What changed in this filing

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Item 1. Business

2024-02-20 compared with 2023-02-21 · 47 added, 38 removed, 122 unchanged (41% 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.

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

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 large, attractive markets, including the Minneapolis/St.

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Our internet address is www.centerspacehomes.com.

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

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

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

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

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”).

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.

The sole general partner of Centerspace, LP

is Centerspace, 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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• Leveraging technology and systems;

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

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

Investment Strategy

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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”).

We have an equity distribution agreement in connection with an 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.

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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.

During the year ended December 31, 2023, we did not issue any common shares under the 2021 ATM Program.

As of December 31, 2023, we had common shares having an aggregate offering price of up to $126.6 million remaining available under the 2021 ATM Program.

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As of December 31, 2023, we owned 46 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 Bank of Montreal serving as administrative agent.

Our primary unsecured credit facility (the “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, 2023, the additional borrowing availability was $220.0 million beyond the $30.0 million drawn, priced at an interest rate of 7.82%.

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.

This credit facility matures in September 2025, with an option to extend maturity for up to two additional six-month periods, and has an accordion option to increase borrowing capacity up to $400.0 million.

On May 31, 2023, this Unsecured Credit Facility was amended to replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) as the benchmark alternative reference rate under the Unsecured Credit Facility.

The interest rates on the line of credit are based on the consolidated leverage ratio, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 25-80 basis points, or daily or term SOFR, plus a margin that ranges from 125-180 basis points with the consolidated leverage ratio described under the Third Amended and Restated Credit Agreement, as amended.

Prior to the amendment, interest rates on the line of credit were also based on the consolidated leverage ratio, applying the same margin ranges to LIBOR.

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.

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

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

Under this agreement, we issued $200.0 million unsecured senior notes with $25.0 million remaining available as of December 31, 2022.

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

The following table shows the notes issued under both agreements.

This operating line matures on September 30, 2024, with pricing based on SOFR.

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

(collectively, “PGIM”) under which we have issued $200.0 million in unsecured senior promissory notes (“unsecured senior notes”).

We also have 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.

The following table shows the notes issued under both agreements as of December 31, 2023.

(in thousands)

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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.

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

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

As of December 31, 2023, the Term Loan was paid in full.

As of December 31, 2022, the Term Loan had a balance of $100.0 million.

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

The FMCF is currently secured by mortgages on 12 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.

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

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

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

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

Interest rates on mortgage loans range from 3.45% to 5.04%, and the mortgage loans have varying maturity dates from May 1, 2025, through May 1, 2035.

As of December 31, 2023, our ratio of total indebtedness to total gross real estate investments was 38.0%.

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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.

We had 165,600 Series D preferred units outstanding as of December 31, 2023.

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

The Series D preferred unit holders receive a preferred distribution at the rate of 3.862% per year and 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.

The Series D preferred units have an aggregate liquidation preference of $16.6 million.

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

We had 1.7 million Series E preferred units outstanding as of December 31, 2023.

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.

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Our general practice has been to target cash distributions to our common shareholders and the holders of limited partnership Units of approximately 65% to 90% of our funds from operations and to use the remaining funds for capital improvements or the reduction of debt.

Distributions to our common shareholders and unitholders in the years ended December 31, 2022 and 2021 totaled approximately 68% and 80%, respectively, on a per share and unit basis of our funds from operations.

Distributions to our common shareholders and unitholders in the years ended December 31, 2023 and 2022 totaled approximately 68% each year, on a per share and Unit basis of our funds from operations.

For additional information on our sources of liquidity and funds from operations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.”

HUMAN CAPITAL

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.

We strive to foster a great work environment 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, 2023, we had 414 employees (377 full-time and 37 part-time) across multiple states.

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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.

Our annual performance management process invites team members to complete a self-review along with their manager's assessment.

Our annual performance management process invites team members to complete a self-evaluation along with their manager’s assessment.

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

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.

As of December 31, 2023, the average tenure of our team members was 3.93 years.

Environmental, Social, and Governance.

As part of our ESG initiatives, we publish an annual ESG report detailing our efforts related to furthering our mission, including 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, 2023, team members completed 2,260 volunteer hours.

Training and development .

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, fair housing, safety, and cyber security.

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.

Training our team 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, fair housing, safety, and cyber security.

During the year ended December 31, 2023, 243 custom courses were added to our learning management system and over 22,000 training courses were completed by team members.

Team member engagement.

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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 creating a culture that is inclusive, equitable, and diverse by fostering an environment where everyone can participate and everybody belongs.

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

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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, 2023, 77.3% of our team members self-identified as white, 6.5% as Hispanic and/or Latino, 5.6% as Black or African American, and 10.6% other ethnicities.

As of December 31, 2023, 49.5% of our total team members, 60.0% of our senior management, and 57.1% of our Board of Trustees self-identified as female.

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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, “ 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 the potential costs associated with zoning and permitting regulations, “ The COVID-19 pandemic affected our business in the past, 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