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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 122 added, 101 removed, 291 unchanged (43% of the section changed)

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For the year ended December 31, 2023, our highlights included the following:

• Net Loss was $1.35 per basic and diluted share for the year ended December 31, 2022, compared to Net Loss of $0.47 per basic and diluted share for the year ended December 31, 2021;

• Core FFO per diluted share, a non-GAAP measure, increased 11.0% (refer to reconciliations of Funds from Operations and Core Funds from Operations beginning on page 31 for additional detail) to $4.43 from $3.99;

• Net Income was $2.32 per basic and diluted share for the year ended December 31, 2023, compared to Net Loss of $1.35 per basic and diluted share for the year ended December 31, 2022;

• Core funds from operations (“CFFO”) per diluted share, a non-GAAP measure, increased 7.9% (refer to reconciliations of Funds from Operations and Core Funds from Operations beginning on page 30 for additional detail) to $4.78 from $4.43;

• Operating income increased to $84.5 million for the year ended December 31, 2023 compared to $13.9 million for the prior year;

• Same-store year-over-year net operating income growth of 9.0% driven by same-store revenue growth of 7.2% (refer to Reconciliation of Operating Income (Loss) to Net Operating Income on page 27 for additional detail).

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During the year ended December 31, 2023, we completed the following transactions in furtherance of our strategic plan:

• Acquired a portfolio of three apartment communities in the Minneapolis, Minnesota area, totaling 267 apartment homes, for an aggregate purchase price of $70.3 million;

• Acquired Noko Apartments, a 130 home apartment community, located in Minneapolis, Minnesota for an aggregate purchase price of $46.6 million;

• Acquired Lyra Apartments, a 215 home apartment community in Centennial, Colorado for an aggregate purchase price of $95.0 million.

• Disposed of 13 non-core apartment communities for an aggregate sales price of $226.8 million and a realized gain on sale of $71.2 million;

• Acquired Lake Vista Apartment Homes, a 303 home apartment community in Loveland, Colorado for an aggregate purchase price of $94.5 million.

Financing Transactions.

During the year ended December 31, 2023, we completed the following financing transactions:

• Issued 321,000 common shares at an average price of $98.89 per share for total consideration, net of commissions and issuance costs, of approximately $31.4 million;

• Repurchased 216,000 common shares for total consideration of $11.5 million and an average of $53.44 per share.

• Closed on a $100.0 million term loan which bears interest at a floating rate of 120 to 175 basis points over the Secured Overnight Financing Rate (“SOFR”) based upon our leverage ratio and is for a 364-day term with an option to extend for an additional 364-day term.

We intend to continue our focus on maximizing the financial performance of the communities in our existing portfolio.

To accomplish this, we have introduced initiatives to expand our operating margin by enhancing the resident experience, making value-add investments, and implementing technology solutions and expense controls.

We will actively manage our existing portfolio and strategically pursue acquisitions of multifamily communities and selective dispositions as opportunities arise and

market conditions allow.

We will actively manage our existing portfolio and strategically pursue acquisitions of multifamily communities and selective dispositions as opportunities arise and market conditions allow.

We will explore potential new markets and acquisition opportunities as market conditions allow.

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Net operating income.

Net operating income (“NOI”) is a non-GAAP financial measure which we define as total real estate revenues less property operating expenses, including real estate taxes, which is reconciled to operating income (loss).

Refer to the reconciliation of Operating Income (Loss) to Net Operating Income below.

We believe 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 costs, property management expenses, casualty losses, and general and administrative expense.

Refer to the reconciliation of Operating Income to Net Operating Income below.

We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by sales of real estate and other investments, impairment, depreciation, amortization, financing costs, property management expenses, 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.

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On the first day of each calendar year, we determine the composition of our same-store pool for that year as well as adjust the previous year, which allows us to evaluate the performance of existing apartment communities and their contribution to net income.

Management believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our communities are performing year-over-year.

Management uses this measure to assess whether or not it has been successful in increasing NOI, renewing the leases of existing residents, controlling operating costs, and making prudent capital improvements.

The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store communities are due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of our real estate portfolio.

