What changed in CENTERSPACE's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of CENTERSPACE's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+256 added−251 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-21)
Top changes in CENTERSPACE's 2023 10-K
256 paragraphs added · 251 removed · 195 edited across 7 sections
- Item 1A. Risk Factors+96 / −94 · 62 edited
- Item 7. Management's Discussion & Analysis+91 / −89 · 76 edited
- Item 1. Business+45 / −41 · 36 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+7 / −9 · 5 edited
- Item 2. Properties+8 / −9 · 8 edited
Item 1. Business
Business — how the company describes what it does
36 edited+9 added−5 removed21 unchanged
Item 1. Business
Business — how the company describes what it does
36 edited+9 added−5 removed21 unchanged
2022 filing
2023 filing
Biggest changeWe also have a $6.0 million operating line of credit with Wells Fargo Bank, N.A., which is designed to enhance treasury management activities and more effectively manage cash balances. In January 2021, we amended and expanded our private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.
Biggest changePrior 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.
Our primary unsecured credit facility (“unsecured credit facility”) is a revolving, multi-bank line of credit, with Bank of Montreal serving as administrative agent. Our line of credit has total commitments and borrowing capacity of up to $250.0 million, based on the value of unencumbered properties.
Our primary unsecured credit facility (the “Unsecured Credit Facility”) is a revolving, multi-bank line of credit, with Bank of Montreal serving as administrative agent. Our line of credit has total commitments and borrowing capacity of up to $250.0 million, based on the value of unencumbered properties.
Risk Factors, for information concerning the potential costs associated with zoning and permitting regulations, “ The ongoing pandemic of COVID-19 and the potential future outbreak of other highly infectious or contagious diseases may materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our equityholders ” in Item 1A Risk Factors, for information concerning the potential effects of regulations related to the COVID-19 pandemic, and “ Multifamily residential properties may be subject to rent stabilization regulations, now or in the future, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by residents that their rents exceed such specified maximum amounts ” in Item 1A.
Risk Factors, for information concerning the potential costs associated with zoning and permitting regulations, “ The COVID-19 pandemic affected our business in the past, and the potential future outbreak of other highly infectious or contagious diseases may materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our equityholders ” in Item 1A Risk Factors, for information concerning the potential effects of regulations related to the COVID-19 pandemic, and “ Multifamily residential properties may be subject to rent stabilization regulations, now or in the future, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by residents that their rents exceed such specified maximum amounts ” in Item 1A.
At-the-Market Offering Program We have an equity distribution agreement in connection with a new at-the-market offering program (the “2021 ATM Program”). 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.
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.
Training and development . Training is important, and we facilitate that through a learning management system which allows us to provide custom training as well as utilize a library of multifamily focused courses specializing in customer service, sales, leadership, diversity, fair housing, safety, and cyber security.
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.
Our initiatives to optimize our operations include: • Providing an exceptional customer experience to enhance resident satisfaction and retention; • Attracting, developing, and retaining diverse talent to enable a culture of engagement; • Scaling our business to enhance efficiencies; • Leveraging technology and systems; and • Demonstrating an organizational commitment to Environmental, Social, and Governance (“ESG”) initiatives.
Our initiatives to optimize our operations include: • Providing an exceptional customer experience to enhance resident satisfaction and retention; • Attracting, developing, and retaining diverse talent to enable a culture of engagement; • Scaling our business to enhance efficiencies; • Leveraging technology and systems; and • Advancing an organizational commitment to Environmental, Social, and Governance (“ESG”) initiatives.
We take great pride in our pay for performance strategy where team members are aligned with overall company performance as well as specific performance metrics based on roles. Our annual performance management process invites team members to complete a self-review along with their manager's assessment.
We take great pride in our pay for performance strategy where team members are aligned with overall company performance as well as specific performance metrics based on roles. Our annual performance management process invites team members to complete a self-evaluation along with their manager’s assessment.
For additional information on our sources of liquidity and funds from operations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.” HUMAN CAPITAL We strive to be a great place to work and offer an exceptional experience through competitive pay, benefits, and training programs to our employees, who we refer to as team members.
For additional information on our sources of liquidity and funds from operations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.” HUMAN CAPITAL We strive to foster a great work environment and offer an exceptional experience through competitive pay, benefits, and training programs to our employees, who we refer to as team members.
We make available, free of charge, through the “SEC filings” tab under the Investors section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Transition Report on Form 10-KT, and amendments to such reports, and proxy statements for our Annual Meetings of Shareholders, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
We make available, free of charge, through the “SEC filings” tab under the Investors section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports, proxy statements for our Annual Meetings of Shareholders, and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
The Series C preferred shares are redeemable, at our option. 4 Table of Contents Bank Financing and Other Debt As of December 31, 2022, we owned 53 apartment communities that were not encumbered by mortgages and which were available to provide credit support for our unsecured borrowings.
The Series C preferred shares are redeemable, at our option. 4 Table of Contents Bank Financing and Other Debt As of December 31, 2023, we owned 46 apartment communities that were not encumbered by mortgages and which were available to provide credit support for our unsecured borrowings.
Item 1. Business OVERVIEW Centerspace (“we,” “us,” “our,” “Centerspace,” or the “Company”), formerly known as Investors Real Estate Trust, is a real estate investment trust (“REIT”) organized under the laws of North Dakota, that is focused on the ownership, management, acquisition, development, and redevelopment of apartment communities.
Item 1. Business OVERVIEW Centerspace (“we,” “us,” “our,” “Centerspace,” or the “Company”) is a real estate investment trust (“REIT”) organized under the laws of North Dakota, that is focused on the ownership, management, acquisition, development, and redevelopment of apartment communities.
We have a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”). The FMCF is currently secured by mortgages on 16 apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, at a blended weighted average, fixed interest rate of 2.78%. As of December 31, 2022, the FMCF had a balance of $198.9 million.
As of December 31, 2022, the Term Loan had a balance of $100.0 million. We have a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”). The FMCF is currently secured by mortgages on 12 apartment communities. The notes are interest-only, with varying maturity dates of 7, 10, and 12 years, at a blended weighted average, fixed interest rate of 2.78%.
Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of limited partnership units (“Units”), which is one of the reasons the Company is structured in this manner. As of December 31, 2022, Centerspace, Inc. owned an 82.9% interest in Centerspace, LP. The remaining interest in Centerspace, LP is held by individual limited partners.
Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of limited partnership units (“Units”), which is one of the reasons the Company is structured in this manner. As of December 31, 2023, Centerspace, Inc. owned an 83.6% interest in Centerspace, LP. The remaining interest in Centerspace, LP is held by individual limited partners.
As part of our ESG initiatives, we publish an annual ESG report detailing our efforts related to furthering our mission - through providing corporate sponsorship in the communities which we serve, offering paid time off for team members to volunteer, training and compensation programs. During the year ended December 31, 2022, 1,676 volunteer hours were completed by team members.
As 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.
Distributions to our common shareholders and unitholders in the years ended December 31, 2022 and 2021 totaled approximately 68% and 80%, respectively, on a per share and unit basis of our funds from operations.
Distributions to our common shareholders and unitholders in the years ended December 31, 2023 and 2022 totaled approximately 68% each year, on a per share and Unit basis of our funds from operations.
As of December 31, 2022, we owned interests in 84 apartment communities, containing 15,065 homes and having a total real estate investment amount, net of accumulated depreciation, of $2.0 billion. Our corporate headquarters is located in Minot, North Dakota. We also have a corporate office in Minneapolis, Minnesota. Website and Available Information Our internet address is www.centerspacehomes.com.
As of December 31, 2023, we owned interests in 72 apartment communities, containing 13,088 homes and having a total real estate investment amount, net of accumulated depreciation, of $1.9 billion. Our corporate headquarters is located in Minot, North Dakota. We also have a corporate office in Minneapolis, Minnesota. Website and Available Information Our internet address is www.centerspacehomes.com.
It is through an active focus on policies, procedures, and best practices along with increased awareness and education. As of December 31, 2022, 76.6% of our team members self-identified as white, 7.4% as Hispanic or Latino, 5.9% as Black or African American, and 7.0% other ethnicities.
It is through an active focus on policies, procedures, and best practices along with increased awareness and education. As of December 31, 2023, 77.3% of our team members self-identified as white, 6.5% as Hispanic and/or Latino, 5.6% as Black or African American, and 10.6% other ethnicities.
The survey and others conducted throughout the year allows team members to provide feedback anonymously. The results are discussed and presented within functional teams and company-wide. Diversity, Equity, & Inclusion . We are committed to create a culture that is inclusive, equitable, and diverse by fostering an environment where every great idea can be heard and everybody belongs.
The survey and others conducted throughout the year allows team members to provide feedback anonymously. The results are discussed and presented within functional teams and company-wide. 6 Table of Contents Diversity, Equity, & Inclusion . We are committed to creating a culture that is inclusive, equitable, and diverse by fostering an environment where everyone can participate and everybody belongs.
Our Declaration of Trust, as amended (our “Declaration of Trust”), does not contain any restrictions on our ability to offer limited partnership units of Centerspace, LP in exchange for property. As a result, any decision to do so is vested solely in our Board of Trustees.
Our Declaration of Trust, as amended (our “Declaration of Trust”), does not contain any restrictions on our ability to offer limited partnership Units of Centerspace, LP in exchange for property. As a result, any decision to do so is vested solely in our Board of Trustees. We had 165,600 Series D preferred units outstanding as of December 31, 2023.
We also purchase limited terrorism, environmental, and flood insurance as well as other types of insurance coverage related to a variety of risks and exposures. 6 Table of Contents There are certain types of losses that may not be covered or could exceed coverage limits.
We also purchase limited terrorism, environmental, and flood insurance as well as other types of insurance coverage related to a variety of risks and exposures. There are certain types of losses that may not be covered or could exceed coverage limits. Due to changing market conditions, our insurance policies are also subject to increasing deductibles and coverage limits.
As of December 31, 2022, 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.
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 results of these assessments are a component of the merit increase and pay for performance strategy. As of December 31, 2022, the average tenure of our team members is 3.88 years.
The results of these assessments are a component of the merit increase and pay for performance strategy. As of December 31, 2023, the average tenure of our team members was 3.93 years. Environmental, Social, and Governance.
In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements.
We also have a separate note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was issued under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements as of December 31, 2023.
The Series E preferred unit holders receive a preferred 5 Table of Contents distribution at the rate of 3.875% per year. Each Series E preferred unit is convertible, at the holder’s option, into 1.2048 Units. The Series E preferred units have an aggregate liquidation preference of $175.8 million. The holders of Series E preferred units do not have voting rights.
Each Series E preferred unit has a par value of $100. The Series E preferred unit holders receive a preferred distribution at the rate of 3.875% per year. Each Series E preferred unit is convertible, at the holder’s option, into 1.2048 Units. The Series E preferred units have an aggregate liquidation preference of $172.5 million.
As of December 31, 2022, 52.0% of our total team members, 54.0% of our senior management, and 33.3% of our Board of Trustees self-identified as female. INSURANCE We purchase general liability and property insurance coverage for each of our properties.
As of December 31, 2023, 49.5% of our total team members, 60.0% of our senior management, and 57.1% of our Board of Trustees self-identified as female. INSURANCE We purchase general liability and property insurance coverage for each of our properties.
As of December 31, 2022, we had 113 custom courses on our learning management system and over 23,000 training courses were completed by team members. Team member engagement. We conduct a team member engagement survey annually, where we encourage all team members to provide feedback on our performance.
During the year ended December 31, 2023, 243 custom courses were added to our learning management system and over 22,000 training courses were completed by team members. Team member engagement. We conduct a team member engagement survey annually, where we encourage all team members to provide feedback on our performance.
As of December 31, 2022, 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. As of December 31, 2022, our ratio of total indebtedness to total gross real estate investments was 39.9%.
As of December 31, 2023 and 2022, the FMCF had a balance of $198.9 million. As of December 31, 2023, we owned 14 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgages payable were non-recourse to us other than for standard carve-out obligations.
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. We have distributed, and intend to continue to distribute, enough of our taxable income to satisfy these requirements.
The holders of Series E preferred units do not have voting rights. 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.
Centerspace, LP holds substantially all of the assets of the Company. Centerspace, LP conducts the operations of the business and is structured as a partnership with no publicly traded equity.
