CENTERSPACE 10-Q

Item 1A. Risk Factors The COVID-19 pandemic could have the effect of heightening many of the risks described in Item 1A of our Form 10-K for the year ended December 31, 2019, including, without limitation, the following: • "Our financial performance is subject to risks associated with the real estate industry and ownership of apartment communities"; • "Our property acquisition activities may not produce the cash flows expected and could subject us to various risks that could adversely affect our operating results"; • "We may be unable to acquire or develop properties and expand our operations into new or existing markets successfully"; • "We are dependent on a concentration of our investments in a single asset class, making our results of operations more vulnerable to a downturn or slowdown in the sector or other economic factors"; • "Our operations are concentrated in certain regions of the United States, and we are subject to general economic conditions in the regions in which we operate"; • "Because real estate investments are relatively illiquid and various other factors limit our ability to dispose of assets, we may not be able to sell properties when appropriate"; • "Inability to manage growth effectively may adversely affect our operating results"; • "Future cash flows may not be sufficient to ensure recoverability of the carrying value of our real estate assets"; • "The restrictive terms of indebtedness may cause acceleration of debt payments and constrain our ability to conduct certain transactions"; • "Our stock price may fluctuate significantly"; and • "Payment of distributions on our common shares is not guaranteed," In addition to the risk factors listed above and those risk factors previously disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019, we are presenting the following updated and additional risk factors to help investors understand the potential impact of the COVID-19 pandemic on our business: The COVID-19 Pandemic Could Have a Material Adverse Effect on Our Business and Our Financial Results If our employees or their family members become ill, it could affect the operation of our business and the maintenance of our properties. Ongoing social distancing requirements and stay-at-home directives affect the daily lives of our employees and residents and impact our ability to show apartment homes to potential residents, while the ongoing loss of jobs and rising unemployment levels affect the ability of some of our residents to pay rent on a timely basis, renew existing leases or enter into new leases. Certain states and cities, including where our apartment communities are located, have reacted by instituting quarantines, restrictions on travel, shelter-in-place or stay-at-home directives, restrictions on types of business that may continue to operate, and restrictions on the types of construction projects that may continue. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will be lifted. Many experts predict that the pandemic will trigger, or has already triggered, a global recession. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations, and cash flows for the foreseeable future. The effects of the ongoing COVID-19 pandemic could: • cause our residents or commercial tenants to defer or stop rental payments, and abandon or fail to renew leases, which would reduce our primary source of net operating income and cash flows; • cause us to increase our borrowing and our leverage and/or seek other sources of financing, which may not be available on favorable terms; • cause us to fail to satisfy certain of the covenants under our line of credit or other borrowing facilities, which could limit our access to such financings or even lead to an event of default; • cause the capital markets generally to become restricted or unavailable, thereby limiting our access to any needed debt or equity capital financing; 37 Table of Contents • impact the business of, or cause the loss of, certain critical third-party suppliers or other service providers; • restrict our ability to continue to pay dividends on a quarterly basis at the current rate, or at all; • impair the value of our tangible or intangible assets; • require us to record loss contingencies and incur additional expenses related to our COVID-19 response; or • cause the U.S. economy to suffer an extended economic slowdown, which could lead to a prolonged recession or even economic depression, which in turn would affect the demand for our apartment communities and could have an adverse impact on our business and operating results. Any of the foregoing factors, or others, could have a material adverse effect on our business and results of operations for so long as COVID-19 continues to impact the U.S. economy in general and multifamily apartment communities in particular. The extent to which the economic disruption associated with the COVID-19 pandemic impacts our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. A terrorism attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively affect various aspects of our business, including our workforce and supply chains, and could make it more difficult and expensive to meet our obligations to our residents. Our operations are susceptible to national or international events, including acts or threats of war or terrorism, political instability, natural disasters, and health epidemics or pandemics. These risks include a widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, resulting in a worldwide pandemic that has affected hundreds of countries around the world, including the U.S. The COVID-19 pandemic has resulted in travel bans, quarantines, and work restrictions that prohibit many employees from