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Item 1. Financial Statements

2024-04-29 compared with 2023-10-30 · 200 added, 371 removed, 454 unchanged (56% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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 September 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 March 31, 2024 and December 31, 2023, 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 September 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 March 31, 2024 and December 31, 2023, aggregate liquidation preference of $ 97,036 )

93,530 93,530

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)

Common Shares of Beneficial Interest (Unlimited authorization, no par value, 14,912 shares issued and outstanding at March 31, 2024 and 14,963 shares issued and outstanding at December 31, 2023)

1,160,492 1,165,694

10 unchanged sentences

(in thousands, except per share data)

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

2023 2022 2023 2022

Three Months Ended March 31,

REVENUE $ 64,506 $ 67,897

3 unchanged sentences

Casualty loss

937 276 1,242 1,256

Depreciation and amortization 27,012 25,993

1 unchanged sentence

TOTAL EXPENSES $ 59,854 $ 65,459

Gain on sale of real estate and other investments

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

( 577 ) 60,159

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

Operating income

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

Interest expense ( 9,207 ) ( 10,319 )

Interest and other income

330 70 674 1,116

NET INCOME (LOSS)

14 unchanged sentences

$ ( 0.37 ) $ 2.76

Weighted average shares - basic 14,922 15,025

Weighted average shares - diluted 14,922 18,359

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net income (loss)

1 unchanged sentence

Other comprehensive income (loss):

Unrealized gain from derivative instrument

Loss on derivative instrument reclassified into earnings

324 204 621 696

Total comprehensive income (loss)

10 unchanged sentences

(in thousands, except per share data)

Nine Months Ended September 30, 2022 PREFERRED

Three Months Ended March 31, 2023 PREFERRED

SHARES NUMBER

6 unchanged sentences

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

Net (loss) attributable to controlling interests and noncontrolling interests

( 12,103 ) ( 3,453 ) ( 15,556 )

Change in fair value of derivatives and amortization of swap settlements 2,277 2,277

Distributions - common shares and Units ($ 2.19 per share and Unit)

( 33,663 ) ( 2,169 ) ( 35,832 )

Distributions - Series C preferred shares ($ 1.2421875 per Series C share)

( 4,821 ) ( 4,821 )

Distributions - Series E preferred units ($ 2.90625 per unit)

( 5,272 ) ( 5,272 )

Share-based compensation, net of forfeitures 25 1,908 1,908

Sale of common shares, net 321 31,499 31,499

Issuance of Units 13,023 9,859 22,882

Redemption of Units for common shares 19 ( 831 ) 831 —

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

Shares withheld for taxes ( 1,280 ) ( 1,280 )

Other ( 254 ) ( 120 ) ( 374 )

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

Net income attributable to controlling interests and noncontrolling interests

13 unchanged sentences

Other ( 1 ) ( 129 ) ( 24 ) ( 153 )

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 September 30, 2022 PREFERRED

SHARES NUMBER

SHARES COMMON

SHARES ACCUMULATED

DISTRIBUTIONS

NET INCOME (LOSS) ACCUMULATED OTHER COMPREHENSIVE LOSS

NONCONTROLLING

INTERESTS TOTAL

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

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

Three Months Ended March 31, 2024

Balance at December 31, 2023 $ 93,530 14,963 $ 1,165,694 $ ( 548,273 ) $ ( 1,119 ) $ 221,193 $ 931,025

Net loss attributable to controlling interests and noncontrolling interests

( 3,905 ) ( 1,047 ) ( 4,952 )

Change in fair value of derivatives and amortization of swap settlements 204 204

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

( 11,223 ) ( 715 ) ( 11,938 )

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

( 1,607 ) ( 1,607 )

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

( 1,757 ) ( 1,757 )

Share-based compensation, net of forfeitures — 709 709

Redemption of Units for common shares 8 ( 456 ) 456 —

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

Net income attributable to controlling interests and noncontrolling interests

7,774 1,235 9,009

Amortization of swap settlements 197 197

8 unchanged sentences

Redemption of Series E preferred units for common shares 16 ( 702 ) 702 —

Shares repurchased ( 88 ) ( 4,703 ) ( 4,703 )

Shares withheld for taxes ( 118 ) ( 118 )

Other ( 30 ) — ( 30 )

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

Balance at March 31, 2024 $ 93,530 14,912 $ 1,160,492 $ ( 564,951 ) $ ( 922 ) $ 218,936 $ 907,085

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Depreciation and amortization, including amortization of capitalized loan costs 27,305 26,650