All of our assets and liabilities have been contributed to Centerspace, LP, through Centerspace, Inc., in exchange for the sole general partnership interest in Centerspace, LP. Centerspace, LP holds substantially all of the assets of the Company. Centerspace, LP conducts the operations of the business and is structured as a partnership with no publicly traded equity.
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. The Units generally are redeemable, at our option, for cash or common shares on a one-for-one basis. Generally, Units receive the same per unit cash distributions as the per share dividends paid on common shares.
The Units generally are redeemable, at our option, for cash or common shares on a one-for-one basis. Generally, Units receive the same per unit cash distributions as the per share dividends paid on common shares.
As of December 31, 2022, the additional borrowing availability was $136.5 million beyond the $113.5 million drawn, priced at an interest rate of 4.12%. This credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and provide for an accordion option to increase borrowing capacity up to $400.0 million.
As of December 31, 2023, the additional borrowing availability was $220.0 million beyond the $30.0 million drawn, priced at an interest rate of 7.82%. This credit facility 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 February 1, 1997, we were restructured as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”), and we conduct our daily business operations primarily through our operating partnership, Centerspace, LP, formerly known as IRET Properties (the “Operating Partnership”).
On February 1, 1997, we were restructured as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”), and we conduct our daily business operations primarily through our operating partnership, Centerspace, LP (the “Operating Partnership”). The sole general partner of Centerspace, LP 3 Table of Contents is Centerspace, Inc., a North Dakota corporation and our wholly owned subsidiary.
Due to changing market conditions, our insurance policies are also subject to increasing deductibles and coverage limits. Based on market conditions, we may change or potentially eliminate insurance coverages or face higher deductibles or other costs.
Based on market conditions, we may change or potentially eliminate insurance coverages or face higher deductibles or other costs.
As of December 31, 2022, we had common shares having an aggregate offering price of up to $126.6 million remaining available under the 2021 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”).
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.
Our objective is to attract, develop, retain, and reward individuals with the talent and skills to help support our business objectives and make our communities home for our residents.
Our objective is to attract, develop, retain, and reward individuals with the talent and skills to help support our business objectives and make our communities home for our residents. As of December 31, 2023, we had 414 employees (377 full-time and 37 part-time) across multiple states. Compensation and benefits.
The interest rate on the Term Loan is based on SOFR, plus a margin that ranges from 120 to 175 basis points based on our consolidated leverage ratio. The Term Loan has a 364-day term but may be extended, at our option and subject to certain conditions, for one additional 364-day term.
The interest rate on the Term Loan was based on SOFR, plus a margin that ranged from 120 to 175 basis points based on our consolidated leverage ratio. The Term Loan had a 364-day term with an option for an additional 364-day term. As of December 31, 2023, the Term Loan was paid in full.
Removed
The sole general partner of Centerspace, LP is Centerspace, Inc., formerly known as IRET, Inc., a North Dakota corporation and our wholly owned subsidiary. All of our assets and liabilities have been contributed to Centerspace, LP, through Centerspace, Inc., 3 Table of Contents in exchange for the sole general partnership interest in Centerspace, LP.
Added
During the year ended December 31, 2023, we did not issue any common shares under the 2021 ATM Program. As of December 31, 2023, we had common shares having an aggregate offering price of up to $126.6 million remaining available under the 2021 ATM Program.
Removed
During the year ended December 31, 2022, we issued 321,000 common shares under the 2021 ATM Program at an average price of $98.89 per share, net of commissions. Total consideration, net of commissions and issuance costs, was approximately $31.4 million.
Added
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.
Removed
(collectively, “PGIM”) to increase the aggregate amount available for the issuance of unsecured senior promissory notes (“unsecured senior notes”) to $225.0 million. We also issued $50.0 million of unsecured senior notes in connection with the amendment. Under this agreement, we issued $200.0 million unsecured senior notes with $25.0 million remaining available as of December 31, 2022.
Added
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.
Removed
In January 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities located in Minneapolis, Minnesota. On September 1, 2021, we issued 1.8 million Series E preferred units with a par value of $100 per Series E preferred unit as partial consideration for the acquisition of 17 apartment communities.
Added
This operating line matures on September 30, 2024, with pricing based on SOFR. We have a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) under which we have issued $200.0 million in unsecured senior promissory notes (“unsecured senior notes”).
Removed
Our total rewards program includes competitive compensation, paid leave, paid holidays, volunteer time, health and dental benefits, discounted rental rates on our apartments, employee assistance program, life insurance, 401(k) plan, and more. As of December 31, 2022, we had 471 employees (421 full-time and 50 part-time) across multiple states. Compensation and benefits.
Added
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.
Added
As of December 31, 2023, our ratio of total indebtedness to total gross real estate investments was 38.0%. 5 Table of Contents 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.
Added
Each Series D preferred unit has a par value of $100. The Series D preferred unit holders receive a preferred distribution at the rate of 3.862% per year and have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issue price.
Added
Each Series D preferred unit is convertible, at the holder’s option, into 1.37931 Units. The Series D preferred units have an aggregate liquidation preference of $16.6 million. The holders of the Series D preferred units do not have any voting rights. We had 1.7 million Series E preferred units outstanding as of December 31, 2023.
Added
We have distributed, and intend to continue to distribute, enough of our taxable income to satisfy these requirements.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
62 edited+34 added−32 removed137 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
62 edited+34 added−32 removed137 unchanged
2022 filing
2023 filing
Biggest changeThe ongoing pandemic of COVID-19 and the potential future outbreak of other highly infectious or contagious diseases may materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our equityholders.
Biggest changeThe current conflicts in Russia and Ukraine, as well as Israel and Gaza, resulting sanctions and related countermeasures by the United States and other countries could to lead to market disruptions, including significant volatility in the credit and capital markets and the economy in general, which could have an adverse impact on our operations and financial performance. 8 Table of Contents 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.
Our results of operations are materially affected by economic and political conditions in the United States and internationally, including inflation, deflation, interest rates, recession, availability of capital, and the effects of governmental initiatives to manage economic conditions. Current or potential residents may delay or decrease spending on housing as their budgets are impacted by economic conditions.
Our results of operations are materially affected by economic and political conditions in the United States and internationally, including inflation, deflation, interest rates, recession, availability of capital, and the effects of governmental initiatives to manage economic conditions. Current or potential residents may delay or decrease spending on housing as their budgets are impacted by economic or political conditions.
Acquiring or developing new properties and expanding into new markets introduces several risks, including but not limited to the following: • we may not be successful in identifying suitable properties or other assets that meet our acquisition or development criteria or in consummating acquisitions or developments on satisfactory terms, or at all; • we may be unable to maintain consistent standards, controls, policies, and procedures, or realize the anticipated benefits of the acquisitions within the anticipated time frame, or at all; • acquisitions and divestitures could divert our attention from our existing properties and could cause us to lose key employees or be unable to attract highly qualified new employees; • unfamiliarity with the dynamics and prevailing market conditions or local government or permitting procedures of any new geographic markets could adversely affect our ability to successfully expand into or operate within those markets 9 Table of Contents or cause us to become more dependent on third parties in new markets due to our inability to directly and efficiently manage and otherwise monitor new properties in new markets; • we may make assumptions regarding the expected future performance of acquired properties, including expected occupancy, rental rates, and cash flows, that prove to be inaccurate; and • we may improperly estimate the costs of repositioning or redeveloping an acquired property.
Acquiring or developing new properties and expanding into new markets introduces several risks, including but not limited to the following: • we may not be successful in identifying suitable properties or other assets that meet our acquisition or development criteria or in consummating acquisitions or developments on satisfactory terms, or at all; • we may be unable to maintain consistent standards, controls, policies, and procedures, or realize the anticipated benefits of the acquisitions within the anticipated time frame, or at all; 9 Table of Contents • acquisitions and divestitures could divert our attention from our existing properties and could cause us to lose key employees or be unable to attract highly qualified new employees; • unfamiliarity with the dynamics and prevailing market conditions or local government or permitting procedures of any new geographic markets could adversely affect our ability to successfully expand into or operate within those markets or cause us to become more dependent on third parties in new markets due to our inability to directly and efficiently manage and otherwise monitor new properties in new markets; • we may make assumptions regarding the expected future performance of acquired properties, including expected occupancy, rental rates, and cash flows, that prove to be inaccurate; and • we may improperly estimate the costs of repositioning or redeveloping an acquired property.
We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks, and services . We face risks associated with security breaches or disruptions, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, or persons inside our organization.
We face risks associated with cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks, and services . We face risks associated with security breaches or disruptions, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, or persons inside our organization.
Even the most well-protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target. In some cases, these breaches are designed not to be detected and, in fact, may not be detected.
Even the most well-protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target. In some cases, these breaches are designed to be undetected and, in fact, may not be detected.
We have entered into agreements with certain contributors of our properties that contain limitations on our ability to dispose of certain properties in taxable transactions. The restrictions on taxable dispositions are effective for varying periods.
We have entered into agreements with certain contributors of our properties that contain limitations on our ability to dispose of certain properties in taxable transactions. The limitations on taxable dispositions are effective for varying periods.
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 uncertain global macroeconomic and political conditions including inflation, price volatility and 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.
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 uncertain global macroeconomic and political conditions including inflation, price volatility and the COVID-19 pandemic; • we will not be able to renew, refinance, or repay our indebtedness when due; and 14 Table of Contents • the terms of any renewal or refinancing are at terms less favorable than the terms of our current indebtedness.
These costs include, but are not limited to, retaining services of cybersecurity providers, compliance costs arising out of existing and future cybersecurity, data protection, privacy laws, regulations, and related reporting obligations, and costs related to maintaining data backups and other damage-mitigation services. We previously suffered a ransomware attack on our information technology systems.
These costs include, but are not limited to, retaining services of cybersecurity experts, compliance costs arising out of existing and future cybersecurity, data protection, privacy laws, regulations, and related reporting obligations, and costs related to maintaining data backups and other damage-mitigation services. We previously suffered a ransomware attack on our information technology systems.
Federal, state, and local laws and regulations designed to improve disabled persons’ access to and use of buildings, including the Americans with Disabilities Act of 1990, may require modifications to, or restrict renovations of, existing buildings that may require unexpected expenditures. These laws and regulations may require that structural features be added to buildings under construction.
Federal, state, and local laws and regulations designed to improve disabled persons’ access to and use of buildings, including the Americans with Disabilities Act of 1990, may require modifications to, or restrict renovations of, existing buildings that may require unexpected expenditures. These laws and other safety regulations may require that structural features be added to buildings under construction.
For taxable year beginning before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified 18 Table of Contents REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income.
For taxable year beginning before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income.
Legislative or regulatory actions affecting REITs could have an adverse effect on us or our shareholders. Changes to tax laws or regulations may adversely impact our shareholders and our business and financial results. On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA").
Legislative or regulatory actions affecting REITs could have an adverse effect on us or our shareholders. Changes to tax laws or regulations may adversely impact our shareholders and our business and financial results. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”).
For example, in order to qualify as a REIT, at least 95% of our gross income in any year must come from certain passive sources that are itemized in the REIT tax laws, and we are prohibited from owning specified amounts of debt or equity securities of some issuers.
For example, in order to qualify as a REIT, at least 95% of our gross income in any year must come from certain passive sources that are itemized in the REIT tax laws, and we are prohibited from owning specified 17 Table of Contents amounts of debt or equity securities of some issuers.
The IRA includes numerous tax provisions that impact corporations, including 19 Table of Contents the implementation of a corporate alternative minimum tax as well as a 1% federal excise tax on certain stock repurchases and economically similar transactions. REITs are excluded from the definition of an “applicable corporation” and therefore are not subject to the corporate alternative minimum tax.
The IRA includes numerous tax provisions that impact corporations, including the implementation of a corporate alternative minimum tax as well as a 1% federal excise tax on certain stock repurchases and economically similar transactions. REITs are excluded from the definition of an “applicable corporation” and therefore are not subject to the corporate alternative minimum tax.
Among other things, “green” building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency and waste management.
Among other things, “green” building codes may seek to reduce emissions and other environmental impacts through the imposition of standards for design, construction materials, water and energy usage and efficiency and waste management.
However, the coverage limits of our current or future policies may be insufficient to cover the full cost of repair or replacement of all potential losses, or our level of coverage may not continue to be available in the future or, if available, may be available only at unacceptable cost or with unacceptable terms.
