million for the cash severance and benefits for Mr.

During the nine months ended September 30, 2023, the Company incurred total severance costs of $ 2.2 million for the cash severance and benefits for Mr.

Decker, $ 737,000 in share-based compensation expense for the acceleration of certain equity awards, and $ 306,000 in other CEO transition related expenses.

3 unchanged sentences

The Company recorded a write-down of the apartment community asset, in accordance with ASC 610-30 on involuntary conversion of non-monetary assets, totaling $ 1.0 million with an offsetting insurance receivable recorded within other assets on the Condensed Consolidated Balance Sheets.

The estimated insurance claim is $ 1.3 million and the remaining $ 300,000 will be recognized when received.

As of September 30, 2023, the estimated insurance claim was $ 1.3 million.

Any amounts received in excess of the write-down will be recognized when received.

During the three months ended September 30, 2023, Centerspace recorded a $ 695,000 write-down to an apartment community asset as a result of extensive damage to the pool.

Any insurance funds received will be recognized when received in accordance with ASC 610-30.

LITIGATION SETTLEMENT

During the three months ended, June 30, 2023, the Company recorded a loss on litigation settlement of $ 2.9 million due to a trial judgment entered against Centerspace on May 8, 2023 for property damage, resulting in monetary losses.

During the nine months ended, September 30, 2023, the Company recorded a loss on litigation settlement of $ 2.9 million due to a trial judgment entered against Centerspace on May 8, 2023 for property damage, resulting in monetary losses.

Centerspace was the named defendant in a lawsuit where the owner of a neighboring property claimed a retaining wall at one of the Company’s properties was causing water damage to the neighboring property.

Subsequent to September 30, 2023, the judgement was ordered and the Company paid the settlement of $ 2.9 million.

The Company cannot, with any level of certainty, predict or estimate if there will be additional costs incurred as a result of the lawsuit.

9 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 June 30, 2023, operating partnership units of 965,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.1 million, as converted, time-based RSUs and stock options of 24,000 , and performance-based RSUs of 26,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended June 30, 2022, operating partnership units of 995,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.2 million, as converted, 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 six months ended June 30, 2023, performance-based RSUs of 26,000 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 , as converted, Series E preferred units of 2.2 million, as converted, 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.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2023 and 2022.

(in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

5 unchanged sentences

Noncontrolling interests – Operating Partnership and Series E preferred units (1)

1,204 ( 439 ) 6,233 ( 3,546 )

Dividends to preferred unitholders (2)

— 160 480 480

Numerator for diluted earnings (loss) per share

10 unchanged sentences

$ 0.41 $ ( 0.14 ) $ 2.96 $ ( 1.11 )

(1) For the nine months ended September 30, 2023, the impact of Units was excluded from the calculation of calculation of net income (loss) per common share - diluted as they were anti-dilutive.

(2) For the three months ended September 30, 2023, dividends to preferred unitholders and the effect of Series D preferred units are excluded in the calculation of net income (loss) per common share - diluted as they were anti-dilutive.

For the three months ended September 30, 2023, Series D preferred units of 228,000 , as converted and performance-based RSUs of 26,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three months ended September 30, 2022, operating partnership units of 984,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.2 million, as converted, time-based RSUs of 7,000 , weighted average stock options of 23,000 , and performance-based RSUs of 30,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the nine months ended September 30, 2023, operating partnership units of 943,000 and performance-based RSUs of 26,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the nine months ended September 30, 2022, operating partnership units of 980,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.2 million, as converted, time-based RSUs of 10,000 , weighted average stock options of 38,000 , and performance-based RSUs of 33,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

NOTE 4 • EQUITY AND MEZZANINE EQUITY

Operating Partnership Units.

The Operating Partnership had 961,000 and 971,000 outstanding Units at June 30, 2023 and December 31, 2022, respectively.

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

The Operating Partnership had 864,000 and 971,000 outstanding Units at September 30, 2023 and December 31, 2022, respectively.

During the nine months ended September 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 and six months ended June 30, 2023 and 2022 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 nine months ended September 30, 2023 and 2022 as detailed in the table below.

(in thousands)

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

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

2023 97 $ 898

Six Months Ended June 30,

Nine Months Ended September 30,

2023 107 $ 1,919

2022 19 $ 831

Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three and six months ended June 30, 2023 and 2022 as detailed in the table below.

Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three and nine months ended September 30, 2023 and 2022 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

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

2023 — $ 28 $ 63.37

2022 7 $ 607 $ 81.18

Six Months Ended June 30,

Nine Months Ended September 30,

2023 1 $ 38 $ 61.40

1 unchanged sentence

Series E Preferred Units (Noncontrolling Interests).