For the comparison of the twelve months ended December 31, 2022 and 2021, 60 apartment communities were classified as same-store and 24 apartment communities were non-same-store.

Management believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of communities are performing year-over-year.

Management uses this measure to assess whether or not it has been successful in increasing NOI, raising average rental revenue, renewing the leases of existing residents, controlling operating costs, and making prudent capital improvements.

The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store communities are generally due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of our real estate portfolio.

For the comparison of the twelve months ended December 31, 2023 and 2022, 66 apartment communities were classified as same-store and six apartment communities were non-same-store.

See Item 2 - Properties for the list of communities classified as same-store and non-same-store.

Sold communities are included in “Dispositions” for the periods prior to the sale, which also includes non-multifamily properties and the non-multifamily components of mixed-use properties.

Reconciliation of Operating Income (Loss) to Net Operating Income (non-GAAP)

Reconciliation of Operating Income to Net Operating Income (non-GAAP)

The following table provides a reconciliation of operating income to NOI (non-GAAP), which is defined above.

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2023 2022 $ Change % Change

Operating income (loss) $ 13,861 $ 29,892 $ (16,031) (53.6) %

Operating income $ 84,453 $ 13,861 $ 70,592 509.3 %

Property management expenses 9,353 9,895 (542) (5.5) %

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Depreciation and amortization 101,678 105,257 (3,579) (3.4) %

Impairment 5,218 — 5,218 N/A

General and administrative expenses 20,080 17,516 2,564 14.6 %

(Gain) loss on sale of real estate and other investments (41) (27,518) 27,477 (99.9) %

Gain on sale of real estate and other investments (71,244) (41) (71,203) *

Loss on litigation settlement 3,864 — 3,864 N/A

Net operating income $ 155,497 $ 148,079 $ 7,418 5.0 %

*Not a meaningful percentage

GAAP and Non-GAAP Financial Measures

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Depreciation and amortization (101,678) (105,257) (3,579) (3.4) %

Impairment of real estate investments (5,218) — 5,218 N/A

General and administrative expenses (20,080) (17,516) 2,564 14.6 %

Gain (loss) on sale of real estate and other investments 41 27,518 27,477 (99.9) %

Gain on sale of real estate and other investments 71,244 41 71,203 *

Loss on litigation settlement (3,864) — 3,864 N/A

Interest expense (36,429) (32,750) 3,679 11.2 %

Interest and other income (loss) 1,248 (2,915) 4,163 (142.8) %

Interest and other income 1,207 1,248 (41) (3.3) %

NET INCOME (LOSS) $ 49,231 $ (17,641) $ 66,872 379.1 %

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Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units (7,141) 4,299 (11,440) (266.1) %

Net (income) loss attributable to noncontrolling interests – consolidated real estate entities (127) (94) (33) 35.1 %

Net income attributable to noncontrolling interests – consolidated real estate entities (125) (127) 2 1.6 %

Net income (loss) attributable to controlling interests 41,325 (14,109) 55,434 392.9 %

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NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 34,897 $ (20,537) $ 55,434 269.9 %

(1) This is a Non-GAAP financial measure which is a component of NOI (non-GAAP), as defined above.

Refer to the reconciliation of Operating Income (Loss) to Net Operating Income on page 28.

(1) This is a component of Net operating income and a non-GAAP financial measure.

Non-GAAP financial measures 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.

(2) Net operating income is a non-GAAP financial measure, as defined above in Results of Operations, Non-GAAP Financial Measures.

Refer to the Reconciliation of Operating Income to Net Operating Income on page 27.

* Not a meaningful percentage .

Year Ended December 31,

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When calculating actual rents for occupied homes and market rents for vacant homes, delinquencies and concessions are not taken into account.

The currently offered effective rates on new leases at the community are used as the starting point in determination of the market rates of vacant homes.

Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes.

We believe that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.

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Revenue from same-store communities increased by 7.2% or $15.4 million in the year ended December 31, 2023, compared to the same period in the prior year.

Approximately 9.8% of the increase was due to higher average monthly revenue per occupied home and 0.2% from an increase in occupancy as weighted average occupancy

increased from 94.3% to 94.5% for the years ended December 31, 2021 and 2022, respectively.