However, the coverage limits of our current or future policies may be insufficient to cover the full cost of repair or replacement of all potential losses, or our level of coverage may not 10 Table of Contents continue to be available in the future or, if available, may be available only at unacceptable cost or with unacceptable terms.
From time to time, we use interest rate swaps and other hedging instruments to manage our interest rate risks. Although these arrangements may partially protect us against rising interest rates, they also may reduce the benefits to us if interest rates decline.
Interest rate hedging arrangements may result in losses. From time to time, we use interest rate swaps and other hedging instruments to manage our interest rate risks. Although these arrangements may partially protect us against rising interest rates, they also may reduce the benefits to us if interest rates decline.
Our future growth depends, in part, on our ability to raise additional equity capital, which could have the effect of diluting the interests of our common shareholders. Our future growth depends upon, among other things, our ability to raise equity capital and issue limited partnership units of Centerspace, LP.
Our future growth depends, in part, on our ability to raise additional equity capital, which could have the effect of diluting the interests of our common shareholders. Our future growth depends upon, among other things, our ability to raise equity capital and issue limited partnership Units of our Operating Partnership.
The Trust’s Declaration of Trust also provides a limit on a Person owning in excess of the ownership limit of 9.8%, in number or value, of the Trust’s outstanding shares, although the Board of 17 Table of Contents Trustees retains the ability to make exceptions to this ownership threshold.
The Trust’s Declaration of Trust also provides a limit on a Person owning in excess of the ownership limit of 9.8%, in number or value, of the Trust’s outstanding shares, although the Board of Trustees retains the ability to make exceptions to this ownership threshold.
In most cases, we have to renew our insurance policies on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the 10 Table of Contents insurance markets, including the possibility of rate increases.
In most cases, we have to renew our insurance policies on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases.
Under various federal, state, and local laws, ordinances and regulations, we, as a current or previous owner or operator of real estate, may be liable for the costs of removal or remediation of hazardous or toxic substances in, on, around, or under that property.
We may be responsible for potential liabilities under environmental laws. Under various federal, state, and local laws, ordinances and regulations, we, as a current or previous owner or operator of real estate, may be liable for the costs of removal or remediation of hazardous or toxic substances in, on, around, or under that property.
Although we make ESG disclosures and undertakes sustainability and diversity initiatives, there can be no assurance that we will score highly on ESG matters in the future. The criteria by which companies are rated may change, which could cause us to perform differently or worse than we have in the past.
Although we make ESG disclosures and undertake sustainability and diversity initiatives, there can be no assurance that we will score highly on ESG matters in the future or satisfy all stakeholders. The criteria by which companies are rated may change, which could cause us to perform differently or worse than we have in the past.
Restrictive covenants in our debt agreements may limit our operating and financial flexibility, and our inability to comply with these covenants could have significant implications . Our indebtedness, which at December 31, 2022 totaled outstanding borrowings of approximately $1.0 billion, contains a number of significant restrictions and covenants.
Restrictive covenants in our debt agreements may limit our operating and financial flexibility, and our inability to comply with these covenants could have significant implications . Our indebtedness, which at December 31, 2023 totaled outstanding borrowings of approximately $920.0 million, contains a number of significant restrictions and covenants.
Our senior officers have experience in the real estate industry, and the loss of them would likely have a significant adverse effect on our operations and could adversely impact our relationships with lenders and industry personnel. We do not have employment contracts with any of our senior officers.
Our senior officers have experience in the real estate industry, and the loss of them would likely have a significant adverse effect on our operations and could adversely impact our relationships with lenders and industry personnel. Except for our Chief Executive Officer and Chief Financial Officer, we do not have employment contracts with any of our senior officers.
Any phase-out of Fannie Mae and Freddie Mac, change in their mandate, or reduction in government support for apartment communities generally could result in adverse changes to interest rates, capital availability, development of additional apartment communities, and the value of these communities. Employee theft or fraud could result in loss.
In addition, any phase-out of Fannie Mae and Freddie Mac, change in their mandates, or reduction in government support for apartment communities generally could result in adverse changes to interest rates, capital availability, development of additional apartment communities, and the value of these communities.
A decrease in rental revenue, an increase in funding to support our acquisition and development needs, or other unmet liquidity needs could have an adverse effect on our ability to pay distributions to our shareholders or the Operating Partnership’s unitholders. Payment of distributions on our common shares is not guaranteed.
A decrease in rental revenue, an increase in funding to support our acquisition and development needs, or other unmet liquidity needs could have an adverse effect on our ability to pay distributions to our shareholders or the Operating Partnership’s unitholders.
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 . Substantially all of our investments are concentrated in the multifamily sector.
We depend 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 . Substantially all of our investments are concentrated in the multifamily sector. As a result, we are subject to risks inherent in investments in a single asset class.
Increases in real estate taxes, including recent property tax increases in several of the markets in which we operate, and service and transfer taxes may adversely affect our cash available for distributions and our ability to service our debt.
Adverse changes in taxes and other laws may affect our liabilities relating to our properties and operations. Increases in real estate taxes, including recent property tax increases in several of the markets in which we operate, and service and transfer taxes may adversely affect our cash available for distributions and our ability to service our debt.
To the extent that we experience any significant changes in the climate in areas where our apartment communities are located, we may experience extreme weather conditions and prolonged changes in precipitation and temperature, all of which could result in physical damage to, and/or a decrease in demand for, our apartment communities located in these areas.
In addition, we may experience extreme weather conditions and prolonged changes in precipitation and temperature, all of which could result in physical damage to, and/or a decrease in demand for, our apartment communities located in these areas.
The COVID-19 pandemic has and may continue to impact our financial condition, results of operations, and cash flows as well as adversely affect our residents and commercial tenants, the real estate market, and the global economy and financial markets generally.
The COVID-19 pandemic had, and any future pandemic may have, an impact on our financial condition, results of operations, and cash flows as well as adversely affect our residents and commercial tenants, the real estate market, and the global economy and financial markets generally.
Assumptions used to estimate annual and residual cash flow and the estimated holding period of these assets require the judgment of management. Complying with laws benefiting disabled persons or other safety regulations and requirements may affect our costs and investment strategies.
Assumptions used to estimate annual and residual cash flow and the estimated holding period of these assets require the judgment of management. If we cannot recover the carrying value of our real estate assets, our results of operations could suffer. Complying with laws benefiting disabled persons or other safety regulations and requirements may affect our costs and investment strategies.
Because these leases generally allow residents to leave at the expiration of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
Because these leases generally allow residents to leave at the expiration of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. Furthermore, we may be unable to sell a property with low occupancy without incurring a loss.
An event of default under the terms of our indebtedness would permit the lenders to accelerate indebtedness under effected agreements, which would include agreements that contain cross-acceleration provisions with respect to other indebtedness. Rising interest rates may affect our cost of capital and financing activities.
An event of default under the terms of our indebtedness would permit the lenders to accelerate indebtedness under effected agreements, which would include agreements that contain cross-acceleration provisions with respect to other indebtedness.
Risks related to properties under development, redevelopment, or newly developed properties may adversely affect our financial performance. We may be unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations, which could lead to increased costs or abandonment of projects.
We may be unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations, which could lead to increased costs or abandonment of projects.
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.
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.
Our Board may reduce distributions for a variety of reasons, including but not limited to the following: • operating and financial results cannot support the current distribution payment; • unanticipated costs, capital requirements, or cash requirements; • annual distribution requirements under the REIT provisions of the Code; • a conclusion that the payment of distributions would cause us to breach the terms of certain agreements or contracts, such as financial ratio covenants in our debt financing documents; or • other factors the Board of Trustees may consider relevant.
Our Board may reduce distributions for a variety of reasons, including but not limited to the following: • operating and financial results that may not support the current distribution payment; • unanticipated costs, capital requirements, or cash requirements; • annual distribution requirements under the REIT provisions of the Code; • a conclusion that the payment of distributions would cause us to breach the terms of certain agreements or contracts, such as financial ratio covenants in our debt financing documents; or • other factors the Board of Trustees may consider relevant. 16 Table of Contents We are a holding company with limited operations and, as such, we will rely on funds received from our Operating Partnership to pay liabilities, and the interests of our shareholders will be structurally subordinated to all liabilities and obligations of our Operating Partnership and its subsidiaries.
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.
Our apartment communities compete directly with other multifamily apartment communities, single-family homes, condominiums, and other short-term rentals. 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.
The continued effects of COVID-19 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.
The effects of any such outbreak are highly uncertain and cannot be predicted with confidence, including the scope, severity, and duration of the epidemic, pandemic, or other outbreak, the actions taken to contain it or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures.
Factors considered in evaluating impairment of our real estate assets held for investment include recurring net operating losses and other significant adverse changes in general market conditions that are considered permanent in nature.
We periodically evaluate the recoverability of the carrying value of our real estate assets under United States generally accepted accounting principles (“GAAP”). Factors considered in evaluating impairment of our real estate assets held for investment include recurring net operating losses and other significant adverse changes in general market conditions that are considered permanent in nature.
See “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. ” See “Adverse changes in taxes and other laws may affect our liabilities relating to our properties and operations.” Uncertain global macro-economic and political conditions could materially adversely affect our results of operations and financial condition.
See “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. ” See “Adverse changes in taxes and other laws may affect our liabilities relating to our properties and operations.” We depend on residents for revenue, and low occupancy rates or lease terminations could reduce our revenues from rents.
To qualify and maintain our status as a REIT, we must satisfy certain requirements with respect to the character of our assets.
Complying with REIT requirements may force us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments. To qualify and maintain our status as a REIT, we must satisfy certain requirements with respect to the character of our assets.
Effective management of rapid growth presents challenges, including: • the need to expand our management team and staff; • the need to enhance internal operating systems and controls; and • the ability to consistently achieve targeted returns on individual properties.
Effective management of rapid growth presents challenges, including: • the need to expand our management team and staff; • the need to enhance internal operating systems and controls; and • the ability to consistently achieve targeted returns on individual properties. 11 Table of Contents We may not be able to maintain similar rates of growth in the future or manage our growth effectively.
We may not be able to obtain financing on favorable terms, or at all, and we may not be able to complete lease-up of a property on schedule.
We may not be able to obtain financing on favorable terms, or at all, and we may not be able to complete lease-up of a property on schedule. The resulting time required for development, redevelopment, and lease-up means that we may have to wait years for significant cash returns.
At any time, the U.S. federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended.
Treasury Department, which may result in revisions to regulations and interpretations as well as statutory changes. 19 Table of Contents At any time, the U.S. federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended.
The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations as well as statutory changes.
The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S.
If we are unable to meet the technical requirements of a desired Section 1031 exchange, we may be required to make a special dividend payment to our shareholders if we are unable to mitigate the taxable gains realized. The failure to reinvest proceeds from sales of properties into tax-deferred exchanges could necessitate payments to unitholders with tax protection agreements.
If we are unable to meet the technical requirements of a desired Section 1031 exchange, we may be required to make a special dividend payment to 18 Table of Contents our shareholders if we are unable to mitigate the taxable gains realized.
However, notwithstanding every measure we take to address cybersecurity matters, and although we have not experienced any material losses relating to any cyber-attack, we cannot assure you that we will not suffer losses related to cyber-attacks in the future. 12 Table of Contents We may be responsible for potential liabilities under environmental laws.
The incident did not have a material impact on our business, operations or financial results. However, notwithstanding every measure we take to address cybersecurity matters, and although we have not experienced any material losses relating to any cyber-attack, we cannot assure you that we will not suffer losses related to cyber-attacks in the future.
The occurrence of any of the foregoing could have an adverse effect on our reputation, the price of our stock and our business, financial condition and results of operations, including increased capital expenditures and operating expenses. Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to our shareholders.
The occurrence of any of the foregoing could have an adverse effect on our reputation, the price of our stock and our business, financial condition and results of operations, including increased capital expenditures and operating expenses. Payment of distributions on our common shares is not guaranteed.
We face risks associated with zoning and permitting of our communities, the majority of which are governed by municipal, county, and state regulations. We may be liable for costs associated with bringing communities into compliance and additionally may face costs or delays when seeking approvals for redevelopment or development projects within our portfolio.
Complying with zoning and permitting law may affect our acquisition, redevelopment, and development costs. We face risks associated with zoning and permitting of our communities, the majority of which are governed by municipal, county, and state regulations.