Centerspace had 1.7 million and 1.8 million Series E preferred units outstanding on June 30, 2023 and December 31, 2022, respectively.

Centerspace had 1.7 million and 1.8 million Series E preferred units outstanding on September 30, 2023 and December 31, 2022, respectively.

Each Series E preferred unit has a par value of $ 100 .

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.

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 $ 173.3 million.

2 unchanged sentences

Number of Series E Number of Total

Three Months Ended June 30, Preferred Units Redeemed Common Shares Issued Value

Three Months Ended September 30, Preferred Units Redeemed Common Shares Issued Value

2023 5 6 $ 176

Six Months Ended June 30,

Nine Months Ended September 30,

2023 25 31 $ 2,296

Common Shares and Equity Awards .

Common shares outstanding on June 30, 2023 and December 31, 2022, totaled 14.9 million and 15.0 million, respectively.

There were 7,073 and 18,950 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2023, respectively, with a total grant-date fair value of $ 778,000 and $ 1.7 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.

Common shares outstanding on September 30, 2023 and December 31, 2022, totaled 15.1 million and 15.0 million, respectively.

There were 64 and 19,014 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and nine months ended September 30, 2023, respectively, with a total grant-date fair value of $ 5,000 and $ 1.7 million, respectively.

There were 199 and 24,296 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and nine months ended September 30, 2022, respectively, with a total grant-date fair value of $ 18,000 and $ 637,000 , respectively.

These shares vested based on performance and service criteria.

4 unchanged sentences

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 six months ended June 30, 2023 and 2022 under the 2021 ATM Program.

There were no sales of common shares under the 2021 ATM Program during the three months ended June 30, 2023 and 2022.

As of June 30, 2023, common shares having an aggregate offering price of up to $ 126.6 million remained available under the 2021 ATM Program.

The table below provides details on the sale of common shares during the nine months ended September 30, 2023 and 2022 under the 2021 ATM Program.

There were no sales of common shares under the 2021 ATM Program during the three months ended September 30, 2023 and 2022.

As of September 30, 2023, 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)

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

Nine Months Ended September 30, Number of Common Shares Net Consideration (1)

Average Net Price Per Share

1 unchanged sentence

2022 321 $ 31,732 $ 98.89

(1) Consideration is net of $ 338 in commissions and issuance costs during the six months ended June 30, 2022.

(1) Consideration is net of $ 338 in commissions and issuance costs during the nine months ended September 30, 2022.

Share Repurchase Program.

3 unchanged sentences

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.

The table below provides details on the shares repurchased during the three and six months ended June 30, 2023.

As of June 30, 2023, the Company had $ 14.2 million remaining authorized for purchase under this program.

The table below provides details on the shares repurchased during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, the Company had $ 14.2 million remaining authorized for purchase under this program.

(in thousands, except per share amounts)

Three Months Ended June 30, Number of Common Shares Aggregate Cost (1)

Three Months Ended September 30, Number of Common Shares Aggregate Cost (1)

Average Price Per Share (1)

2023 — $ — $ —

Six Months Ended June 30,

2022 5 $ 359 $ 65.97

Nine Months Ended September 30,

2023 124 $ 6,718 $ 54.19

2022 5 $ 359 $ 65.97

(1) Amount includes commissions.

Series C Preferred Shares.

Series C preferred shares outstanding were 3.9 million shares at June 30, 2023 and December 31, 2022.

Series C preferred shares outstanding were 3.9 million shares at September 30, 2023 and December 31, 2022.

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 June 30, 2023 and December 31, 2022.

Series D preferred units outstanding were 165,600 preferred units at September 30, 2023 and December 31, 2022.

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

7 unchanged sentences

NOTE 5 • DEBT

The following is a summary of our secured and unsecured debt at June 30, 2023 and December 31, 2022.

The following is a summary of our secured and unsecured debt at September 30, 2023 and December 31, 2022.

(in thousands)

June 30, 2023 December 31, 2022

Carrying Amount Weighted Average Interest Rate Carrying Amount Weighted Average Interest Rate Weighted Average Maturity in Years at June 30, 2023

September 30, 2023 December 31, 2022

Carrying Amount Weighted Average Interest Rate Carrying Amount Weighted Average Interest Rate Weighted Average Maturity in Years at September 30, 2023

Lines of credit (1)

15 unchanged sentences

(3) Represents apartment communities encumbered by mortgages;

14 at June 30, 2023 and 15 at December 31, 2022.