Gain on sale of real estate and other investments ( 71,323 ) —

Loss on litigation settlement 2,864 —

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

577 ( 60,159 )

Share-based compensation expense 749 1,519

(Gain) loss on interest rate swap mark-to-market and settlement amortization

Other, net 526 332

5 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from repayment of mortgage loans and notes receivable 430 353

Increase in mortgages and real estate related notes receivable ( 7,279 ) —

Net proceeds from sale of real estate and other investments

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

18,251 141,587

Proceeds from insurance 1,635 620

Payments for improvements of real estate investments ( 21,810 ) ( 11,237 )

3 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from mortgages payable 90,000 —

Principal payments on mortgages payable ( 1,529 ) ( 20,734 )

2 unchanged sentences

Principal payments on notes payable — ( 100,000 )

Payment for termination of interest rate swap — ( 3,209 )

Net proceeds from issuance of common shares — 31,499

Repurchase of common shares ( 4,703 ) ( 1,022 )

Redemption of partnership units ( 38 ) ( 3,837 )

Distributions paid to common shareholders ( 10,923 ) ( 10,917 )

3 unchanged sentences

Other financing activities ( 28 ) ( 153 )

Net cash provided by (used by) financing activities

$ ( 222,485 ) $ 45,916

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

Net cash used by financing activities

$ ( 10,892 ) $ ( 107,037 )

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 9,269 11,891

2 unchanged sentences

Accrued capital expenditures $ 3,153 $ 3,804

Operating partnership units converted to shares ( 1,919 ) ( 831 )

Operating partnership units converted to common shares ( 398 ) ( 697 )

Distributions declared but not paid to common shareholders 11,805 11,668

1 unchanged sentence

Retirement of shares withheld for taxes 118 161

Loss on litigation settlement 2,864 —

Involuntary conversion of assets 160 —

Real estate assets acquired through assumption of debt — 41,623

Fair value adjustment to debt — 1,224

Real estate assets acquired through exchange of note receivable — 43,276

Note receivable exchanged through real estate acquisition — ( 43,276 )

Real estate assets acquired through issuance of operating partnership units — 22,882

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest $ 8,302 $ 6,168

See accompanying Notes to Condensed Consolidated Financial Statements.

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

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

Balance sheet description March 31, 2024 December 31, 2023 March 31, 2023

Cash and cash equivalents $ 12,682 $ 8,630 $ 8,939

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2023

March 31, 2024

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

As of March 31, 2024, Centerspace owned interests in 70 apartment communities consisting of 12,883 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

15 unchanged sentences

Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

The following table provides a brief description of Financial Accounting Standards Board (“FASB”) recent accounting standards updates (“ASU”).

Standard Description Date of Adoption Effect on the Financial Statements or Other Significant Matters

ASU 2022-06, Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848

This ASU extends the sunset date of Reference Rate Reform (Topic 848):

Facilitation of Reference Rate Reform to December 31, 2024.

This ASU is effective immediately for all companies.

The ASU will not have a material impact on the Condensed Consolidated Financial Statements.

RECLASSIFICATIONS

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

These reclassifications had no impact on net income as reported in the Condensed Consolidated Statement of Operations, total assets, liabilities or equity as reported in the Condensed Consolidated Balance Sheets and the classifications within the Condensed Consolidated Statements of Cash Flows.

Centerspace reclassified certain items within the disaggregated revenue table included in Note 2.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Cash and cash equivalents include all cash and highly liquid investments purchased with maturities of three months or less.

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

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.

Although recent bank failures have increased the risk of loss in such accounts, we have not experienced any losses in such accounts.

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

The Company is potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed

federally insured limits.

Although past bank failures have increased the risk of loss in such accounts, the Company has not experienced any losses in such accounts.

As of March 31, 2024 and December 31, 2023, restricted cash consisted of $ 1.1 million and $ 639,000 , respectively, in escrows held by lenders.

Escrows include funds deposited with a lender for payment of real estate taxes and insurance and reserves to be used for replacement of structural elements and mechanical equipment at certain communities.

The funds are under the control of the lender.

Disbursements are made after supplying written documentation to the lender.

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

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 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.

Rental revenues are recognized in accordance with Financial Accounting Standards Board (“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 March 31, 2024 and 2023, rental income represented approximately 98.2 % of total revenues, and included gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt.

For the three months ended March 31, 2024 and 2023, other property revenues represented the remaining 1.8 % of total revenues, and were primarily driven by other fee income, which is typically recognized when earned, at a point in time.