If we are not able to satisfy all of the technical requirements of Section 1031, or if Section 1031 is repealed, selling a property with a tax protection agreement could trigger a material obligation to make the associated unitholders whole. Complying with REIT requirements may force us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
We dispose of properties in transactions intended to qualify as “like-kind exchanges” under Section 1031 of the Code whenever possible. If we are not able to satisfy all of the technical requirements of Section 1031, or if Section 1031 is repealed, selling a property with a tax protection agreement could trigger a material obligation to make the associated unitholders whole.
Similarly, disclosure of any non-public sensitive information relating to our business or our residents or prospective residents could damage our reputation, our business, or our results of operations. The continuing evolution of social media will present us with new and ongoing challenges and risks. Litigation risks could affect our business .
Similarly, disclosure of any non-public sensitive information relating to our business or our residents or prospective residents could damage our reputation, our business, or our results of operations.
Our financial performance is subject to risks associated with the real estate industry and ownership of apartment communities.
Global outbreaks of infectious diseases may also exacerbate certain of the other risks described in this “Risk Factors” section. Our financial performance is subject to risks associated with the real estate industry and ownership of apartment communities.
In that regard, in September 2020, we filed a shelf registration statement with the SEC that enables us to sell an undetermined number of equity and debt securities as defined in the prospectus, including under the 2021 ATM Program.
We have a shelf registration statement that enables us to sell an undetermined number of equity and debt securities as defined in the prospectus, including under the 2021 ATM Program. Future sales of common shares, preferred shares, or convertible debt securities may dilute current shareholders and could have an adverse impact on the market price of our common shares.
We may face reputational 16 Table of Contents damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies.
The focus and activism related to ESG and related matters may constrain our business operations or increase expenses. In addition, we may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies, including our residents.
We have tax protection agreements in place on thirty-seven properties. If these properties are sold in a taxable transaction, we must make the unitholders associated with these particular properties whole through the payment of their related tax. We dispose of properties in transactions intended to qualify as “like-kind exchanges” under Section 1031 of the Code whenever possible.
The failure to reinvest proceeds from sales of properties into tax-deferred exchanges could necessitate payments to unitholders with tax protection agreements. We have tax protection agreements in place on twenty-eight properties. If these properties are sold in a taxable transaction, we must make the unitholders associated with these particular properties whole through the payment of their related tax.
As a result, any increase in interest rates could increase our interest expense on our variable rate debt, increase our interest rates when refinancing fixed-rate debt, increase the cost of issuing new debt, and reduce the cash available for distribution to shareholders. Interest rate hedging arrangements may result in losses.
The potential for rising interest rates could limit our ability to refinance portions of our fixed-rate indebtedness when it matures and would increase our interest costs. As a result, any increase in interest rates could reduce the cash available for distribution to shareholders.
The potential for rising interest rates could limit our ability to refinance portions of our fixed-rate indebtedness when it matures and would increase our interest costs. We also have an unsecured credit facility and term loan that bears interest at variable rates based on amounts drawn.
We have incurred, and may in the future incur, additional indebtedness that bears interest at a variable rate. We also have an Unsecured Credit Facility that bears interest at variable rates based on amounts drawn.
Some regulations related to zoning or permitting allow governmental entities to discontinue operations if violations are left uncured, which would significantly impact our business. We are not aware of any non-compliance at our communities that would have a significant adverse effect on our business.
We may be liable for costs associated with bringing communities into compliance and additionally may face costs or delays when seeking approvals for redevelopment or development projects within our portfolio. Some regulations related to zoning or permitting allow governmental entities to discontinue operations if violations are left uncured, which would significantly impact our business.
Future cash flows may not be sufficient to ensure recoverability of the carrying value of our real estate assets. We periodically evaluate the recoverability of the carrying value of our real estate assets under United States generally accepted accounting principles (“GAAP”).
We are not aware of any non-compliance at our communities that would have a significant adverse effect on our business. Future cash flows may not be sufficient to ensure recoverability of the carrying value of our real estate assets.
We may continue to be obligated to repay mortgage indebtedness or other obligations related to an affected apartment community.
We may continue to be obligated to repay mortgage indebtedness or other obligations related to an affected apartment community. To the extent that climate change causes an increase in catastrophic weather events, such as severe storms, fires, or floods, our properties may be susceptible to an increased risk of weather-related damage.
We may not have insurance that covers any losses in full or covers losses from particular criminal acts. 14 Table of Contents Risks Related to Our Indebtedness and Financings Our inability to renew, repay, or refinance our debt may result in losses.
Risks Related to Our Indebtedness and Financings 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.
See “ The excise tax included in the Inflation Reduction Act of 2022 may hinder our ability to repurchase common shares or decrease the value of our securities following a business combination .” We may be unable to retain or attract qualified management. We are dependent upon our senior officers for essentially all aspects of our business operations.
See “ Legislative or regulatory actions affecting REITs could have an adverse effect on us or our shareholders .” We may be unable to retain or attract qualified management. We depend on our senior officers for essentially all aspects of our business operations.
Corporate social responsibility, specifically related to ESG, may impose additional costs and expose us to new risks. ESG evaluations are highly important to many investors and stakeholders. Many investors use ESG factors to guide their investment decisions.
Certain organizations that provide corporate risk and corporate governance advisory services to investors have developed scores and ratings to evaluate companies based upon ESG metrics. ESG evaluations are highly important to many investors and stakeholders. Many investors use ESG factors to guide their investment decisions.
Removed
The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia. The United States and other NATO member states, as well as non-member states, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals.
Added
Rental payments account for most of our revenue. The underlying value of our properties and the ability to make distributions depend on the ability of our residents to generate enough income to pay their rents in a timely manner. The success of our properties depends on the occupancy levels, rental income and operating expenses of our properties and our business.
Removed
These and any future additional sanctions and any resulting conflict between Russia, the United States and NATO countries could have an adverse impact on our current operations because they could cause declining conditions in worldwide credit and capital markets and the economy in general.
Added
Residents’ inability to timely or fully pay their rents may be impacted by their employment prospects and/or other constraints on their personal finances, including debts, purchases and other factors. These and other changes beyond our control may adversely affect our residents’ ability to make their required lease payments.
Removed
Further, such invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United States and other countries could to lead to market disruptions, including significant volatility in the credit and capital markets, which could have an adverse impact on our operations and financial performance.
Added
If residents default on their leases or fail to renew their leases, we may be unable to re-lease the property for the rent previously received. Our apartment leases are generally for a term of 12 months or less.
Removed
Moreover, many of the other risks identified in this Report may be heightened because of the adverse impacts of COVID-19.
Added
These events and others could cause us to reduce the amount of distributions we make to shareholders and may also cause the value of our common shares to decline. Uncertain global macro-economic and political conditions could materially adversely affect our results of operations and financial condition.
Removed
The ongoing COVID-19 pandemic and continuing restrictions intended to prevent and mitigate its spread could have additional adverse effects on our business, including with regards to: • our employees, residents, and commercial tenants, third party vendors and suppliers, and apartment communities, as well as our cash flow, business, financial condition, and results of operations; • deteriorating economic conditions and rising unemployment rates in the markets where we own apartment communities or in which we may invest in the future; • government actions or regulations arising out of the COVID-19 pandemic that limit economic and consumer activity or affect the operation of our properties; 8 Table of Contents • rental conditions in our markets, including occupancy levels and rental rates, changes in tax and housing laws, or other factors, including the impact of the COVID-19-related governmental rules and regulations relating to rental rates, evictions, and other rental conditions; and • changes in operating costs related to complying with COVID-19 restrictions or otherwise responding to the COVID-19 pandemic.
Added
Security breaches could compromise our information and expose us to liability, which would cause our business and reputation to suffer. Information security risks with respect to data privacy have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber-attacks.
Removed
As a result, we are subject to risks inherent in investments in a single type of property.
Added
In the ordinary course 12 Table of Contents of our business we acquire and store sensitive, private data, including intellectual property, our proprietary business information and personally identifiable information of our prospective and current residents, our employees and third-party service providers in our offices and on our networks and website and on third-party provider networks.
Removed
Our apartment communities compete directly with other multifamily apartment communities, single-family homes, condominiums, and other short-term rentals. Short-term leases could expose us to the effects of declining market rents . Our apartment leases are generally for a term of 12 months or less.
Added
We may share some of this information with service providers who assist us with certain aspects of our business. The secure processing and maintenance of this information is critical to our operations and business and growth strategies.
Removed
We may not be able to maintain similar rates of growth in the future or manage our growth effectively. 11 Table of Contents Adverse changes in taxes and other laws may affect our liabilities relating to our properties and operations.
Added
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
Removed
The incident did not have a material impact on our business, operations or financial results.
Added
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation.
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Item 2. Properties
Properties — owned and leased real estate
8 edited+0 added−1 removed9 unchanged
Item 2. Properties
Properties — owned and leased real estate
8 edited+0 added−1 removed9 unchanged
2022 filing
2023 filing
Biggest changeCloud, MN (2) 93 7,861 95.7 % Portage - Minneapolis, MN (2) 62 9,353 95.2 % River Pointe - Fridley, MN (2) 300 38,608 93.0 % Southdale Parc - Richfield, MN (2) 69 9,775 92.8 % Union Pointe - Longmont, CO 256 76,317 91.0 % Venue on Knox - Minneapolis, MN (2) 97 20,695 92.8 % Windsor Gates - Brooklyn Park, MN (2) 200 22,933 92.0 % Wingate - New Hope, MN (2) 136 16,028 97.8 % Woodhaven - Minneapolis, MN (2) 176 25,243 94.3 % Woodland Pointe - Woodbury, MN (2) 288 49,721 93.8 % Zest - Minneapolis, MN (1) 45 11,429 95.6 % TOTAL NON-SAME-STORE 3,735 $ 712,904 TOTAL MULTIFAMILY 15,065 $ 2,507,448 22 Table of Contents (in thousands) Investment Physical Net Rentable (initial cost plus Occupancy Square improvements less as of Property Name and Location Footage impairment) December 31, 2022 OTHER - MIXED USE COMMERCIAL 71 France - Edina, MN (1) 20,955 $ 6,397 77.5 % Civic Lofts - Denver, CO 1,600 — 100.0 % Lugano at Cherry Creek - Denver, CO 13,295 2,338 76.0 % Noko Apartments - Minneapolis, MN 24,002 118 100.0 % Oxbo Urban Rentals- St Paul, MN 11,477 3,526 100.0 % Plaza Apartments - Minot, ND 50,610 9,300 100.0 % Red 20 Apartments - Minneapolis, MN (1) 9,155 2,959 81.4 % Zest - Minneapolis, MN (1) 3,200 53 100.0 % TOTAL OTHER - MIXED USE COMMERCIAL 134,294 $ 24,691 OTHER - COMMERCIAL 3100 10th St SW - Minot, ND (4) 9,690 $ 1,985 N/A TOTAL OTHER - COMMERCIAL 9,690 $ 1,985 TOTAL SQUARE FOOTAGE - OTHER 143,984 TOTAL GROSS REAL ESTATE INVESTMENTS $ 2,534,124 (1) Encumbered by mortgage debt.