going to work. As a result of pandemics, including COVID-19, businesses can be shut down, supply chains can be interrupted, slowed, or rendered inoperable, and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governmental mandates may require dramatic changes at our apartment communities or could impact the availability of goods or services from many of our suppliers for extended or indefinite periods of time. Our business depends on our ability to continue to provide high quality housing and consistent operation of our apartment communities, the failure of which could adversely affect our business and results of operations. Our business depends on providing our residents with quality housing and reliable services (including utilities), along with the consistent operation of our communities and their associated amenities, including covered parking, swimming pools, clubhouses with fitness facilities, playground areas, and other similar features. We may be required to undertake significant capital expenditures to renovate or reconfigure our communities in order to attract new residents and retain existing residents. The delayed delivery, material reduction, or prolonged interruption in any of these services, including as a result of social distancing policies enforced during the COVID-19 pandemic, may cause our residents to terminate their leases, may result in the reduction of rents and/or may result in an increase in our costs. In addition, we may fail to provide quality housing and continuous access to amenities as a result of other factors, including mechanical failure, power failure, inclement weather, physical or electronic security breaches, vandalism or acts of terrorism, or other similar events. Any of these issues could cause our residents to terminate or fail to renew their leases, could expose us to additional costs or liability claims, and could damage our reputation, any of which could impact our ability to provide quality housing and consistent operation of our apartment communities, which in turn could materially affect our business and results of operations. Our inability to renew, repay, or refinance our debt may result in losses. We incur a significant amount of debt in the ordinary course of our business and in connection with acquisitions of real properties. Because we have a limited ability to retain earnings as a result of the REIT distribution requirements, we will generally be required to refinance debt that matures with additional debt or equity. We are subject to the normal risks associated with debt financing, including the risks that: • our cash flow will be insufficient to meet required payments of principal and interest, particularly if net operating income is reduced significantly due to the effects of the COVID-19 pandemic; • we will not be able to renew, refinance, or repay our indebtedness when due; and • the terms of any renewal or refinancing are at terms less favorable than the terms of our current indebtedness. 38 Table of Contents These risks increase when credit markets are tight, as they may be during the COVID-19 pandemic. In general, when the credit markets are tight, we may encounter resistance from lenders when we seek financing or refinancing for properties or proposed acquisitions, and the terms of such financing or refinancing are likely to be less favorable to us than the terms of our current indebtedness. We anticipate that we will need to refinance a significant portion of our outstanding debt as it matures. We cannot guarantee that any refinancing of debt with other debt will be possible on terms that are favorable or acceptable to us. If we cannot refinance, extend, or pay principal payments due at maturity with the proceeds of other capital transactions, our cash flows may not be sufficient in all years to repay debt as it matures. If we are unable to refinance our indebtedness on acceptable terms, or at all, we may be forced to dispose of one or more properties on disadvantageous terms, which may result in losses. These losses could have a material adverse effect on our business, our ability to make distributions to our shareholders, and our ability to pay amounts due on our debt. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments or refinance the debt at maturity, the mortgagor could foreclose upon the property, appoint a receiver, and receive an assignment of rents and leases or pursue other remedies, including taking ownership of the property, all with a consequent loss of revenues and asset value. Foreclosures also could affect our ability to obtain new debt and could create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements of the Code and impeding our ability to obtain financing for our other properties. Additional federal unemployment funding under the CARES Act expired on July 31, 2020, which could adversely impact our residents' ability to pay rent and our results of operations. On March 27, 2020, legislation to respond to the COVID-19 pandemic was signed into law. The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”) authorized more than $2 trillion to battle COVID-19 and its economic effects. Among other provisions, the CARES Act provided $600 per week in unemployment benefits from the federal government in addition to the state unemployment benefits to which an unemployed worker otherwise would be entitled. Because additional federal funding expired on July 31, 2020, the absence of this funding could impact our residents' ability to pay rent in August (and subsequent months), particularly if unemployment rates continue to remain high or even rise as a result of the ongoing COVID-19 pandemic, which in turn could adversely affect our results of operations.