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 September 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 March 31, 2024, was as follows:

(in thousands)

4 unchanged sentences

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

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

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

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

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

The following table presents the disaggregation of revenue streams for the three months ended March 31, 2024 and 2023:

(in thousands)

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

Three Months Ended March 31,

Revenue Stream Applicable Standard 2024 2023

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 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.

For the three months ended March 31, 2024 and 2023, the Company recognized a loss of $ 577,000 and a gain of $ 60.2 million, respectively, on the sale of real estate and other investments.

Any gain or loss on real estate dispositions is net of certain closing and other costs associated with the disposition.

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 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.

The Company is subject to increased exposure from economic and other competitive factors specific to markets where it holds a significant percentage of the carrying value of its real estate portfolio.

As of March 31, 2024, Centerspace held more than 10% of the carrying value of its real estate portfolio in the Minneapolis, Minnesota and Denver, Colorado markets.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates long-lived assets, including investments in real estate, for impairment indicators at least quarterly.

The Company evaluates long-lived assets, including real estate investments, for impairment indicators at least quarterly.

The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns.

If indicators exist, the Company compares the expected future undiscounted cash flows for the property against the carrying amount of that property.

If indicators exist, the Company compares the estimated future undiscounted cash flows for the property against the carrying amount of that property.

If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is generally recorded for the difference between the estimated fair value and the carrying amount.

If the anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, the evaluation of impairment charges may be different and such differences could be material to the consolidated financial statements.

The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results.

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

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 $ 5.7 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 evaluation of estimated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results.

Plans to hold properties over longer periods decreases the likelihood of recording impairment losses.

During the three months ended March 31, 2024 and 2023, the Company recorded no impairment charges.

VARIABLE INTEREST ENTITIES

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

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

Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.

REAL ESTATE RELATED NOTES RECEIVABLE

The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $ 5.4 million and $ 5.7 million at March 31, 2024 and December 31, 2023, 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.

Centerspace originated a $ 29.9 million construction loan and a $ 15.3 million mezzanine loan for the development of a multifamily community located in Minneapolis, Minnesota.

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

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.

In 2023, the Company originated a $ 15.1 million mezzanine loan for the development of an apartment community located in Inver Grove Heights, Minnesota.

The mezzanine loan bears interest at 10.0 % per annum.

As of March 31, 2024 and December 31, 2023, the Company had funded $ 8.8 million and $ 1.6 million of the mezzanine loan, respectively.

The loan matures in December 2027 unless extended to December 2028 in accordance with the terms of the mezzanine loan agreement.

The loan is secured by a pledge of and first priority security interest against 100 % of the membership interests in the mezzanine borrower and the agreement provides the Company with an option to purchase the development.

The loan represents an investment in an unconsolidated variable interest entity.

The Company is not the primary beneficiary of the VIE as Centerspace does not have the power to direct the activities which most significantly impact the entity’s economic performance nor does Centerspace have significant influence over the entity.

The note receivable appears within other assets in the Condensed Consolidated Balance Sheets at fair value.

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 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.

During the three months ended March 31, 2024 and 2023, total advertising expense was $ 738,000 and $ 702,000 , 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 nine months ended September 30, 2023, the Company incurred total severance costs of $ 2.2 million for the cash severance and benefits for Mr.

During the three months ended March 31, 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.

Refer to Note 11 for additional information on the share-based compensation expense.

INVOLUNTARY CONVERSION OF ASSETS

1 unchanged sentence

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 $ 1.3 million with an offsetting insurance receivable recorded within other assets on the Condensed Consolidated Balance Sheets.

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.

During the three months ended March 31, 2024, the claim was settled for $ 1.6 million, including remediation and other operating expenses.

During the three months ended March 31, 2024, Centerspace recognized $ 618,000 in additional casualty loss resulting from updated loss estimates from four separate insurance events at apartment communities.

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

LITIGATION SETTLEMENT

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.

VARIABLE INTEREST ENTITIES

Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.

NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period.

Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on the earnings per share upon the vesting of the RSUs or exercise of the ISOs or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units).

Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings.

NOTE 3 • NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period.

Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on net income (loss) per share upon vesting of the RSUs, upon exercising of ISOs, or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units).

The Company calculates diluted net income (loss) per share using the treasury stock method for RSUs and ISOs and the if converted method for Series D preferred units and Series E preferred units.

Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock, or other contractual obligations requiring issuance of additional common shares that would result in a dilution of net income (loss).

Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”).

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.

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 nine months ended September 30, 2023 and 2022.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted net income (loss) per share reported in the Condensed Consolidated Financial Statements for the three months ended March 31, 2024 and 2023.

(in thousands, except per share data)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net income (loss) attributable to controlling interests

1 unchanged sentence

Dividends to preferred shareholders ( 1,607 ) ( 1,607 )

Numerator for basic earnings (loss) per share – net income (loss) available to common shareholders

Numerator for basic income (loss) per share – net income (loss) available to common shareholders

( 5,512 ) 41,964

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

Dividends to Series D preferred unitholders (2)

Numerator for diluted income (loss) per share

$ ( 5,512 ) $ 50,690

Denominator for basic earnings per share weighted average shares 14,989 15,373 14,988 15,280

Denominator for basic income (loss) per share weighted average shares 14,922 15,025

Effect of redeemable operating partnership units — 968

2 unchanged sentences

Effect of dilutive restricted stock units and stock options — 20

Denominator for diluted earnings per share 18,018 15,373 17,344 15,280

Denominator for diluted income (loss) per share 14,922 18,359

NET INCOME (LOSS) PER COMMON SHARE – BASIC

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$ ( 0.37 ) $ 2.76

(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.

(1) For the three months ended March 31, 2024, the impact of Units and Series E preferred units was excluded from the calculation of net income (loss) per common share - diluted as they were anti-dilutive.

(2) For the three months ended March 31, 2024, dividends to preferred unitholders are excluded in the calculation of net income (loss) per common share - diluted as they were anti-dilutive.

For the three months ended March 31, 2024, operating partnership units of 854,000 , Series D preferred units of 228,000 , as converted, Series E preferred units of 2.1 million, as converted, time-based RSUs of 20,000 , and performance-based RSUs of 41,000 were excluded from the calculation of diluted net income (loss) per share because they were anti-dilutive as including these items would have improved net loss per share.

For the three months ended March 31, 2023, performance-based RSUs of 36,000 were excluded from the calculation of diluted net income per share because they were anti-dilutive as including these items would have improved net income per share.

NOTE 4 • EQUITY AND MEZZANINE EQUITY

Operating Partnership Units.

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.

The Operating Partnership had 844,000 and 861,000 outstanding Units at March 31, 2024 and December 31, 2023, respectively.

Exchange Rights .

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.

Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three months ended March 31, 2024 and 2023 as detailed in the table below.

(in thousands)

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

2023 97 $ 898

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

(in thousands, except per Unit data)

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

2023 — $ 28 $ 63.37

2022 7 $ 607 $ 81.18

Nine Months Ended September 30,

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

2024 17 $ ( 398 )

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Series E Preferred Units (Noncontrolling Interests).

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

Centerspace had 1.7 million Series E preferred units outstanding on March 31, 2024 and December 31, 2023.

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

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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.

Centerspace has the option, at its sole election, to convert Series E preferred units into Units if its stock has traded at or above $ 83 per share for 15 of 30 consecutive trading days and it has made at least three consecutive quarters of distributions with a rate of at least $ 0.804 per Unit.

The Series E preferred units have an aggregate liquidation preference of $ 171.2 million as of March 31, 2024.

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

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Number of Series E Number of Total

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

Three Months Ended March 31, Preferred Units Redeemed Common Shares Issued Value

2024 13 16 $ 702

Nine Months Ended September 30,

2023 13 16 $ 935

Common Shares and Equity Awards .

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.

Common shares outstanding on March 31, 2024 and December 31, 2023, totaled 14.9 million and 15.0 million, respectively.

During the three months ended March 31, 2024 and 2023, Centerspace issued approximately 3,742 and 11,877 common shares, respectively, with a total grant-date fair value of $ 445,000 and $ 1.1 million, respectively, under its 2015 Incentive Plan, as share-based compensation for employees and trustees.

These shares vested based on performance and service criteria.

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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 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 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)

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

Average Net Price Per Share

2023 — $ — $ —

2022 321 $ 31,732 $ 98.89

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

There were no sales of common shares under the 2021 ATM Program during the three months ended March 31, 2024 and 2023.

As of March 31, 2024, common shares having an aggregate offering price of up to $ 126.6 million remained available under the 2021 ATM Program.

Share Repurchase Program.

On March 10, 2022, the Board of Trustees approved a new share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $ 50.0 million of the Company’s outstanding common shares.

On March 10, 2022, the Board of Trustees approved a share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $ 50.0 million of the Company’s outstanding common shares.