Biggest changeCloud, MN (1) 149 19,583 92.0 % Rimrock West Apartments - Billings, MT 78 5,702 96.2 % River Pointe - Fridley, MN (2) 300 41,979 95.0 % River Ridge Apartment Homes - Bismarck, ND 146 26,678 95.9 % Rocky Meadows Apartments - Billings, MT 98 7,893 92.9 % Rum River Apartments - Isanti, MN 72 6,199 94.4 % Silver Springs Apartment Homes - Rapid City, SD 52 4,268 96.2 % Southdale Parc - Richfield, MN (2) 69 7,104 88.4 % SouthFork Townhomes + Flats - Lakeville, MN (1) 272 54,943 91.5 % Southpoint Apartments - Grand Forks, ND 96 10,878 96.9 % Sunset Trail Apartment Homes - Rochester, MN 146 19,111 92.5 % Union Pointe - Longmont, CO 256 76,371 96.9 % Venue on Knox - Minneapolis, MN (2) 97 24,178 89.7 % Westend - Denver, CO 390 129,283 96.2 % Whispering Ridge - Omaha, NE (1) 336 33,158 91.4 % Wingate - New Hope, MN (2) 136 13,978 99.3 % Woodhaven - Minneapolis, MN (2) 176 25,911 92.6 % Woodland Pointe - Woodbury, MN (2) 288 61,211 91.7 % Woodridge on Second - Rochester, MN 110 12,460 93.6 % TOTAL SAME-STORE 12,173 $ 2,106,517 NON-SAME-STORE Elements of Linden Hills - Minneapolis, MN (1) 31 9,084 96.8 % 22 Table of Contents (in thousands) Investment Physical Number of (initial cost plus Occupancy Apartment improvements less as of Community Name and Location Homes impairment) December 31, 2023 Lake Vista Apartment Homes - Loveland, CO (1) 303 87,789 94.4 % Lyra Apartments - Centennial, CO (2) 215 93,045 93.5 % Martin Blu - Eden Prairie, MN (1) 191 49,625 93.7 % Noko Apartments - Minneapolis, MN 130 44,846 95.4 % Zest - Minneapolis, MN (1) 45 11,638 97.8 % TOTAL NON-SAME-STORE 915 $ 296,027 TOTAL MULTIFAMILY 13,088 $ 2,402,544 (in thousands) Investment Physical Net Rentable (initial cost plus Occupancy Square improvements less as of Property Name and Location Footage impairment) December 31, 2023 OTHER - MIXED USE COMMERCIAL 71 France - Edina, MN (1) 20,922 $ 6,495 86.1 % Civic Lofts - Denver, CO 1,600 — 100.0 % Lugano at Cherry Creek - Denver, CO 11,998 2,461 92.2 % Noko Apartments - Minneapolis, MN 23,988 118 100.0 % Oxbo Urban Rentals- St Paul, MN 11,477 3,526 100.0 % Red 20 Apartments - Minneapolis, MN (1) 10,508 2,959 70.9 % Zest - Minneapolis, MN (1) 3,200 53 100.0 % TOTAL OTHER - MIXED USE COMMERCIAL 83,693 $ 15,612 OTHER - COMMERCIAL 3100 10th St SW - Minot, ND (4) 9,690 $ 1,990 N/A TOTAL OTHER - COMMERCIAL 9,690 $ 1,990 TOTAL SQUARE FOOTAGE - OTHER 93,383 TOTAL GROSS REAL ESTATE INVESTMENTS $ 2,420,146 (1) Encumbered by mortgage debt.
We own the following interests in real estate either through our wholly-owned subsidiaries or by ownership of a controlling interest in an 20 Table of Contents entity owning the real estate. We account for these interests on a consolidated basis. Additional information is included in Schedule III to our financial statements included in this Report.
We own the following interests in real estate either through our wholly-owned subsidiaries or by ownership of a controlling interest in an entity owning the real estate. We account for these interests on a consolidated basis. Additional information is included in Schedule III to our financial statements included in this Report.
Summary of Communities Owned as of December 31, 2022 The following table presents information regarding our 84 apartment communities held for investment, as of December 31, 2022. We provide certain information on a same-store and non-same-store basis.
Summary of Communities Owned as of December 31, 2023 The following table presents information regarding our 72 apartment communities held for investment, as of December 31, 2023. We provide certain information on a same-store and non-same-store basis.
(2) Encumbered by mortgage in our Fannie Mae Credit Facility. (3) Owned by a joint venture entity and consolidated in our financial statements. We have an approximately 86.1% ownership in Cypress Court. (4) This is our Minot corporate office building. (5) Decreased physical occupancy resulting from value add projects.
(2) Encumbered by mortgage in our Fannie Mae Credit Facility. (3) Owned by a joint venture entity and consolidated in our financial statements. We have an approximately 86.1% ownership in Cypress Court. (4) This is our Minot corporate office building.
Cloud, MN 116 10,288 99.1 % Greenfield - Omaha, NE 96 7,941 97.9 % Homestead Garden Apartments - Rapid City, SD 152 16,341 90.1 % Ironwood - New Hope, MN 182 39,579 90.7 % Lakeside Village Apartment Homes - Lincoln, NE 208 22,121 93.8 % Legacy Apartments - Grand Forks, ND 360 34,125 95.0 % Legacy Heights Apartment Homes - Bismarck, ND 119 15,348 98.3 % Lugano at Cherry Creek - Denver, CO 328 99,022 94.8 % Meadows Apartments - Jamestown, ND 81 7,212 98.8 % Monticello Crossings - Monticello, MN 202 32,501 97.5 % Monticello Village - Monticello, MN 60 5,509 95.0 % Northridge Apartments - Bismarck, ND 68 8,665 95.6 % Olympic Village Apartments - Billings, MT 274 16,069 95.6 % Oxbo Urban Rentals - St Paul, MN 191 57,960 91.6 % Park Meadows Apartment Homes - Waite Park, MN 360 20,391 95.3 % Park Place Apartments - Plymouth, MN 500 110,422 95.4 % Parkhouse Apartment Homes - Thornton, CO 465 144,162 95.1 % Plaza Apartments - Minot, ND 71 16,811 87.3 % Pointe West Apartments - Rapid City, SD 90 6,077 97.8 % Ponds at Heritage Place - Sartell, MN 58 5,525 98.3 % Prosper West - Waite Park, MN (1)(5) 313 28,349 82.4 % Quarry Ridge Apartments - Rochester, MN (1)(5) 320 41,055 90.0 % Red 20 Apartments - Minneapolis, MN (1) 130 26,774 93.1 % Regency Park Estates - St.
Cloud, MN 116 11,236 91.4 % Greenfield - Omaha, NE 96 7,847 95.8 % Grove Ridge - Cottage Grove, MN (2) 84 12,311 97.6 % Homestead Garden Apartments - Rapid City, SD 152 16,577 95.4 % Ironwood - New Hope, MN 182 39,803 91.8 % Lakeside Village Apartment Homes - Lincoln, NE 208 22,997 93.8 % Legacy Apartments - Grand Forks, ND 360 34,164 94.7 % Legacy Heights Apartment Homes - Bismarck, ND 119 15,249 96.6 % Lugano at Cherry Creek - Denver, CO 328 103,855 94.5 % Meadows Apartments - Jamestown, ND 81 7,101 98.8 % Monticello Crossings - Monticello, MN 202 32,426 92.1 % Monticello Village - Monticello, MN 60 5,452 91.7 % New Hope Garden & Village - New Hope, MN (2) 150 15,574 94.7 % Northridge Apartments - Bismarck, ND 68 8,679 94.1 % Olympic Village Apartments - Billings, MT 274 15,779 94.5 % Oxbo Urban Rentals - St Paul, MN 191 58,106 95.3 % Palisades - Roseville, MN (1) 330 58,302 97.3 % Park Place Apartments - Plymouth, MN 500 111,488 95.8 % Parkhouse Apartment Homes - Thornton, CO (1) 465 145,653 94.8 % Plymouth Pointe - Plymouth, MN (2) 96 14,192 97.9 % Pointe West Apartments - Rapid City, SD 90 5,853 91.1 % Ponds at Heritage Place - Sartell, MN 58 5,469 91.4 % Prosper West - Waite Park, MN (1) 313 29,035 93.3 % Quarry Ridge Apartments - Rochester, MN 320 41,771 95.6 % Red 20 Apartments - Minneapolis, MN (1) 130 26,825 96.2 % Regency Park Estates - St.
(in thousands) Investment Physical Number of (initial cost plus Occupancy Apartment improvements less as of Community Name and Location Homes impairment) December 31, 2022 SAME-STORE 71 France - Edina, MN (1) 241 $ 67,264 95.0 % Alps Park Apartments - Rapid City, SD 71 6,569 98.6 % Arcata Apartments - Golden Valley, MN 165 33,700 93.3 % Ashland Apartment Homes - Grand Forks, ND 84 8,712 96.4 % Avalon Cove Townhomes - Rochester, MN 187 37,570 92.5 % Boulder Court Apartment Homes - Eagan, MN 115 9,744 94.8 % Canyon Lake Apartments - Rapid City, SD 109 6,734 94.5 % Cardinal Point Apartments - Grand Forks, ND 251 35,540 94.4 % Cascade Shores Townhomes + Flats - Rochester, MN (1) 366 83,283 94.0 % Castlerock Apartment Homes - Billings, MT 165 8,041 94.6 % Chateau Apartment Homes - Minot, ND 104 21,615 92.3 % Cimarron Hills Apartments - Omaha, NE (1) 234 15,550 97.4 % Commons and Landing at Southgate - Minot, ND 341 56,250 97.7 % Connelly on Eleven - Burnsville, MN 240 30,928 91.7 % Cottonwood Apartment Homes - Bismarck, ND 268 24,736 95.9 % Country Meadows Apartment Homes - Billings, MT 133 10,042 99.3 % Cypress Court Apartments - St.
(in thousands) Investment Physical Number of (initial cost plus Occupancy Apartment improvements less as of Community Name and Location Homes impairment) December 31, 2023 SAME-STORE 71 France - Edina, MN (1) 241 $ 68,136 93.0 % Alps Park Apartments - Rapid City, SD 71 6,509 93.0 % Arcata Apartments - Golden Valley, MN 165 33,905 93.3 % Ashland Apartment Homes - Grand Forks, ND 84 8,595 96.4 % Avalon Cove Townhomes - Rochester, MN 187 40,674 92.5 % Bayberry Place - Eagan, MN (2) 120 17,557 95.0 % Burgundy & Hillsboro - New Hope, MN (2) 250 36,115 95.6 % Canyon Lake Apartments - Rapid City, SD 109 6,598 92.7 % Cardinal Point Apartments - Grand Forks, ND 251 34,889 93.6 % Cascade Shores Townhomes + Flats - Rochester, MN (1) 366 84,365 94.5 % Castlerock Apartment Homes - Billings, MT 165 7,675 92.7 % Civic Lofts - Denver, CO 176 61,945 97.7 % Connelly on Eleven - Burnsville, MN 240 30,760 95.4 % Cottonwood Apartment Homes - Bismarck, ND 268 25,251 95.2 % Country Meadows Apartment Homes - Billings, MT 133 9,737 92.5 % Cypress Court Apartments - St.
Cloud, MN (1) (3) 196 21,128 96.4 % Deer Ridge Apartment Homes - Jamestown, ND 163 25,299 95.7 % Donovan Apartment Homes - Lincoln, NE (1) 232 24,067 92.2 % Dylan at RiNo - Denver, CO 274 90,578 96.4 % Evergreen Apartment Homes - Isanti, MN 72 7,366 94.4 % FreightYard Townhomes & Flats - Minneapolis, MN 96 26,877 95.8 % Gardens Apartments - Grand Forks, ND 74 9,380 96.0 % Grand Gateway Apartment Homes - St.
Cloud, MN (1) (3) 196 21,536 96.4 % 21 Table of Contents (in thousands) Investment Physical Number of (initial cost plus Occupancy Apartment improvements less as of Community Name and Location Homes impairment) December 31, 2023 Deer Ridge Apartment Homes - Jamestown, ND 163 25,654 93.3 % Donovan Apartment Homes - Lincoln, NE 232 25,508 93.5 % Dylan at RiNo - Denver, CO 274 90,746 96.0 % Evergreen Apartment Homes - Isanti, MN 72 7,406 100.0 % FreightYard Townhomes & Flats - Minneapolis, MN 96 26,952 93.8 % Gardens Apartments - Grand Forks, ND 74 9,372 94.6 % Grand Gateway Apartment Homes - St.