13 at September 30, 2023 and 15 at December 31, 2022.

(4) Excludes deferred financing costs and premiums or discounts.

(5) Interest rate is fixed.

As of June 30, 2023, 49 apartment communities were not encumbered by mortgages and were available to provide credit support for the unsecured borrowings.

As of September 30, 2023, 46 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” or “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 June 30, 2023, the additional borrowing availability was $ 232.0 million beyond the $ 18.0 million drawn.

As of September 30, 2023, there was no outstanding balance on this line of credit, therefore the additional borrowing availability was $ 250.0 million.

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.

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The unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations.

The Company believes that it was in compliance with all such financial covenants and limitations as of June 30, 2023.

The Company believes that it was in compliance with all such financial covenants and limitations as of September 30, 2023.

Centerspace also has a $ 6.0 million operating line of credit.

As of June 30, 2023, the outstanding balance on this line of credit was $ 989,000 .

As of September 30, 2023, there was no outstanding balance on this line of credit.

This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances.

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Centerspace has a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.

(collectively, “PGIM”) with an aggregate amount of $ 225.0 million of unsecured senior promissory notes

(“unsecured senior notes”) available for issuance.

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

The Company also has a separate 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, 2023.

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 September 30, 2023.

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

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The Term Loan had a 364 -day term with an option for an additional 364 -day term.

As of June 30, 2023, the term loan was paid in full.

As of September 30, 2023, the term loan was paid in full.

As of December 31, 2022, the term loan had a balance of $ 100.0 million.

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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, 2023 and December 31, 2022, the FMCF had a balance of $ 198.9 million.

As of September 30, 2023 and December 31, 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 June 30, 2023, Centerspace owned 14 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF.

As of September 30, 2023, Centerspace owned 13 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 June 30, 2023, the Company believes that there were no material defaults or instances of noncompliance in regards to any of these mortgages payable.

As of September 30, 2023, the Company believes that there were no material defaults or instances of noncompliance in regards to any of these mortgages payable.

On April 26, 2023, Centerspace closed on a $ 90.0 million secured note payable, which is included in the mortgages payable discussion above, with an interest rate of 5.04 % and a term of 12 years.

The aggregate amount of required future principal payments on all debt as of June 30, 2023, was as follows:

The aggregate amount of required future principal payments on all debt as of September 30, 2023, was as follows:

(in thousands)

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Amounts recorded in accumulated other comprehensive income (loss) 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 $ 1.0 million will be reclassified as an increase to interest expense.

During the next twelve months, the Company estimates an additional $ 857,000 will be reclassified as an increase to interest expense.

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, 2023 and December 31, 2022 the Company had no remaining interest rate swaps.

As of September 30, 2023 and December 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 interest and other income (loss) in the Condensed Consolidated Statements 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.

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2023 and 2022.

During the nine months ended September 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.

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of September 30, 2023 and 2022.

(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 (Loss)

Three months ended June 30, 2023 2022 2023 2022

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

Three months ended September 30, 2023 2022 2023 2022

Total derivatives in cash flow hedging relationships - Interest rate contracts $ — $ — Interest expense $ ( 324 ) $ ( 204 )

Six months ended June 30,

Nine months ended September 30,

Total derivatives in cash flow hedging relationships - Interest rate contracts $ — $ 1,581 Interest expense $ ( 621 ) $ ( 696 )

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Balance Sheet Location Total Level 1 Level 2 Level 3

June 30, 2023

September 30, 2023

Notes receivable Other assets $ 5,455 — — $ 5,455

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Fair Value Measurement Other Gains Interest Income Total Changes in Fair Value Included in Current-Period Earnings

Six months ended June 30, 2023

Nine months ended September 30, 2023

Notes receivable $ 5,455 $ 14 $ 197 $ 211

Six months ended June 30, 2022

Nine months ended September 30, 2022

Notes receivable $ 5,865 $ 11 $ 600 $ 611

As of June 30, 2023 and December 31, 2022, Centerspace had investments totaling $ 1.7 million and $ 1.6 million, respectively, in real estate technology venture funds consisting of privately held entities that develop technology related to the real estate industry.

As of September 30, 2023 and December 31, 2022, Centerspace had investments totaling $ 1.8 million and $ 1.6 million, respectively, in real estate technology venture funds consisting of privately held entities that develop technology related to the real estate industry.

These investments appear within other assets on our Condensed Consolidated Balance Sheets.

The investments are measured at net asset value (“NAV”) as a practical expedient under ASC 820.

