What changed in this filing

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Item 1. Business

2025-02-18 compared with 2024-02-20 · 49 added, 37 removed, 132 unchanged (39% of the section changed)

48 unchanged sentences

To fund our investment and capital activities, we rely on a combination of issuance of common shares, preferred shares, Units in exchange for property, and borrowed funds.

We regularly issue dividends to our shareholders.

We regularly issue dividends to our shareholders and Unitholders.

Each of these is described below.

At-the-Market Offering Program

We have an equity distribution agreement in connection with an at-the-market offering program (the “2021 ATM Program”).

Under the 2021 ATM Program, we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times determined by management.

We have an equity distribution agreement in connection with an at-the-market offering program (“ATM Program”).

On September 9, 2024 we amended our equity distribution agreement to increase the maximum aggregate offering price of common shares available for offer and sale thereunder from $250.0 million to $500.0 million, in amounts and at times determined by management.

Under the ATM Program, we may enter into separate forward sale agreements.

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

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

The proceeds from the sale of common shares under the 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.

During the year ended December 31, 2024, we issued 1.6 million common shares under the ATM Program at an average price of $71.66 per share, net of commissions.

Total consideration, net of commissions and issuance costs, was approximately $112.0 million.

As of December 31, 2024, we had common shares having an aggregate offering price of up to $262.9 million remaining available under the ATM Program.

Issuance of Senior Securities

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

As of December 31, 2023, 3.9 million shares remained outstanding.

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

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

Redemption of Series C Preferred Shares

On August 30, 2024, we delivered notice to holders of our Series C preferred shares that we intended to redeem all 3.9 million Series C preferred shares at a redemption price equal to $25 per share plus any accrued but unpaid distributions per share up to and including the redemption date of September 30, 2024.

On September 30, 2024, we completed the redemption of all the outstanding Series C preferred shares for an aggregate redemption price of $97.0 million, excluding distributions, which were $3.5 million in excess of the carrying value and are included in redemption of preferred shares on the Consolidated Statements

of Operations.

Such shares were no longer outstanding as of December 31, 2024.

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

The Series C preferred shares were nonvoting and redeemable for cash at $25.00 at our option.

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

Distributions accrued at an annual rate of $1.65625, which is equal to 6.625% of the $25.00 per share liquidation preference.

Bank Financing and Other Debt

As of December 31, 2024, we owned 45 apartment communities that were not encumbered by mortgages and which were available to provide credit support for our unsecured borrowings.

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

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

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

As of December 31, 2024, the additional borrowing availability was $206.0 million beyond the $44.0 million drawn, priced at an interest rate of 5.81%.

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

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

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

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

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

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

On July 26, 2024, the Unsecured Credit Facility was amended to extend maturity and to modify the leverage-based margin ratios applicable to borrowings (as described below).

As amended, this credit facility matures in July 2028, 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.

The Secured Overnight Financing Rate (“SOFR”) is the benchmark alternative reference rate under the Facility.

As amended, the interest rates on the line of credit are based on the consolidated leverage ratio, at our option, on either the lender’s base rate plus a margin, ranging from 20-80 basis points, or daily or term SOFR, plus a margin that ranges from 120-180 basis points with the consolidated leverage ratio described under the Third Amended and Restated Credit Agreement, as amended.

The Unsecured Credit Facility and unsecured senior notes are subject to customary financial covenants and limitations.

We believe we were in compliance with all such financial covenants and limitations as of December 31, 2024.

In September 2024, we entered into an operating line of credit agreement with US Bank, N.A.

which has a borrowing capacity of up to $10.0 million and pricing based on SOFR.

This operating line of credit terminates in September 2025 and is designed to enhance treasury management activities and more effectively manage cash balances.

As of December 31, 2024, there was $3.4 million outstanding on this line of credit.

We previously had a $6.0 million operating line of credit with Wells Fargo Bank, N.A.

with pricing based on SOFR that matured on August 31, 2024.

As of December 31, 2023, there was no outstanding balance on this line of credit.

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.

(collectively, “PGIM”) under which we have issued $175.0 million in unsecured senior promissory notes (“Unsecured Shelf Notes”).