Properties by State The following table presents, as of December 31, 2022, the total property owned, net of accumulated depreciation, by state: (in thousands) State Total % of Total Minnesota $ 1,046,037 52.3 % Colorado 632,310 31.6 % North Dakota 203,955 10.2 % Nebraska 73,023 3.7 % South Dakota 24,179 1.2 % Montana 19,219 1.0 % Total $ 1,998,723 100.0 %
Properties by State The following table presents, as of December 31, 2023, the total property owned by state: (in thousands) State Total % of Total Minnesota $ 1,244,397 51.5 % Colorado 791,148 32.7 % North Dakota 208,500 8.6 % Nebraska 89,510 3.7 % South Dakota 39,805 1.6 % Montana 46,786 1.9 % Total $ 2,420,146 100.0 %
Removed
Cloud, MN (1)(5) 149 18,940 84.6 % Rimrock West Apartments - Billings, MT 78 5,921 93.6 % River Ridge Apartment Homes - Bismarck, ND 146 26,460 99.3 % Rocky Meadows Apartments - Billings, MT 98 8,114 96.9 % Rum River Apartments - Isanti, MN 72 6,208 95.8 % 21 Table of Contents (in thousands) Investment Physical Number of (initial cost plus Occupancy Apartment improvements less as of Community Name and Location Homes impairment) December 31, 2022 Silver Springs Apartment Homes - Rapid City, SD 52 4,338 88.5 % South Pointe Apartment Homes - Minot, ND 196 16,472 92.4 % SouthFork Townhomes + Flats - Lakeville, MN (1) 272 54,801 94.1 % Southpoint Apartments - Grand Forks, ND 96 10,913 95.8 % Sunset Trail Apartment Homes - Rochester, MN 146 16,771 97.3 % Thomasbrook Apartment - Lincoln, NE (1) 264 17,297 90.5 % Westend - Denver, CO 390 128,975 97.4 % Whispering Ridge - Omaha, NE (1) 336 33,343 92.0 % Woodridge on Second - Rochester, MN 110 12,771 95.5 % TOTAL SAME-STORE 11,330 $ 1,794,544 NON-SAME-STORE Bayberry Place - Eagan, MN (2) 120 $ 16,721 93.3 % Burgundy & Hillsboro - New Hope, MN (2) 250 35,799 96.8 % Civic Lofts - Denver, CO 176 61,520 96.6 % Elements of Linden Hills - Minneapolis, MN (1) 31 8,972 100.0 % Gatewood - Waite Park, MN (2) 120 7,993 95.8 % Grove Ridge - Cottage Grove, MN (2) 84 12,072 98.8 % Legacy Waite Park - Waite Park, MN (2) 119 10,976 95.8 % Lyra Apartments - Centennial, CO 215 92,785 94.0 % Martin Blu - Eden Prairie, MN (1) 191 49,082 96.3 % New Hope Garden & Village - New Hope, MN (2) 150 15,213 97.3 % Noko Apartments - Minneapolis, MN 131 44,649 93.9 % Palisades - Roseville, MN (1) 330 54,506 94.9 % Plymouth Pointe - Plymouth, MN (2) 96 14,653 96.9 % Pointe West - St.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed0 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed0 unchanged
2022 filing
2023 filing
Biggest changeItem 3. Legal Proceedings In the ordinary course of our operations, we become involved in litigation. At this time, we know of no material pending or threatened legal proceedings, or other proceedings contemplated by governmental authorities, that would have a material impact upon us. Item 4. Mine Safety Disclosures Not Applicable. 23 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings In the ordinary course of our operations, we become involved in litigation. At this time, we know of no material pending or threatened legal proceedings to which we are a party or of which any of our properties are the subject.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−1 removed5 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−1 removed5 unchanged
2022 filing
2023 filing
Biggest changeOn November 30, 2022, we issued an aggregate of 4,641 unregistered common shares to limited partners of Centerspace, LP upon exercise of their Exchange Rights for an equal number of Units. All such issuances of our common shares were exempt from registration as private placements under Section 4(a)(2) of the Securities Act.
Biggest changeAll such issuances of our common shares were exempt from registration as private placements under Section 4(a)(2) of the Securities Act. We have registered the resale of such common shares under the Securities Act.
(2) Amount includes commissions paid. (3) On March 10, 2022, the board authorized a new $50.0 million share repurchase program.
(2) Amount includes commissions paid. (3) On March 10, 2022, the board authorized a $50.0 million share repurchase program.
Set forth below is a graph that compares, for the five years commencing December 31, 2017 and ending December 31, 2022, the cumulative total returns for our common shares with the comparable cumulative total return of three indices, the Standard & Poor’s 500 Index (“S&P 500”), the FTSE Nareit Equity REITs Index, and the FTSE Nareit Equity Apartments Index, the latter of which is an index prepared by the FTSE Group for the National Association of Real Estate Investment Trusts, which includes all tax-qualified equity REITs listed on the NYSE and the NASDAQ Market.
Set forth below is a graph that compares, for the five years commencing December 31, 2018 and ending December 31, 2023, the cumulative total returns for our common shares with the comparable cumulative total return of three indices, the Standard & Poor’s 500 Index (“S&P 500”), the FTSE Nareit Equity REITs Index, and the FTSE Nareit Equity Apartments Index, the latter of which is an index prepared by the FTSE Group for the National Association of Real Estate Investment Trusts, which includes all tax-qualified equity REITs listed on the NYSE and the NASDAQ Market.
The performance graph assumes that, at the close of trading on December 31, 2017, $100 was invested in our common shares and in each of the indices.
The performance graph assumes that, at the close of trading on December 31, 2018, $100 was invested in our common shares and in each of the indices.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our Common Shares of Beneficial Interest, no par value, are traded on the New York Stock Exchange under the symbol “CSR”. Shareholders As of February 14, 2023, there were approximately 2,524 common shareholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our Common Shares of Beneficial Interest, no par value, are traded on the New York Stock Exchange under the symbol “CSR”. Shareholders As of February 13, 2024, there were approximately 2,424 common shareholders of record.
Issuer Purchases of Equity Securities Maximum Dollar Total Number of Shares Amount of Shares That Total Number of Average Price Purchased as Part of May Yet Be Purchased Shares and Units Paid per Publicly Announced Under the Plans or Period Purchased (1) Share and Unit (2) Plans or Programs Programs (3) October 1 - 31, 2022 426,773 $ 67.25 426,773 $ 20,949,598 November 1 - 30, 2022 3,729 81.67 — 20,949,598 December 1 - 31, 2022 — — — 20,949,598 Total 430,502 $ 67.37 426,773 (1) Includes Units redeemed for cash pursuant to the exercise of exchange rights.
Issuer Purchases of Equity Securities Maximum Dollar Total Number of Shares Amount of Shares That Total Number of Average Price Purchased as Part of May Yet Be Purchased Shares and Units Paid per Publicly Announced Under the Plans or Period Purchased (1) Share and Unit (2) Plans or Programs Programs (3) October 1 - 31, 2023 — $ — — $ 14,234,010 November 1 - 30, 2023 75,465 52.13 75,465 10,301,837 December 1 - 31, 2023 26,482 53.16 16,511 9,414,859 Total 101,947 $ 52.40 91,976 (1) Includes Units redeemed for cash pursuant to the exercise of exchange rights.
The comparison assumes the reinvestment of all distributions. 24 Table of Contents Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Centerspace 100.00 91.12 140.57 143.03 232.09 127.74 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 FTSE Nareit Equity REITs 100.00 95.38 120.17 110.56 158.36 119.77 FTSE Nareit Equity Apartments Index 100.00 103.70 130.99 110.89 181.44 123.47 Source: S&P Global Market Intelligence Item 6.
The comparison assumes the reinvestment of all distributions. 24 Table of Contents Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Centerspace 100.00 154.26 156.96 254.70 140.18 146.30 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 FTSE Nareit Equity REITs 100.00 126.00 115.92 166.04 125.58 142.83 FTSE Nareit Equity Apartments Index 100.00 126.32 106.94 174.97 119.06 126.05 Source: S&P Global Market Intelligence
Removed
We have registered the resale of such common shares under the Securities Act.
Added
On September 30, 2023, October 31, 2023, and November 30, 2023, we issued an aggregate of 2,283, 1,265, and 1,505 unregistered common shares, respectively, to limited partners of Centerspace, LP upon exercise of their Exchange Rights for an equal number of Units.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
76 edited+15 added−13 removed45 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
76 edited+15 added−13 removed45 unchanged
2022 filing
2023 filing
Biggest change(in thousands, except percentages) Year Ended December 31, 2022 2021 $ Change % Change Operating income (loss) $ 13,861 $ 29,892 $ (16,031) (53.6) % Adjustments: Property management expenses 9,895 8,752 1,143 13.1 % Casualty loss 1,591 344 1,247 362.5 % Depreciation and amortization 105,257 92,165 13,092 14.2 % General and administrative expenses 17,516 16,213 1,303 8.0 % (Gain) loss on sale of real estate and other investments (41) (27,518) 27,477 (99.9) % Net operating income $ 148,079 $ 119,848 $ 28,231 23.6 % GAAP and Non-GAAP Financial Measures The following table metrics, including GAAP and non-GAAP measures, cover the years ended December 31, 2022 and 2021. 27 Table of Contents (in thousands) Year Ended December 31, 2022 2021 $ Change % Change Revenue Same-store (1) $ 197,348 $ 179,348 $ 18,000 10.0 % Non-same-store (1) 55,602 16,276 39,326 241.6 % Other (1) 3,766 2,831 935 33.0 % Dispositions (1) — 3,250 (3,250) (100.0) % Total 256,716 201,705 55,011 27.3 % Property operating expenses, including real estate taxes Same-store (1) 80,368 72,009 8,359 11.6 % Non-same-store (1) 27,063 7,087 19,976 281.9 % Other (1) 1,203 1,120 83 7.4 % Dispositions (1) 3 1,641 (1,638) (99.8) % Total 108,637 81,857 26,780 32.7 % Net operating income (1) Same-store (1) 116,980 107,339 9,641 9.0 % Non-same-store (1) 28,539 9,189 19,350 210.6 % Other (1) 2,563 1,711 852 49.8 % Dispositions (1) (3) 1,609 (1,612) (100.2) % Total $ 148,079 $ 119,848 $ 28,231 23.6 % Property management expense (9,895) (8,752) 1,143 13.1 % Casualty loss (1,591) (344) 1,247 362.5 % Depreciation and amortization (105,257) (92,165) 13,092 14.2 % General and administrative expenses (17,516) (16,213) 1,303 8.0 % Gain (loss) on sale of real estate and other investments 41 27,518 27,477 (99.9) % Interest expense (32,750) (29,078) 3,672 12.6 % Interest and other income (loss) 1,248 (2,915) 4,163 (142.8) % NET INCOME (LOSS) $ (17,641) $ (2,101) $ (15,540) 739.6 % Dividends to preferred unitholders (640) (640) — — Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units 4,299 2,806 1,493 53.2 % Net (income) loss attributable to noncontrolling interests – consolidated real estate entities (127) (94) (33) 35.1 % Net income (loss) attributable to controlling interests (14,109) (29) (14,080) 48,551.7 % Dividends to preferred shareholders (6,428) (6,428) — — NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (20,537) $ (6,457) $ (14,080) 218.1 % (1) This is a Non-GAAP financial measure which is a component of NOI (non-GAAP), as defined above.
Biggest change(in thousands, except percentages) Year Ended December 31, 2023 2022 $ Change % Change Operating income $ 84,453 $ 13,861 $ 70,592 509.3 % Adjustments: Property management expenses 9,353 9,895 (542) (5.5) % Casualty loss 2,095 1,591 504 31.7 % Depreciation and amortization 101,678 105,257 (3,579) (3.4) % Impairment 5,218 — 5,218 N/A General and administrative expenses 20,080 17,516 2,564 14.6 % Gain on sale of real estate and other investments (71,244) (41) (71,203) * Loss on litigation settlement 3,864 — 3,864 N/A Net operating income $ 155,497 $ 148,079 $ 7,418 5.0 % *Not a meaningful percentage GAAP and Non-GAAP Financial Measures The following table metrics, including GAAP and non-GAAP measures, cover the years ended December 31, 2023 and 2022. 27 Table of Contents (in thousands) Year Ended December 31, 2023 2022 $ Change % Change Revenue Same-store (1) $ 230,333 $ 214,941 $ 15,392 7.2 % Non-same-store (1) 16,031 9,434 6,597 69.9 % Other (1) 2,601 2,466 135 5.5 % Dispositions (1) 12,344 29,875 (17,531) (58.7) % Total 261,309 256,716 4,593 1.8 % Property operating expenses, including real estate taxes Same-store (1) 92,847 88,785 4,062 4.6 % Non-same-store (1) 5,915 3,542 2,373 67.0 % Other (1) 797 940 (143) (15.2) % Dispositions (1) 6,253 15,370 (9,117) (59.3) % Total 105,812 108,637 (2,825) (2.6) % Net operating income (2) Same-store (1) 137,486 126,156 11,330 9.0 % Non-same-store (1) 10,116 5,892 4,224 71.7 % Other (1) 1,804 1,526 278 18.2 % Dispositions (1) 6,091 14,505 (8,414) (58.0) % Total $ 155,497 $ 148,079 $ 7,418 5.0 % Property management expense (9,353) (9,895) (542) (5.5) % Casualty loss (2,095) (1,591) 504 31.7 % Depreciation and amortization (101,678) (105,257) (3,579) (3.4) % Impairment of real estate investments (5,218) — 5,218 N/A General and administrative expenses (20,080) (17,516) 2,564 14.6 % Gain on sale of real estate and other investments 71,244 41 71,203 * Loss on litigation settlement (3,864) — 3,864 N/A Interest expense (36,429) (32,750) 3,679 11.2 % Interest and other income 1,207 1,248 (41) (3.3) % NET INCOME (LOSS) $ 49,231 $ (17,641) $ 66,872 379.1 % Dividends to preferred unitholders (640) (640) — — Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units (7,141) 4,299 (11,440) (266.1) % Net income attributable to noncontrolling interests – consolidated real estate entities (125) (127) 2 1.6 % Net income (loss) attributable to controlling interests 41,325 (14,109) 55,434 392.9 % Dividends to preferred shareholders (6,428) (6,428) — — NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 34,897 $ (20,537) $ 55,434 269.9 % (1) This is a component of Net operating income and a non-GAAP financial measure.
Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, draws on our lines of credit and/or new borrowings, and we believe we will have sufficient liquidity to meet our commitments over the next twelve months.
Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, draws on our lines of credit and/or new borrowings. We believe we will have sufficient liquidity to meet our commitments over the next twelve months.
We pay dividends from cash available for distribution. Until it is distributed, cash available for distribution is typically invested in investment grade securities or is used to reduce balances outstanding under our line of credit.
We pay dividends from cash available for distribution. Until it is distributed, cash available for distribution is typically used to reduce balances outstanding under our line of credit or is invested in investment grade securities.
Held for sale properties are reported at the lower of their carrying amount or estimated fair value less costs to sell. Recent Accounting Pronouncements For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to our consolidated financial statements appearing elsewhere in this Report.
Held for sale properties are reported at the lower of their carrying amount or estimated fair value less costs to sell. Recent Accounting Pronouncements For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of our Consolidated Financial Statements appearing elsewhere in this Report.
The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store communities are due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of our real estate portfolio.
The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store communities are generally due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of our real estate portfolio.
Sold communities are included in “Dispositions” for the periods prior to the sale, which also includes non-multifamily properties and the non-multifamily components of mixed-use properties. Reconciliation of Operating Income (Loss) to Net Operating Income (non-GAAP) The following table provides a reconciliation of operating income to NOI (non-GAAP), which is defined above.
Sold communities are included in “Dispositions” for the periods prior to the sale, which also includes non-multifamily properties and the non-multifamily components of mixed-use properties. Reconciliation of Operating Income to Net Operating Income (non-GAAP) The following table provides a reconciliation of operating income to NOI (non-GAAP), which is defined above.
Net operating income (“NOI”) is a non-GAAP financial measure which we define as total real estate revenues less property operating expenses, including real estate taxes, which is reconciled to operating income (loss). Refer to the reconciliation of Operating Income (Loss) to Net Operating Income below.
Net operating income (“NOI”) is a non-GAAP financial measure which we define as total real estate revenues less property operating expenses, including real estate taxes, which is reconciled to operating income. Refer to the reconciliation of Operating Income to Net Operating Income below.
FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. Core Funds from Operations ("Core FFO"), a non-GAAP measure, is FFO adjusted for non-routine items or items not considered core to business operations.
FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. Core funds from operations (“Core FFO”), a non-GAAP measure, is FFO adjusted for non-routine items or items not considered core to business operations.
As described further below, the process of allocating property costs to its components involves a considerable amount of subjective judgments to be made by management. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.
As described further below, the process of allocating property costs to its components requires a considerable amount of subjective judgments to be made by management. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.
We fund capital expenditures, primarily to maintain or renovate our apartment communities. The amounts of these expenditures can vary from year to year depending on the age of the apartment community, timing of planned improvements, and lease turnover. As of December 31, 2022, we had no significant off-balance-sheet arrangements.
We fund capital expenditures, primarily to maintain or renovate our apartment communities. The amounts of these expenditures can vary from year to year depending on the age of the apartment community, timing of planned improvements, and lease turnover. As of December 31, 2023, we had no significant off-balance-sheet arrangements.
Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks, Unit redemptions, and acquisition of additional communities.
Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks, Unit redemptions, and acquisitions of additional communities.
We believe that delivering superior resident experiences will drive consistent profitability for our shareholders. We have paid quarterly distributions every quarter since our first distribution in 1971. Significant Transactions and Events for the Year Ended December 31, 2022 Highlights .
We believe that delivering superior resident experiences will drive consistent profitability for our shareholders. We have paid quarterly distributions every quarter since our first distribution in 1971. Significant Transactions and Events for the Year Ended December 31, 2023 Highlights .
Changes in Cash, Cash Equivalents, and Restricted Cash As of December 31, 2022, we had cash and cash equivalents of $10.5 million and restricted cash consisting of $1.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions.
As of December 31, 2022, we had cash and cash equivalents of $10.5 million and restricted cash consisting of $1.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions.
The currently offered effective rates on new leases at the community are used as the starting point in determination of the market rates of vacant homes. We believe that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.
Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes. We believe that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.
(2) Consists of (gain) loss on investments. 31 Table of Contents Liquidity and Capital Resources Overview We strive to maintain a strong balance sheet and preserve financial flexibility, which we believe should enhance our ability to capitalize on appropriate investment opportunities as they may arise.
(3) Consists of (gain) loss on investments. 32 Table of Contents Liquidity and Capital Resources Overview We strive to maintain a strong balance sheet and preserve financial flexibility, which we believe should enhance our ability to capitalize on appropriate investment opportunities as they may arise.
For additional comparison of results of operations for the years ended December 31, 2021 and December 31, 2020, please refer to our Annual Report on Form 10-K filed with the SEC on February 28, 2022. Non-GAAP Financial Measures Net operating income.
For additional comparison of results of operations for the years ended December 31, 2022 and December 31, 2021, please refer to our Annual Report on Form 10-K filed with the SEC on February 21, 2023. Non-GAAP Financial Measures Net operating income.
We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing costs, property management expenses, casualty losses, and general and administrative expense.
We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by sales of real estate and other investments, impairment, depreciation, amortization, financing costs, property management expenses, casualty losses, and general and administrative expense.
Supply chain and inflationary pressures are likely to result in increased operating expenses, specifically, increases in energy costs, salary related costs, and construction materials for repairs and maintenance or value add projects.
Supply chain and inflationary pressures are likely to result in increased operating expenses, specifically, increases in energy costs, salary related costs, and construction materials for repairs and maintenance or capital projects.
Refer to the reconciliation of Operating Income (Loss) to Net Operating Income on page 28. Non-GAAP financial measures should not be considered an alternative to net income (loss), net income (loss) available for common shareholders, or cash flow from operating activities as a measure of financial performance.
Refer to the Reconciliation of Operating Income to Net Operating Income on page 27. Non-GAAP financial measures should not be considered an alternative to net income (loss), net income (loss) available for common shareholders, or cash flow from operating activities as a measure of financial performance. * Not a meaningful percentage .
Upon acquisitions of real estate, we assess the fair value of acquired tangible assets (including land, buildings and personal property), which is determined by valuing the property as if it were vacant, and consider 35 Table of Contents whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments.
Upon acquisitions of real estate, we assess the fair value of acquired tangible assets (including land, buildings and personal property), which is determined by valuing the property as if it were vacant, and consider whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments. 36 Table of Contents The as-if-vacant value is allocated to land, buildings, and personal property based on our determination of the relative fair value of these assets.
We believe our ability to generate cash from property operating activities and draws on our lines of credit to be adequate to meet all expected operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Code.
We believe our ability to generate cash from property operating activities and draw on our lines of credit is adequate to meet all expected operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Code.
As of December 31, 2022, the weighted average rate of interest on our mortgage debt was 3.85%, compared to 3.81% on December 31, 2021. Refer to Note 6 of our consolidated financial statements contained in this Report for the principal payments due on our mortgage indebtedness and other tabular information.
As of December 31, 2023, the weighted average rate of interest on our mortgage debt was 4.05%, compared to 3.85% on December 31, 2022. Refer to Note 6 of our Consolidated Financial Statements contained in this Report for the principal payments due on our mortgage indebtedness and other tabular information.
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 $175.8 million. The holders of the Series E preferred units do not have voting rights. As of December 31, 2022 and 2021, we had 3.9 million Series C preferred shares outstanding.
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 $172.5 million. The holders of the Series E preferred units do not have voting rights. As of December 31, 2023 and 2022, we had 3.9 million Series C preferred shares outstanding.
By further adjusting for items that are not considered part of core business operations, the company believes that Core FFO provides investors with additional information to compare core operating and financial performance between periods.
By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides investors with additional information to compare core operating and financial performance between periods.
The primary line of credit had a $113.5 million balance outstanding at December 31, 2022 and matures in September 2025. Our unsecured senior notes have an aggregate balance of $300.0 million at December 31, 2022 with varying maturities from September 2028 through September 2034.
The primary line of credit had a $30.0 million balance outstanding at December 31, 2023 and matures in September 2025. Our unsecured senior notes had an aggregate balance of $300.0 million at December 31, 2023 with varying maturities from September 2028 through September 2034.
Debt As of December 31, 2022, we had a multibank, revolving line of credit with total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of December 31, 2022, the additional borrowing availability was $136.5 million beyond the $113.5 million drawn.
Debt As of December 31, 2023, we had a multibank, revolving line of credit with total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of December 31, 2023, the additional borrowing availability was $220.0 million beyond the $30.0 million drawn.
For the comparison of the twelve months ended December 31, 2022 and 2021, 60 apartment communities were classified as same-store and 24 apartment communities were non-same-store. See Item 2 - Properties for the list of communities classified as same-store and non-same-store.
For the comparison of the twelve months ended December 31, 2023 and 2022, 66 apartment communities were classified as same-store and six apartment communities were non-same-store. See Item 2 - Properties for the list of communities classified as same-store and non-same-store.
Approximately 9.8% of the increase was due to higher average monthly revenue per occupied home and 0.2% from an increase in occupancy as weighted average occupancy 28 Table of Contents increased from 94.3% to 94.5% for the years ended December 31, 2021 and 2022, respectively.
Approximately 6.9% of the increase was due to higher average monthly revenue per occupied home and 0.3% from an increase in occupancy as weighted average occupancy increased from 94.6% to 94.9% for the years ended December 31, 2022 and 2023, respectively.
We have a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”). The FMCF is currently secured by mortgages on 16 apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended weighted average fixed interest rate of 2.78%.
As of December 31, 2022, the Term Loan had a balance of $100.0 million. We have a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”). The FMCF is currently secured by mortgages on 12 apartment communities. The notes are interest-only, with varying maturity dates of 7, 10, and 12 years, and a blended weighted average fixed interest rate of 2.78%.
Year Ended December 31, Weighted Average Occupancy (1) 2022 2021 Same-store 94.5 % 94.3 % Non-same-store 94.7 % 94.8 % Total 94.6 % 94.3 % (1) Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rental revenue.
Year Ended December 31, Weighted Average Occupancy (1) 2023 2022 Same-store 94.9 % 94.6 % Non-same-store 95.2 % 93.5 % Total 94.9 % 94.6 % (1) Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rental revenue.
The proceeds from the sale of common shares under the 2021 ATM program are intended to be used for general corporate purposes, which may include the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness.
The proceeds from the sale of common shares under the 2021 ATM program are intended to be used for general corporate purposes, which may include the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. During the year ended December 31, 2023, we did not issue any common shares under the 2021 ATM program.
The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors. The table below provides details on the shares repurchased during the year ended December 31, 2022.
The repurchases have no time limit and may be suspended or discontinued completely at any time. 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.
During the year ended December 31, 2021, we issued 1.8 million common shares at an average price of $86.13 per share, net of commissions, under our 2021 ATM program and the 2019 ATM program. Total consideration, net of commissions and issuance costs, was approximately $31.4 million.
During the year ended December 31, 2022, we issued 321,000 common shares under the 2021 ATM program at an average price of $98.89 per share, net of commissions. During the year ended December 31, 2022, total consideration, net of commissions and issuance costs, was approximately $31.4 million.