Approximately 6.9% of the increase was due to higher average monthly revenue per occupied home and 0.3% from an increase in occupancy as weighted average occupancy increased from 94.6% to 94.9% for the years ended December 31, 2022 and 2023, respectively.

Property operating expenses at same-store communities increased by 4.6% or $4.1 million in the year ended December 31, 2023, compared to the same period in the prior year.

At same-store communities, controllable expenses (which exclude insurance and real estate taxes), increased by $6.7 million, primarily due to $2.1 million in rising utilities costs, $1.7 million in compensation costs, and $2.4 million in repairs and maintenance and turnover costs.

Non-controllable expenses at same-store communities increased by $1.7 million primarily due to insurance premiums and deductibles on claims.

At same-store communities, controllable expenses (which exclude insurance and real estate taxes), increased by $1.5 million, primarily due to $2.1 million in compensation costs, offset by decreased utilities and turnover costs.

Non-controllable expenses at same-store communities increased by $2.6 million primarily due to insurance premiums and deductibles on claims and real estate taxes.

Same-store NOI increased by $11.3 million to $137.5 million for the year ended December 31, 2023 compared to $126.2 million in the same period in the prior year.

Non-same-store analysis.

Revenue non-same-store apartment communities increased by $39.3 million in the year ended December 31, 2022, compared to the same period in the prior year.

Revenue from non-same-store apartment communities increased by $6.6 million in the year ended December 31, 2023, compared to the same period in the prior year.

Property operating expenses from non-same-store apartment communities increased by $2.4 million.

Net operating income from non-same-store communities increased by $4.2 million.

The increase in revenue, property operating expenses, and NOI from non-same-store communities is primarily due to the addition of apartment communities in the latter part of 2021 and throughout 2022.

The increase in revenue, property operating expenses, and NOI from non-same-store communities is primarily due to the addition of apartment communities in the latter part of 2022 and 2023.

Other and dispositions analysis.

Revenue from other, which encompasses our commercial and mixed use activity, increased by 5.5% or $135,000 while revenue from dispositions decreased by $17.5 million.

Property operating expenses from other increased by 7.4% or $83,000 while property operating expenses from disposition decreased by $1.6 million due to sold properties.

Increases in revenue and property operating expenses from other is primarily due to the addition of apartment communities with commercial space.

Property operating expenses from other decreased by 15.2% or $143,000 while property operating expenses from disposition decreased by $9.1 million due to sold properties.

We disposed of 13 apartment communities and associated commercial space during the year ended December 31, 2023.

Property management expense.

Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 13.1% to $9.9 million in the year ended December 31, 2022, compared to $8.8 million in the year ended December 31, 2021.

The increase was primarily due to compensation costs due to the filling of open positions and additional staffing to support the acquisition of communities in the latter half of the prior year and the current year.

Casualty gain (loss).

Casualty loss increased to $1.6 million in the year ended December 31, 2022, compared to $344,000 in the year ended December 31, 2021.

The increase was primarily due to increased claims activity over the prior year period and more apartment communities over the comparable period.

Property management expense, consisting of property management overhead and property management fees paid to third parties decreased by 5.5% to $9.4 million in the year ended December 31, 2023, compared to $9.9 million in the year ended December 31, 2022.

The decrease was primarily due to decreased costs for technology initiatives and compensation costs combined with fewer properties due to dispositions.

Casualty loss.

Casualty loss increased to $2.1 million in the year ended December 31, 2023, compared to $1.6 million in the year ended December 31, 2022.

The increase was primarily due to increased insurance claims activity over the prior year period.

Refer to Involuntary Conversion of Assets in Note 2 of the Notes to the Consolidated Financial Statements in the report for more details.

Depreciation and amortization.

Depreciation and amortization increased by 14.2% to $105.3 million in the year ended December 31, 2022, compared to $92.2 million in the year ended December 31, 2021, attributable to an increase of $15.7 million from non-same-store properties primarily due to an increase in the number of apartment communities being depreciated, offset by decreases of $1.5 million and $1.4 million at same-store communities and sold properties, respectively.