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

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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 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.

The table below provides details on the shares repurchased during the three months ended March 31, 2024 and 2023.

As of March 31, 2024, the Company had $ 4.7 million remaining authorized for purchase under this program.

(in thousands, except per share amounts)

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

Three Months Ended March 31, Number of Common Shares Aggregate Cost (1)

Average Price Per Share (1)

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2023 19 $ 1,022 $ 52.51

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 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.

Series C preferred shares outstanding were 3.9 million shares at March 31, 2024 and December 31, 2023.

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

Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees).

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Series D Preferred Units (Mezzanine Equity).

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

Series D preferred units outstanding were 165,600 preferred units at March 31, 2024 and December 31, 2023.

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

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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.

Changes in the redemption value are charged to common shares on the Condensed Consolidated Balance Sheets from period to period.

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

Changes in the redemption value are based on changes in the trading value of common shares and are charged to common shares on the Condensed Consolidated Balance Sheets each quarter.

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

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NOTE 5 • DEBT

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

The following table summarizes the Company’s secured and unsecured debt at March 31, 2024 and December 31, 2023.

(in thousands)

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

March 31, 2024 December 31, 2023

Carrying Amount Weighted Average Interest Rate Carrying Amount Weighted Average Interest Rate Weighted Average Maturity in Years at March 31, 2024

Lines of credit (1)

$ 40,357 6.68 % $ 30,000 6.74 % 1.49

Term loans — — 100,000 5.57 % —

Unsecured senior notes (2)(5)

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$ 929,081 3.59 % $ 919,990 3.54 % 6.01

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

Refer to Note 6 - Derivative Instruments for additional information.

Interest rates on lines of credit are variable.

(1) Interest rates on lines of credit are variable and exclude any unused facility fees and amounts reclassified from accumulated other comprehensive income (loss) into interest expense from terminated interest rate swaps.

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

(3) Represents apartment communities encumbered by mortgages;

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

14 at March 31, 2024 and December 31, 2023.

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

(5) Interest rate is fixed.

As of September 30, 2023, 46 apartment communities were not encumbered by mortgages and were available to provide credit support for the unsecured borrowings.

As of March 31, 2024, 45 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 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.

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

Loans under the Facility outstanding as of the effective date of the Amendment that accrue interest at a rate determined by reference to LIBOR will continue to accrue interest at a rate determined by reference to LIBOR for the interest period applicable to such loans.

The line of credit has an interest rate equal to daily SOFR plus a margin of 135 basis points and a spread adjustment of 10 basis points.

The interest rates on the line of credit are based, 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 based on the consolidated leverage ratio, as defined under the First Amendment to Third Amended and Restated Credit Agreement.

Prior to the amendment, interest rates on the line of credit were based, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 25 - 80 basis points, or LIBOR , plus a margin that ranges from 125 - 180 basis points based on the consolidated leverage ratio, as defined under the Third Amended and Restated Credit Agreement.

As of March 31, 2024, there was $ 40.0 million outstanding on this line of credit, therefore the additional borrowing availability was $ 210.0 million.

This unsecured 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, the 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 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 based on the consolidated leverage ratio applying the same margins to LIBOR.

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 September 30, 2023.

The Company believes that it was in compliance with all such financial covenants and limitations as of March 31, 2024.

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

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

As of March 31, 2024, there was $ 357,000 outstanding on this line of credit.

As of December 31, 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”) under which the Company has issued $ 200.0 million in unsecured senior promissory notes (“unsecured senior notes”).

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 September 30, 2023.

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

The following table shows the notes issued under both agreements as of March 31, 2024 and December 31, 2023.

(in thousands)

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Series 2021-D $ 15,000 September 17, 2034 2.78 %

In November 2022, the Company 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 was based on SOFR, plus a margin that ranged from 120 to 175 basis points based on the consolidated leverage ratio.

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

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.

Centerspace has a $ 198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”).

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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 September 30, 2023 and December 31, 2022, the FMCF had a balance of $ 198.9 million.

As of March 31, 2024 and December 31, 2023, the FMCF had a balance of $ 198.9 million.

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

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.

As of March 31, 2024, Centerspace owned 14 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 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 September 30, 2023, was as follows:

As of March 31, 2024, the Company believes that there were no material defaults or instances of material noncompliance in regard to any of these mortgage loans.

The aggregate amount of required future principal payments on lines of credit, notes payable, and mortgages payable as of March 31, 2024, was as follows:

(in thousands)

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

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

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.

Changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (loss) (“OCI”) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

Amounts reported 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 $ 690,000 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 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 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 February 2022, the Company terminated its interest rate swaps.

As of March 31, 2024 and December 31, 2023 the Company had no remaining interest rate swaps.

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of March 31, 2024 and 2023.

(in thousands)

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 )

Nine months ended September 30,

Three months ended March 31, 2024 2023 2024 2023

Total derivatives in cash flow hedging relationships - Interest rate contracts $ — $ — Interest expense $ ( 197 ) $ ( 138 )

NOTE 7 • FAIR VALUE MEASUREMENTS

Cash and cash equivalents, restricted cash, other assets, accounts payable, accrued expenses, and other liabilities are carried at amounts that reasonably approximate their fair value due to their short-term nature.

Cash and cash equivalents, restricted cash, accounts payable, accrued expenses, and other liabilities are carried at amounts that reasonably approximate their fair value due to their short-term nature.

For variable rate line of credit debt that re-prices frequently, fair values are based on carrying values.

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Balance Sheet Location Total Level 1 Level 2 Level 3

September 30, 2023

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

March 31, 2024

Real estate related notes receivable Other assets $ 14,103 — — $ 14,103

December 31, 2023

Notes receivable Other assets $ 5,871 — — $ 5,871

Real estate related notes receivable Other assets $ 7,039 — — $ 7,039

Centerspace utilizes an income approach with Level 3 inputs based on expected future cash flows to value the notes receivable.

The inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 3.75 % to 5.50 %), and instrument specific credit risk of 0.5 %.

The unobservable inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 5.00 % to 9.00 %), and instrument specific credit risk (range of 0.5 % to 1.0 %).

Changes in the fair value of these receivables from period to period are reported in interest and other income on the Condensed Consolidated Statements of Operations.

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

Nine months ended September 30, 2023

Three months ended March 31, 2024

Notes receivable $ 14,103 $ 5 $ 208 $ 213

Nine months ended September 30, 2022

Three months ended March 31, 2023

Notes receivable $ 5,661 $ 5 $ 67 $ 72

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.

As of March 31, 2024 and December 31, 2023, Centerspace had investments totaling $ 2.1 million 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 September 30, 2023, the Company had total unfunded commitments of $ 1.2 million.

As of March 31, 2024, the Company had total unfunded commitments of $ 1.0 million.

Fair Value Measurements on a Nonrecurring Basis

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

There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2024.

Non-financial assets measured at fair value on a nonrecurring basis at December 31, 2023 consisted of real estate investments that were written-down to estimated fair value during the year ended December 31, 2023.

(in thousands)

Balance Sheet Location Total Level 1 Level 2 Level 3

December 31, 2023

Real estate investments measured at fair value Property owned

$ 19,250 $ — $ 19,250 $ —

As of December 31, 2023, the Company estimated the fair value of real estate investments using market offers to purchase and other market data.

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

The estimated fair values of the Company’s financial instruments as of March 31, 2024 and December 31, 2023, respectively, are as follows:

(in thousands)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Balance Sheet Location Carrying Amount Fair Value Carrying Amount Fair Value

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Revolving lines of credit Revolving lines of credit $ 40,357 $ 40,357 $ 30,000 $ 30,000

Term loans Notes payable $ — $ — $ 100,000 $ 100,000

Unsecured senior notes Notes payable $ 300,000 $ 250,704 $ 300,000 $ 252,108

Mortgages payable - Fannie Mae Mortgages payable $ 198,850 $ 157,180 $ 198,850 $ 161,297

Mortgages payable - Fannie Mae credit facility Mortgages payable $ 198,850 $ 167,501 $ 198,850 $ 168,555

Mortgages payable - other Mortgages payable $ 389,874 $ 365,190 $ 391,140 $ 367,080

NOTE 8 • ACQUISITIONS AND DISPOSITIONS

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)

Form of Consideration Investment Allocation

Acquisitions Cash Units (2)

Land Building Intangible

191 homes - Martin Blu - Minneapolis, MN

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

31 homes - Elements - Minneapolis, MN

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

45 homes - Zest - Minneapolis, MN

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

130 homes - Noko Apartments - Minneapolis, MN

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 )

(1) Excludes transaction costs.

(2) Fair value of operating partnership units issued on acquisition.

(3) Assumption of seller’s debt upon closing for Martin Blu, Zest, and Elements.

Mezzanine and construction loans, financed by Centerspace, exchanged as partial consideration for the acquisition of Noko Apartments.