On October 28, 2024, the shelf agreement was amended to extend the period of time during which we may borrow money to October 2027 and to increase the borrowing capacity to $300.0 million.

We also have a separate private note purchase agreement with PGIM and certain other lenders for the issuance of $125.0 million of senior unsecured promissory notes (“Unsecured Club Notes”, and, collectively with the Unsecured Shelf Notes, the “unsecured senior notes”), of which all $125.0 million was issued in September 2021.

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

8 unchanged sentences

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

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

The interest rate on the Term Loan 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”).

3 unchanged sentences

As of December 31, 2024, we owned 15 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF.

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

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

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

Interest rates on mortgage loans range from 3.45% to 5.04%, and the mortgage loans have varying maturity dates from May 1, 2025, through February 1, 2037.

As of December 31, 2024, our ratio of total indebtedness to total gross real estate investments was 39.0%.

Issuance of Securities in Exchange for Property

Our organizational structure allows us to issue shares and Units of Centerspace, LP in exchange for real estate.

Our organizational structure allows us to issue shares and Units of Centerspace, LP in exchange for real estate contributions.

The Units generally are redeemable, at our option, for cash or common shares on a one-for-one basis.

2 unchanged sentences

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

In October 2024, we issued 190,000 Units as partial consideration for the acquisition of an apartment community located in Denver, Colorado.

We had 165,600 Series D preferred units outstanding as of December 31, 2024.

3 unchanged sentences

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

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

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

We had 1.6 million Series E preferred units outstanding as of December 31, 2024.

5 unchanged sentences

Distributions to Shareholders

The Code requires a REIT to distribute 90% of its net taxable income, excluding net capital gains, to its shareholders, and a separate requirement to distribute 100% net capital gains or pay a corporate level tax in lieu thereof.

The Code requires a REIT to distribute 90% of its net taxable income, excluding net capital gains, to its shareholders, and to either distribute 100% net capital gains or pay a corporate level tax in lieu thereof.

We have distributed, and intend to continue to distribute, enough of our taxable income to satisfy these requirements.

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

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

Distributions to our common shareholders and unitholders in the years ended December 31, 2024 and 2023 totaled approximately 67% and 68%, respectively, on a per share and Unit basis of our funds from operations.

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

12 unchanged sentences

As part of our ESG initiatives, we publish an annual ESG report detailing our efforts related to furthering our mission, including through providing corporate sponsorship in the communities which we serve, offering paid time off for team members to volunteer, training and compensation programs.

During the year ended December 31, 2023, team members completed 2,260 volunteer hours.

During the year ended December 31, 2024, team members completed over 2,700 volunteer hours.

Training and development .

Training our team is important, and we facilitate that through a learning management system which allows us to provide custom training as well as utilize a library of multifamily focused courses specializing in customer service, sales, leadership, diversity, fair housing, safety, and cyber security.

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

Training our team members is important, and we facilitate that through a learning management system which allows us to provide custom training as well as utilize a library of multifamily focused courses specializing in customer service, sales, leadership, diversity, fair housing, safety, and cyber security.

We partnered with Interplay Learning to bring a library of maintenance courses that provide immersive, hands-on learning using virtual reality to complete training

designed for continuing education and onboarding.

During the year ended December 31, 2024, team members completed approximately 24,700 training courses and attended 3,965 live training events.

Team member engagement.

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

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

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

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

18 unchanged sentences

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

Risk Factors - “ Competition may negatively impact our earnings.

Risk Factors - “ Competition could limit our ability to acquire attractive investment opportunities and could increase the costs of those opportunities, which may adversely affect our profitability and impede our growth.

GOVERNMENT REGULATION

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

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

See the discussion under the caption “ Risks Related to Our Properties and Operations -- We may face opposition from governmental authorities or third parties alleging that our activities are anti-competitive” in Item 1A, Risk Factors, for information concerning the potential effects of compliance with anti-trust regulations.

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

Risk Factors, for information concerning the potential costs associated with zoning and permitting regulations, and “ Multifamily residential properties may be subject to rent stabilization regulations and other restrictions which limit our ability to raise rents above specified maximum amounts and could give rise to claims by residents that their rents exceed such specified maximum amounts ” in Item 1A.

Risk Factors for information concerning potential rent control regulations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business