Depreciation and amortization decreased by 3.4% to $101.7 million in the year ended December 31, 2023, compared to $105.3 million in the year ended December 31, 2022, attributable to a decrease of $5.6 million from dispositions and $378,000 from other properties, offset by increases at same-store communities and non-same-store communities driven by the addition of an apartment community in the fourth quarter of the current year and value add and acquisition capital projects.

Impairment of real estate investments.

Impairment of real estate investments increased to $5.2 million in the year ended December 31, 2023, compared to no impairment in the prior year.

These impairments were the result of two apartment communities that were written down to estimated fair value based on the receipt and acceptance of market offers to purchase the apartment communities.

Refer to Real Estate Investments in Note 2 of the Notes to the Consolidated Financial Statements in the report for more details.

General and administrative expenses.

General and administrative expenses increased by 8.0% to $17.5 million in the year ended December 31, 2022, compared to $16.2 million in the year ended December 31, 2021, primarily attributable to $1.3 million in pursuit costs and increased compensation costs, offset by a decrease in technology implementation costs.

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

In the years ended December 31, 2022 and 2021, we recorded gains on sale of real estate and other investments of $41,000 and $27.5 million, respectively.

General and administrative expenses increased by 14.6% to $20.1 million in the year ended December 31, 2023, compared to $17.5 million in the year ended December 31, 2022, primarily attributable to $3.2 million in executive severance and transition costs related to the CEO departure, $910,000 in incentive related compensation, and $406,000 in legal fees related to the loss on litigation settlement, offset by $1.3 million in abandoned pursuit costs and $873,000 in technology implementation costs that did not occur in the current year.

Gain on sale of real estate and other investments.

In the years ended December 31, 2023 and 2022, we recorded gains on sale of real estate and other investments of $71.2 million and $41,000, respectively.

The increase was due to the sale of 13

apartment communities and associated commercial space during the current year that did not occur in the prior year.

Refer to Note 9 in the Notes to the Consolidated Financial Statements.

Loss on Litigation Settlement.

Loss on litigation settlement was $3.9 million for the year ended December 31, 2023 due to a trial judgment against Centerspace for property damage and monetary losses to a neighboring property.

Refer to Litigation Settlement in Note 2 of the Notes to the Consolidated Financial Statements.

Operating income.

Operating income decreased by 53.6% to $13.9 million in the year ended December 31, 2022, compared to $29.9 million in the year ended December 31, 2021.

Operating income increased by 509.3% to $84.5 million in the year ended December 31, 2023, compared to $13.9 million in the year ended December 31, 2022.

Interest expense.

Interest expense increased 12.6% to $32.8 million in the year ended December 31, 2022, compared to $29.1 million in the year ended December 31, 2021, primarily due to maintaining larger debt balances compared to the same period of the prior year with the acquisition activity, including the addition of a $100.0 million term loan in November, combined with rising interest rates.

Interest and other income (loss).

Interest and other income (loss) increased to income of $1.2 million in the year ended December 31, 2022, compared to a loss of $2.9 million in the prior year.

The increase was primarily due to a $5.4 million loss related to the termination of interest rate swaps that occurred in the prior year, offset by a $560,000 gain on the mark-to-market adjustment for an interest rate swap prior to termination.

Interest expense increased 11.2% to $36.4 million in the year ended December 31, 2023, compared to $32.8 million in the year ended December 31, 2022, primarily due to higher interest rates.

Interest and other income.

Interest and other income was $1.2 million in the years ended December 31, 2023 and 2022.

Net income (loss) available to common shareholders.

Net income (loss) available to common shareholders increased to net income of $34.9 million compared to a net loss of $20.5 million in the prior year.

Funds from Operations and Core Funds From Operations

We believe that Funds from Operations (“FFO”), which is a non-GAAP standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation does not assume the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation.

We believe that funds from operations (“FFO”), which is a non-GAAP financial measure used as a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation does not assume the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation and amortization.

We use the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc.

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Core funds from operations (“Core FFO”), a non-GAAP measure, is FFO adjusted for non-routine items or items not considered core to business operations.