As of June 30, 2023, the Company had total unfunded commitments of $ 1.2 million.

As of September 30, 2023, the Company had total unfunded commitments of $ 1.2 million.

Fair Value Measurements on a Nonrecurring Basis

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2023 and December 31, 2022.

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022.

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 June 30, 2023 and December 31, 2022, respectively, are as follows:

The estimated fair values of the Company’s financial instruments as of September 30, 2023 and December 31, 2022, respectively, are as follows:

(in thousands)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Balance Sheet Location Carrying Amount Fair Value Carrying Amount Fair Value

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NOTE 8 • ACQUISITIONS AND DISPOSITIONS

Centerspace did not acquire new real estate during the three months ended June 30, 2023 and 2022.

Centerspace did not acquire new real estate during the six months ended June 30, 2023 compared to acquisitions of $ 116.9 million during the six months ended June 30, 2022.

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

Six Months Ended June 30, 2022

Centerspace did not acquire new real estate during the three months ended September 30, 2023 compared to acquisitions of $ 95.0 million during the three months ended September 30, 2022.

Centerspace did not acquire new real estate during the nine months ended September 30, 2023 compared to acquisitions of $ 211.9 million during the nine months ended September 30, 2022.

The acquisitions during the nine months ended September 30, 2022 are detailed below.

Nine Months Ended September 30, 2022

Acquired (in thousands)

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January 26, 2022 46,619 3,343 — 43,276 1,915 42,754 1,950 —

215 homes - Lyra Apartments - Centennial, CO

September 30, 2022 95,000 95,000 — — 6,473 86,149 2,378 —

Total Acquisitions $ 211,874 $ 104,093 $ 22,882 $ 84,899 $ 13,812 $ 192,229 $ 7,050 $ ( 1,217 )

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(4) Intangible assets consist of in-place leases valued at the time of acquisition.

During the six months ended June 30, 2023 and 2022, Centerspace recognized $ 893,000 and $ 10.6 million, respectively, of amortization expense related to intangibles, included within depreciation and amortization in the Condensed Consolidated Statement of Operations.

During the nine months ended September 30, 2023 and 2022, Centerspace recognized $ 941,000 and $ 11.1 million, respectively, of amortization expense related to intangibles, included within depreciation and amortization in the Condensed Consolidated Statement of Operations.

(5) Debt discount on assumed mortgage.

Centerspace did not dispose of any real estate during the three months ended June 30, 2023 and 2022.

During the six months ended June 30, 2023, Centerspace disposed of nine apartment communities, in four exchange transactions for an aggregate sales price of $ 144.3 million.

Centerspace did not dispose of any real estate during the six months ended June 30, 2022.

The dispositions for the six months ended June 30, 2023 are detailed below.

Six Months Ended June 30, 2023

During the three months ended September 30, 2023, Centerspace disposed of four apartment communities and associated commercial space, in one transaction for an aggregate sales price of $ 82.5 million.

Centerspace did not dispose of any real estate during the three months ended September 30, 2022.

During the nine months ended September 30, 2023, Centerspace disposed of 13 apartment communities and associated commercial space, in five transactions for an aggregate sales price of $ 226.8 million.

Centerspace did not dispose of any real estate during the nine months ended September 30, 2022.

The dispositions for the nine months ended September 30, 2023 are detailed below.

Nine Months Ended September 30, 2023

(in thousands)

Dispositions Date

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

Disposed Sale Price Net Book Value and Transaction Cost

115 homes - Boulder Court - Eagan, MN

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March 15, 2023 $ 6,650 $ 9,098 $ ( 2,448 )

712 homes - 4 North Dakota apartment communities

September 14, 2023 $ 82,500 $ 71,218 $ 11,282

Total Dispositions $ 226,755 $ 155,314 $ 71,441

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“All other” includes non-multifamily components of mixed-use properties and apartment communities the Company has disposed or designated as held for sale.

During the six months ended June 30, 2023, nine sold apartment communities were reclassified from the multifamily segment to all other for all periods presented.

During the nine months ended September 30, 2023, 13 sold apartment communities were reclassified from the multifamily segment to all other for all periods presented.

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”), 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.

Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that excludes gain (loss) on the same of real estate and other assets, 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 (loss), net income (loss) available for common shareholders, or cash flow from operating activities as a measure of financial performance.

The following tables present NOI for the three and six months ended June 30, 2023 and 2022, respectively, along with reconciliations to net income in the Condensed Consolidated Financial Statements.

The following tables present NOI for the three and nine months ended September 30, 2023 and 2022, respectively, along with reconciliations to net income in the Condensed Consolidated Financial Statements.