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

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.

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

Centerspace did not acquire new real estate during the three months ended March 31, 2024 and 2023.

During the three months ended March 31, 2024, Centerspace disposed of two apartment communities in two exchange transactions for an aggregate sales price of $ 19.0 million.

During the three months ended March 31, 2023, Centerspace disposed of nine apartment communities, in four exchange transactions for an aggregate sales price of $ 144.3 million.

The dispositions for the three months ended March 31, 2024 and 2023 are detailed below.

Three Months Ended March 31, 2024

(in thousands)

Dispositions Date

Disposed Sale Price Net Book Value and Transaction Cost

Disposed Sale Price Net Book Value and Transaction Costs

69 homes - Southdale Parc - Richfield, MN

February 29, 2024 $ 6,200 $ 6,497 $ ( 297 )

136 homes - Wingate - New Hope, MN

February 29, 2024 $ 12,800 $ 13,080 $ ( 280 )

Total Dispositions $ 19,000 $ 19,577 $ ( 577 )

Three Months Ended March 31, 2023

(in thousands)

Dispositions Date

Disposed Sale Price Net Book Value and Transaction Costs

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 $ 144,255 $ 84,096 $ 60,159

7 unchanged sentences

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

During the three months ended March 31, 2024, two 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 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.

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 sale of real estate and other assets, impairment, 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 nine months ended September 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 months ended March 31, 2024 and 2023, respectively, along with reconciliations to net income (loss) 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 September 30, 2023 Multifamily All Other Total

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

Property operating expenses, including real estate taxes 25,375 1,370 26,745

Net operating income $ 36,130 $ 1,693 $ 37,823

Property management ( 2,197 )

Casualty loss

Depreciation and amortization ( 24,697 )

General and administrative expenses ( 3,832 )

Gain on sale of real estate and other investments

Interest expense ( 8,556 )

Interest and other income 330

(in thousands)

Three Months Ended September 30, 2022 Multifamily All Other Total

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

Property operating expenses, including real estate taxes 23,339 3,990 27,329

Net operating income $ 33,718 $ 4,391 $ 38,109

Property management ( 2,563 )

Casualty loss

Depreciation and amortization ( 23,720 )

General and administrative expenses ( 4,519 )

Interest expense ( 7,871 )

Interest and other income

(in thousands)

Nine Months Ended September 30, 2023 Multifamily All Other Total

Three Months Ended March 31, 2024 Multifamily All Other Total

Revenue $ 63,339 $ 1,167 $ 64,506

1 unchanged sentence

Net operating income $ 38,778 $ 659 $ 39,437

Property management ( 7,012 )

Property management expense ( 2,330 )

Casualty loss

1 unchanged sentence

General and administrative expenses ( 4,623 )

Gain on sale of real estate and other investments

Loss on litigation settlement

Loss on sale of real estate and other investments

Interest expense ( 9,207 )

1 unchanged sentence

(in thousands)

Nine Months Ended September 30, 2022 Multifamily All Other Total

Three Months Ended March 31, 2023 Multifamily All Other Total

Revenue $ 59,439 $ 8,458 $ 67,897

1 unchanged sentence

Net operating income $ 34,913 $ 4,061 $ 38,974

Property management ( 7,537 )

Property management expense ( 2,568 )

Casualty loss

5 unchanged sentences

Segment Assets and Accumulated Depreciation

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:

Segment assets are summarized as follows as of March 31, 2024, and December 31, 2023, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

(in thousands)

As of September 30, 2023 Multifamily All Other Total

As of March 31, 2024 Multifamily All Other Total

Segment assets

1 unchanged sentence

Less accumulated depreciation ( 549,160 ) ( 4,071 ) ( 553,231 )

Total property owned $ 1,796,130 $ 13,605 $ 1,809,735

Total real estate investments $ 1,847,035 $ 13,222 $ 1,860,257

Cash and cash equivalents 12,682

7 unchanged sentences

Less accumulated depreciation ( 524,364 ) ( 6,339 ) ( 530,703 )

Total property owned $ 1,830,374 $ 168,349 $ 1,998,723

Total real estate investments $ 1,857,097 $ 32,346 $ 1,889,443

Cash and cash equivalents 8,630

5 unchanged sentences

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.

The original judgment was ordered on October 9, 2023 for $ 2.9 million which the Company immediately paid.

In November 2023, the claimant filed motions requesting additional interest on the judgment and trial costs.