By further adjusting for items that are not considered part of core business operations, the company believes that Core FFO provides investors with additional information to compare core operating and financial performance between periods.

By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides investors with additional information to compare core operating and financial performance between periods.

Core FFO should not be considered as an alternative to net income or as any other GAAP measurement of performance, but rather should be considered an additional supplemental measure.

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Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.

Net loss available to common shareholders for the year ended December 31, 2022 decreased to $20.5 million compared to a net loss of $6.5 million for the year ended December 31, 2021.

FFO applicable to common shares and Units for the year ended December 31, 2022, increased to $79.9 million compared to $54.9 million for the year ended December 31, 2021, a change of 45.5%, primarily due to increased NOI from same-store and non-same-store communities and a $5.4 million loss related to the termination of interest rate swaps in the same period of the prior year that did not occur in the current year, offset by increased interest expense, general and administrative expenses, property management, and casualty losses, and decreased NOI from dispositions.

Net income available to common shareholders for the year ended December 31, 2023 increased to $34.9 million compared to a net loss of $20.5 million for the year ended December 31, 2022.

FFO applicable to common shares and Units for the year ended December 31, 2023, decreased to $77.3 million compared to $79.9 million for the year ended December 31, 2022, a change of 3.3%, primarily due to $3.2 million in severance and transition expenses related to the departure of Mark Decker, former CEO, increased interest expense, loss on litigation settlement, and decreased NOI from dispositions, offset by increased NOI from same-store and non-same-store communities and $2.2 million in abandoned pursuit costs and technology implementation costs from the prior year that did not occur in the year ended December 31, 2023.

For a comparison of FFO applicable to common shares and Units for the years ended December 31, 2022 and 2021, refer to our Annual Report on Form 10-K filed with the SEC on February 21, 2023.

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Year Ended December 31,

Funds from operations:

Net income (loss) available to common shareholders $ 34,897 $ (20,537)

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Less depreciation – partially owned entities (80) (65)

(Gain) loss on sale of real estate (41) (27,518)

Impairment of real estate 5,218 —

Gain on sale of real estate (71,240) (41)

FFO applicable to common shares and Units $ 77,292 $ 79,928

Adjustments to Core FFO:

Non-cash casualty loss (recovery) $ 254 $ —

Non-cash casualty loss $ 1,350 $ 254

Loss on extinguishment of debt — 5

Technology implementation costs (1)

Commercial lease termination proceeds — (450)

Acquisition related costs — 230

Interest rate swap termination, amortization, and mark-to-market (100) 4,942

Interest rate swap amortization and mark-to-market 936 (100)

Amortization of assumed debt (212) (464)

Pursuit costs 5 1,302

Severance and transition related costs 3,170 —

Loss on litigation settlement and associated trial costs (2)

Other miscellaneous items (3)

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Per Share Data

Earnings (loss) per common share - diluted $ (1.35) $ (0.47)

Income (loss) per common share - diluted $ 2.32 $ (1.35)

FFO per share and Unit - diluted $ 4.27 $ 4.32

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(1) Costs are related to a two-year implementation.

(2) Consists of $3.9 million loss on litigation settlement for a trial judgment entered against the Company and $406,000 in associated trial costs related to the litigation matter during the year ended December 31, 2023.

(3) Consists of (gain) loss on investments.

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Other sources include availability under our unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under our shelf registration statement, including offerings of common shares under our 2021 ATM program, and long-term unsecured debt and secured mortgages.

Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks, Unit redemptions, and acquisition of additional communities.

We have historically met our short-term liquidity requirements through net cash flows provided by our operating activities and, from time to time, through draws on our lines of credit.

We believe our ability to generate cash from property operating activities and draws on our lines of credit to be adequate to meet all expected operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Code.

Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, draws on our lines of credit and/or new borrowings, and we believe we will have sufficient liquidity to meet our commitments over the next twelve months.

We believe our ability to generate cash from property operating activities and draw on our lines of credit is adequate to meet all expected operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Code.

We believe we will have sufficient liquidity to meet our commitments over the next twelve months.

To maintain our qualification as a REIT, we must pay dividends to our shareholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains.