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

(in thousands)

Three Months Ended June 30, 2023 Multifamily All Other Total

Three Months Ended September 30, 2023 Multifamily All Other Total

Revenue $ 61,505 $ 3,063 $ 64,568

5 unchanged sentences

General and administrative expenses ( 3,832 )

Loss on sale of real estate and other investments

Loss on litigation settlement

Gain on sale of real estate and other investments

Interest expense ( 8,556 )

1 unchanged sentence

(in thousands)

Three Months Ended June 30, 2022 Multifamily All Other Total

Three Months Ended September 30, 2022 Multifamily All Other Total

Revenue $ 57,057 $ 8,381 $ 65,438

5 unchanged sentences

General and administrative expenses ( 4,519 )

Gain on sale of real estate and other investments

Interest expense ( 7,871 )

Interest and other loss

Interest and other income

(in thousands)

Six Months Ended June 30, 2023 Multifamily All Other Total

Nine Months Ended September 30, 2023 Multifamily All Other Total

Revenue $ 182,893 $ 14,348 $ 197,241

10 unchanged sentences

(in thousands)

Six Months Ended June 30, 2022 Multifamily All Other Total

Nine Months Ended September 30, 2022 Multifamily All Other Total

Revenue $ 164,823 $ 24,045 $ 188,868

9 unchanged sentences

Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of June 30, 2023, and December 31, 2022, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

Segment assets are summarized as follows as of September 30, 2023, and December 31, 2022, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

(in thousands)

As of June 30, 2023 Multifamily All Other Total

As of September 30, 2023 Multifamily All Other Total

Segment assets

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NOTE 10 • COMMITMENTS AND CONTINGENCIES

Centerspace is currently the named defendant in a lawsuit where the owner of a neighboring property claims a retaining wall at one of its properties is causing water damage to the neighboring property.

The claim is for damage to the property and monetary losses.

Centerspace was the named defendant in a lawsuit where the owner of a neighboring property claims a retaining wall at one of its properties is causing water damage to the neighboring property.

The claim was for damage to the property and monetary losses.

The Company recorded a loss on litigation settlement of $ 2.9 million due to a trial judgment against Centerspace for property damage and monetary losses.

Subsequent to September 30, 2023, the judgement was ordered and the Company paid the settlement of $ 2.9 million.

The Company cannot, with any level of certainty, predict or estimate if there will be additional costs incurred as a result of the lawsuit.

16 unchanged sentences

The terms of the long-term incentive awards granted under the revised program may vary from year to year.

Through June 30, 2023, awards under the 2015 Incentive Plan consisted of restricted and unrestricted common shares, RSUs, and stock options.

Through September 30, 2023, awards under the 2015 Incentive Plan consisted of restricted and unrestricted common shares, RSUs, and stock options.

We account for forfeitures of restricted and unrestricted common shares, RSUs, and stock options when they occur instead of estimating the forfeitures.

25 unchanged sentences

Share-Based Compensation Expense

Share-based compensation expense recognized in the condensed consolidated financial statements for all outstanding share-based awards was $ 590,000 and $ 480,000 for the three months ended June 30, 2023 and 2022, respectively, and $ 2.1 million and $ 1.2 million for the six months ended June 30, 2023 and 2022, respectively.

Share-based compensation expense recognized in the condensed consolidated financial statements for all outstanding share-based awards was $ 602,000 and $ 709,000 for the three months ended September 30, 2023 and 2022, respectively, and $ 2.7 million and $ 1.9 million for the nine months ended September 30, 2023 and 2022, respectively.

On March 31, 2023, the Company accelerated the vesting of all unvested time-based RSUs and stock options in connection with the Separation Agreement with Mr.

This resulted in the acceleration of share-based compensation expense for those awards resulting in an additional $ 737,000 in expense during the six months ended June 30, 2023.

This resulted in the acceleration of share-based compensation expense for those awards resulting in an additional $ 737,000 in expense during the nine months ended September 30, 2023.

Any performance-based RSUs were prorated, in accordance with the award agreement, and will vest at the end of performance period based on actual performance.

1 unchanged sentence

Decker exercised stock options, prior to their expiration on June 30, 2023, in a cashless exercise with a net 425 shares issued.

NOTE 12 • SUBSEQUENT EVENTS

On October 11, 2023, the Company acquired Lake Vista Apartment Homes in Loveland, Colorado, for an aggregate purchase price of $ 94.5 million, which was financed through the assumption of $ 52.7 million in mortgage debt and cash.

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