During the three months ended March 31, 2024, the claimant was awarded an additional $ 1.0 million in a judgment related interest and costs.

The additional $ 1.0 million was a recognizable subsequent event for the year ended December 31, 2023 so was recorded as a loss during the year ended December 31, 2023.

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

Centerspace is involved in various lawsuits arising in the normal course of business and believes that such matters will not have a material adverse effect on the condensed consolidated financial statements.

Environmental Matters.

Under various federal, state, and local laws, ordinances, and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around, or under the property.

on, around, or under the property.

While the Company currently has no knowledge of any material violation of environmental laws, ordinances, or regulations at any of the properties, there can be no assurance that areas of contamination will not be identified at any of its properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs.

Restrictions on Taxable Dispositions.

Twenty-eight properties, consisting of 4,935 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with certain of the sellers or contributors of the properties and are effective for varying periods.

Centerspace does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of restricted properties during the restriction period because it generally holds these and other properties for investment purposes rather than for sale.

Limitations on Taxable Dispositions.

Twenty-seven properties, consisting of 5,033 apartment homes, are subject to limitations on taxable dispositions under agreements entered into with certain of the sellers or contributors of the properties and are effective for varying periods.

Centerspace does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of these properties during the limitation period because it generally holds these and other properties for investment purposes rather than for sale.

In addition, where the Company deems it to be in the shareholders’ best interests to dispose of such properties, it generally seeks to structure sales of such properties as tax-deferred transactions under Section 1031 of the Internal Revenue Code.

8 unchanged sentences

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

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.

Through March 31, 2024, awards under the 2015 Incentive Plan consisted of restricted and unrestricted common shares, RSUs, and stock options.

The Company accounts for forfeitures of restricted and unrestricted common shares, RSUs, and stock options when they occur instead of estimating the forfeitures.

2024 LTIP Awards

Awards granted to employees on January 1, 2023, consisted of an aggregate of 14,256 time-based RSU awards, 20,497 performance RSUs based on total shareholder return (“TSR”), and 45,955 stock options.

Awards granted to employees on January 1, 2024, consisted of an aggregate of 21,059 time-based RSU awards and 18,876 performance RSUs based on total shareholder return (“TSR”).

The time-based awards vest as to one-third of the shares on each of January 1, 2025, January 1, 2026, and January 1, 2027.

The stock options vest as to 25 % on each of January 1, 2024, January 1, 2025, January 1, 2026, and January 1, 2027.

The fair value of stock options was $ 11.086 per share and was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Exercise price $ 58.67

Risk-free rate 3.97 %

Expected term 6.25 years

Expected volatility 28.7 %

Dividend yield 4.977 %

The performance RSUs are earned based on the Company’s TSR as compared to the FTSE Nareit Equity Index over a forward looking three-year period.

4 unchanged sentences

Therefore, previously recorded compensation expense is not adjusted in the event that the market conditions are not achieved.

The Company based the expected volatility on a weighted average of the historical volatility of the Company’s daily closing share price and a select peer average volatility, the risk-free interest rate on the interest rates on U.S.

treasury bonds with a maturity equal to the remaining performance period of the award, and the expected term on the performance period of the award.

treasury bond rates with a maturity equal to the remaining performance period of the award, and the expected term on the performance period of the award.

The assumptions used to value the TSR performance RSUs were an expected volatility of 27.21 %, a risk-free interest rate of 4.01 %, and an expected life of 3 years.

The share price at the grant date, January 1, 2024, was $ 58.20 per share.

On March 31, 2023, in connection with her appointment to President and Chief Executive Officer, Anne Olson received a one-time stock award of 5,492 RSUs, which will vest in full on March 31, 2026.

On March 31, 2023, in connection with the change in executive management, Bhairav Patel, CFO, received a one-time stock award of 2,746 RSUs.

One-third of the RSUs will vest on March 31, 2025 and the remaining two-thirds will vest on March 31, 2026.

Awards granted to trustees on May 16, 2023 consist of 9,200 time-based RSUs, which vest on May 16, 2024.

These awards are classified as equity awards.

Share-Based Compensation Expense

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.

Share-based compensation expense recognized in the condensed consolidated financial statements for all outstanding share-based awards was $ 749,000 and $ 1.5 million for the three months ended March 31, 2024 and 2023, 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 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.

The remaining performance-based RSUs were forfeited.

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.

This resulted in the acceleration of share-based compensation expense for those awards resulting in an additional $ 737,000 in expense for the three months ended March 31, 2023.

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