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We pay dividends from cash available for distribution.

Until it is distributed, cash available for distribution is typically invested in investment grade securities or is used to reduce balances outstanding under our line of credit.

Until it is distributed, cash available for distribution is typically used to reduce balances outstanding under our line of credit or is invested in investment grade securities.

In the event of deterioration in property operating results, we may need to consider additional cash preservation alternatives, including reducing development activities, capital improvements, and renovations.

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As of December 31, 2023, we had total liquidity of approximately $234.6 million, which included $226.0 million available on our lines of credit based on the value of unencumbered properties and $8.6 million of cash and cash equivalents.

As of December 31, 2021, we had total liquidity of approximately $204.8 million, which included $173.5 million available on our lines of credit based on the value of properties contained in our unencumbered asset pool (“UAP”) and $31.3 million of cash and cash equivalents.

As of December 31, 2022, we had total liquidity of approximately $153.0 million, which included $142.5 million available on our lines of credit based on the value of unencumbered properties and $10.5 million of cash and cash equivalents.

As of December 31, 2023, we had a multibank, revolving line of credit with total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties.

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As of December 31, 2022, the line of credit borrowing capacity was $250.0 million based on the value of our unencumbered properties, of which $113.5 million was drawn on the line.

The line of credit bears interest either at the lender’s base rate plus a margin ranging from 25 to 80 basis points, or LIBOR, plus a margin

ranging from 125 to 180 basis points based on our consolidated leverage.

We may transition the reference rate on this line of credit from LIBOR to SOFR or another alternative reference rate.

We cannot predict the impact that this transition may have on the interest we pay.The line of credit is utilized to refinance existing indebtedness, to finance property acquisitions, to finance capital expenditures, and for general corporate purposes.

This credit facility matures in September 2025 and has an accordion option to increase borrowing capacity up to $400.0 million.

The line of credit is utilized to refinance existing indebtedness, to finance property acquisitions, to finance capital expenditures, and for general corporate purposes.

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 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 unsecured operating line of credit.

As of December 31, 2023 and 2022, 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.

This operating line matures on August 31, 2024, with pricing based on SOFR.

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 issuance of unsecured promissory 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 and 2022.

(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 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, and a blended weighted average fixed interest rate of 2.78%.

The notes are interest-only, with varying maturity dates of 7, 10, and 12 years, and 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.

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

Mortgage loan indebtedness, excluding the FMCF, was $299.4 million on December 31, 2022 and $284.9 million on December 31, 2021.

Mortgage loan indebtedness, excluding the FMCF, was $391.1 million on and $299.4 million on December 31, 2023, and 2022, respectively on 14 and 15 apartment communities, respectively.

As of December 31, 2023, the weighted average rate of interest on our mortgage debt was 4.05%, compared to 3.85% on December 31, 2022.

Refer to Note 6 of our Consolidated Financial Statements contained in this Report for the principal payments due on our mortgage indebtedness and other tabular information.

All of our mortgage debt is at fixed rates of interest, with staggered maturities.

All of our mortgage debt is collateralized by apartment communities and is non-recourse at fixed rates of interest, with staggered maturities.

This reduces the exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on our results of operations and cash flows.

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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 acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness.

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

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

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

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

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

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.

During the year ended December 31, 2022, total consideration, net of commissions and issuance costs, was approximately $31.4 million.

As of December 31, 2023, common shares having an aggregate offering price of up to $126.6

million remained available under the 2021 ATM program.

Refer to Note 4 of our Consolidated Financial Statements contained in this Report.

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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 year ended December 31, 2022.

The table below provides details on the shares repurchased during the years ended December 31, 2023 and 2022.

As of December 31, 2023, we had $9.4 million remaining authorized for purchase under this program.

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Year ended December 31, 2023 216 $ 11,539 $ 53.44

Year ended December 31, 2022 432 $ 29,059 $ 67.23

(1) Amount includes commissions.

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.

We had 1.7 million and 1.8 million Series E preferred units outstanding on December 31, 2023 and 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.

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Changes in Cash, Cash Equivalents, and Restricted Cash

As of December 31, 2023, we had cash and cash equivalents of $8.6 million and restricted cash consisting of $639,000 of escrows held by lenders for real estate taxes, insurance, and capital additions.

As of December 31, 2022, we had cash and cash equivalents of $10.5 million and restricted cash consisting of $1.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions.

As of December 31, 2021, we had cash and cash equivalents of $31.3 million and restricted cash consisting of $2.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions and $5.0 million in deposits for real estate acquisitions.

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in our Consolidated Statements of Cash Flows in Item 15 of this report.

In addition to cash flows from operations, during the year ended December 31, 2023, we generated capital from various activities, including:

• Receipt of $99.5 million, net of fees, from the issuance of a term loan;

• Receipt of $37.5 million in net proceeds from our lines of credit;

• Receipt of $31.4 million, net of fees, from the issuance of 321,000 common shares under our 2021 ATM program.

• Receiving $223.3 million in net proceeds from the sale of 13 apartment communities and associated commercial space;

• Receiving $90.0 million in proceeds from a new mortgage on our Parkhouse community.

During the year ended December 31, 2023, we used capital for various activities, including:

• Acquisition of five apartment communities in Minneapolis, Minnesota and Centennial, Colorado for $104.7 million in cash, including transaction costs, with the remainder of the purchase price in issuance of Units, assumption of mortgage debt, and the exchange of mortgages receivable which we financed;

• Acquiring an apartment community in Loveland, Colorado for $42.2 million in cash, including transaction costs, with the remainder of the purchase price in assumption of mortgage debt;

• Repaying $83.5 million on our line of credit, net of proceeds;

• Repaying approximately $46.7 million of mortgage principal;

• Repurchase of 432,000 common shares for $29.1 million, net of issuance costs;

• Repurchase of 46,000 Units for $4.1 million

• Paying $3.2 million for the termination of interest rate swaps;

• Repaying $100.0 million on notes payable;

• Repurchasing of 216,000 common shares for $11.5 million, net of issuance costs;

• Paying distributions on common shares, Series E preferred units, Units, and Series C preferred shares of $59.7 million;

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Contractual Obligations and Other Commitments

Our primary contractual obligations relate to borrowings under our lines of credit, unsecured senior notes, term loan, and mortgages payable.

Our primary contractual obligations relate to borrowings under our lines of credit, unsecured senior notes, and mortgages payable.

The primary line of credit had a $30.0 million balance outstanding at December 31, 2023 and matures in September 2025.

Our unsecured senior notes have an aggregate balance of $300.0 million at December 31, 2022 with varying maturities from September 2028 through September 2034.

Our term loan had a balance of $100.0 million at December 31, 2022, matures in November 2023, and may be extended, at our option and subject to certain conditions, for one additional 364-day term.

Our unsecured senior notes had an aggregate balance of $300.0 million at December 31, 2023 with varying maturities from September 2028 through September 2034.

(in thousands)

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We also continue to monitor pressures surrounding supply chain challenges.

Supply chain and inflationary pressures are likely to result in increased operating expenses, specifically, increases in energy costs, salary related costs, and construction materials for repairs and maintenance or value add projects.

A worsening of the current environment could contribute to delays in obtaining construction materials and result in higher than anticipated costs, which could prevent us from obtaining expected returns on value add projects.

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Depreciation requires an estimate by management of the useful life of each asset as well as an allocation of the costs associated with a property to its various components.

As described further below, the process of allocating property costs to its components involves a considerable amount of subjective judgments to be made by management.

As described further below, the process of allocating property costs to its components requires a considerable amount of subjective judgments to be made by management.

If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.

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Acquisition of Investments in Real Estate.

whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments.

Upon acquisitions of real estate, we assess the fair value of acquired tangible assets (including land, buildings and personal property), which is determined by valuing the property as if it were vacant, and consider whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments.

The as-if-vacant value is allocated to land, buildings, and personal property based on our determination of the relative fair value of these assets.

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Recent Accounting Pronouncements

For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to our consolidated financial statements appearing elsewhere in this Report.

For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of our Consolidated Financial Statements appearing elsewhere in this Report.

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 7. Management’s Discussion and Analysis