As of December 31, 2022, we owned interests in 84 apartment communities consisting of 15,065 homes as detailed in Item 2 - Properties. Property owned, as presented in the consolidated balance sheets, was $2.5 billion at December 31, 2022, compared to $2.3 billion at December 31, 2021.
As of December 31, 2023, we owned interests in 72 apartment communities consisting of 13,088 homes as detailed in Item 2 - Properties. Property owned, as presented in the Consolidated Balance Sheets, was $2.4 billion at December 31, 2023, compared to $2.5 billion at December 31, 2022.
As of December 31, 2022 and 2021, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Consolidated Balance Sheets. Mortgage loan indebtedness, excluding the FMCF, was $299.4 million on December 31, 2022 and $284.9 million on December 31, 2021.
As of December 31, 2023 and 2022, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Consolidated Balance Sheets. Mortgage loan indebtedness, excluding the FMCF, was $391.1 million on and $299.4 million on December 31, 2023, and 2022, respectively on 14 and 15 apartment communities, respectively.
Equity We have an at-the-market offering program (“2021 ATM program”) through which we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times that we determine.
Refer to Item 7A in this Report for additional information on our market and interest rate risk. Equity We have an at-the-market offering program (“2021 ATM program”) through which we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times that we determine.
For the year ended December 31, 2022, our highlights included the following: • Net Loss was $1.35 per basic and diluted share for the year ended December 31, 2022, compared to Net Loss of $0.47 per basic and diluted share for the year ended December 31, 2021; • Core FFO per diluted share, a non-GAAP measure, increased 11.0% (refer to reconciliations of Funds from Operations and Core Funds from Operations beginning on page 31 for additional detail) to $4.43 from $3.99; and • Same-store year-over-year net operating income growth of 9.0% driven by same-store revenue growth of 10.0% (refer to reconciliation of Operating Income (Loss) to Net Operating Income on page 28 for additional detail).
For the year ended December 31, 2023, our highlights included the following: • Net Income was $2.32 per basic and diluted share for the year ended December 31, 2023, compared to Net Loss of $1.35 per basic and diluted share for the year ended December 31, 2022; • Core funds from operations (“CFFO”) per diluted share, a non-GAAP measure, increased 7.9% (refer to reconciliations of Funds from Operations and Core Funds from Operations beginning on page 30 for additional detail) to $4.78 from $4.43; • Operating income increased to $84.5 million for the year ended December 31, 2023 compared to $13.9 million for the prior year; and • Same-store year-over-year net operating income growth of 9.0% driven by same-store revenue growth of 7.2% (refer to Reconciliation of Operating Income (Loss) to Net Operating Income on page 27 for additional detail).
Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 13.1% to $9.9 million in the year ended December 31, 2022, compared to $8.8 million in the year ended December 31, 2021.
Property management expense, consisting of property management overhead and property management fees paid to third parties decreased by 5.5% to $9.4 million in the year ended December 31, 2023, compared to $9.9 million in the year ended December 31, 2022.
Gain (loss) on sale of real estate and other investments. In the years ended December 31, 2022 and 2021, we recorded gains on sale of real estate and other investments of $41,000 and $27.5 million, respectively. Operating income.
Gain on sale of real estate and other investments. In the years ended December 31, 2023 and 2022, we recorded gains on sale of real estate and other investments of $71.2 million and $41,000, respectively.
For the year ended December 31, 2022, we declared cash distributions of $47.4 million to common shareholders and unitholders of Centerspace, LP, as compared to net cash provided by operating activities of $92.0 million and FFO of $79.9 million.
For the year ended December 31, 2023, we declared cash distributions of $46.4 million to common shareholders and unitholders of Centerspace, LP, as compared to net cash provided by operating activities of $89.5 million and FFO of $77.3 million.
Interest and other income (loss). Interest and other income (loss) increased to income of $1.2 million in the year ended December 31, 2022, compared to a loss of $2.9 million in the prior year.
Interest and other income. Interest and other income was $1.2 million in the years ended December 31, 2023 and 2022. Net income (loss) available to common shareholders. Net income (loss) available to common shareholders increased to net income of $34.9 million compared to a net loss of $20.5 million in the prior year.
Revenue from same-store communities increased by 10.0% or $18.0 million in the year ended December 31, 2022, compared to the same period in the prior year.
Revenue from same-store communities increased by 7.2% or $15.4 million in the year ended December 31, 2023, compared to the same period in the prior year.
All of our mortgage debt is at fixed rates of interest, with staggered maturities. This reduces the exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on our results of operations and cash flows. Refer to Item 7A in this Report for additional information on our market and interest rate risk.
All of our mortgage debt is collateralized by apartment communities and is non-recourse at fixed rates of interest, with staggered maturities. This reduces the exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on our results of operations and cash flows.
We seek to manage a strong balance sheet that should provide us with flexibility to pursue both internal and external growth. RESULTS OF OPERATIONS We are presenting our results of operations for the years ended December 31, 2022 and 2021.
We will explore potential new markets and acquisition opportunities as market conditions allow. We seek to manage a strong balance sheet that should provide us with flexibility to pursue both internal and external growth. 26 Table of Contents RESULTS OF OPERATIONS We are presenting our results of operations for the years ended December 31, 2023 and 2022.
Other intangible assets acquired include amounts for in-place lease values that are based upon our evaluation of the specific characteristics of the leases. Factors considered in the fair value analysis include an estimate of carrying costs and foregone rental income during hypothetical expected lease-up periods, consideration of current market conditions, and costs to execute similar leases.
Factors considered in the fair value analysis include an estimate of carrying costs and foregone rental income during hypothetical expected lease-up periods, consideration of current market conditions, and costs to execute similar leases.
Refer to Note 4 of our Consolidated Financial Statements contained in this Report. 33 Table of Contents 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 million of our 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 our outstanding common shares.
For a comparison of FFO applicable to common shares and Units for the years ended December 31, 2021 and 2020, refer to our Annual Report on Form 10-K filed with the SEC on February 28, 2022. 30 Table of Contents Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds from Operations and Core Funds From Operations (in thousands, except per share and unit amounts) Year Ended December 31, 2022 2021 Net income (loss) available to common shareholders $ (20,537) $ (6,457) Adjustments: Noncontrolling interests – Operating Partnership and Series E preferred units (4,299) (2,806) Depreciation and amortization 105,257 92,165 Less depreciation – non real estate (387) (366) Less depreciation – partially owned entities (65) (93) (Gain) loss on sale of real estate (41) (27,518) FFO applicable to common shares and Units $ 79,928 $ 54,925 Adjustments to Core FFO: Non-cash casualty loss (recovery) $ 254 $ — Loss on extinguishment of debt 5 535 Technology implementation costs (1) 873 2,020 Commercial lease termination proceeds — (450) Acquisition related costs — 230 Interest rate swap termination, amortization, and mark-to-market (100) 4,942 Amortization of assumed debt (464) (53) Pursuit costs 1,302 39 Other miscellaneous items (2) 85 (103) Core FFO applicable to common shares and Units $ 81,883 $ 62,085 FFO applicable to common shares and Units $ 79,928 $ 54,925 Dividends to preferred unitholders 640 640 FFO applicable to common shares and Units - diluted $ 80,568 $ 55,565 Core FFO applicable to common shares and Units $ 81,883 $ 62,085 Dividends to preferred unitholders 640 640 Core FFO applicable to common shares and Units - diluted $ 82,523 $ 62,725 Per Share Data Earnings (loss) per common share - diluted $ (1.35) $ (0.47) FFO per share and Unit - diluted $ 4.32 $ 3.54 Core FFO per share and Unit - diluted $ 4.43 $ 3.99 Weighted average shares - basic 15,216 13,803 Effect of redeemable operating partnership units 978 899 Effect of Series D preferred units 228 228 Effect of Series E preferred units 2,185 729 Effect of dilutive restricted stock units and stock options 38 45 Weighted average shares and Units - diluted 18,645 15,704 (1) Costs are related to a two-year implementation.
For a comparison of FFO applicable to common shares and Units for the years ended December 31, 2022 and 2021, refer to our Annual Report on Form 10-K filed with the SEC on February 21, 2023. 31 Table of Contents Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds from Operations and Core Funds From Operations (in thousands, except per share and unit amounts) Year Ended December 31, 2023 2022 Funds from operations: Net income (loss) available to common shareholders $ 34,897 $ (20,537) Adjustments: Noncontrolling interests – Operating Partnership and Series E preferred units 7,141 (4,299) Depreciation and amortization 101,678 105,257 Less depreciation – non real estate (322) (387) Less depreciation – partially owned entities (80) (65) Impairment of real estate 5,218 — Gain on sale of real estate (71,240) (41) FFO applicable to common shares and Units $ 77,292 $ 79,928 Adjustments to Core FFO: Non-cash casualty loss $ 1,350 $ 254 Loss on extinguishment of debt — 5 Technology implementation costs (1) — 873 Interest rate swap amortization and mark-to-market 936 (100) Amortization of assumed debt (212) (464) Pursuit costs 5 1,302 Severance and transition related costs 3,170 — Loss on litigation settlement and associated trial costs (2) 4,270 — Other miscellaneous items (3) (137) 85 Core FFO applicable to common shares and Units $ 86,674 $ 81,883 FFO applicable to common shares and Units $ 77,292 $ 79,928 Dividends to preferred unitholders 640 640 FFO applicable to common shares and Units - diluted $ 77,932 $ 80,568 Core FFO applicable to common shares and Units $ 86,674 $ 81,883 Dividends to preferred unitholders 640 640 Core FFO applicable to common shares and Units - diluted $ 87,314 $ 82,523 Per Share Data Income (loss) per common share - diluted $ 2.32 $ (1.35) FFO per share and Unit - diluted $ 4.27 $ 4.32 Core FFO per share and Unit - diluted $ 4.78 $ 4.43 Weighted average shares - basic 14,994 15,216 Effect of redeemable operating partnership units 925 978 Effect of Series D preferred units 228 228 Effect of Series E preferred units 2,100 2,185 Effect of dilutive restricted stock units and stock options 24 38 Weighted average shares and Units - diluted 18,271 18,645 (1) Costs are related to a two-year implementation.
The increase was primarily due to a $5.4 million loss related to the termination of interest rate swaps that occurred in the prior year, offset by a $560,000 gain on the mark-to-market adjustment for an interest rate swap prior to termination. 29 Table of Contents Funds from Operations and Core Funds From Operations We believe that Funds from Operations (“FFO”), which is a non-GAAP standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation does not assume the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation.
Funds from Operations and Core Funds From Operations We believe that funds from operations (“FFO”), which is a non-GAAP financial measure used as a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation does not assume the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation and amortization.
As of December 31, 2021, we had total liquidity of approximately $204.8 million, which included $173.5 million available on our lines of credit based on the value of properties contained in our unencumbered asset pool (“UAP”) and $31.3 million of cash and cash equivalents.
As of December 31, 2023, we had total liquidity of approximately $234.6 million, which included $226.0 million available on our lines of credit based on the value of unencumbered properties and $8.6 million of cash and cash equivalents.
Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and our calculation of weighted average occupancy may not be comparable to that disclosed by other real estate companies. December 31, Number of Homes 2022 2021 Same-store 11,330 11,330 Non-same-store 3,735 3,111 Total 15,065 14,441 Same-store analysis.
Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and our calculation of weighted average occupancy may not be comparable to that disclosed by other real estate companies. 28 Table of Contents December 31, Number of Homes 2023 2022 Same-store 12,173 12,173 Non-same-store 915 612 Total 13,088 12,785 Same-store analysis.
As of December 31, 2021, we had cash and cash equivalents of $31.3 million and restricted cash consisting of $2.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions and $5.0 million in deposits for real estate acquisitions.
Changes in Cash, Cash Equivalents, and Restricted Cash As of December 31, 2023, we had cash and cash equivalents of $8.6 million and restricted cash consisting of $639,000 of escrows held by lenders for real estate taxes, insurance, and capital additions.
In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements.
(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.
Property operating expenses at same-store communities increased by 11.6% or $8.4 million in the year ended December 31, 2022, compared to the same period in the prior year.
Revenue from non-same-store apartment communities increased by $6.6 million in the year ended December 31, 2023, compared to the same period in the prior year. Property operating expenses from non-same-store apartment communities increased by $2.4 million. Net operating income from non-same-store communities increased by $4.2 million.
During the year ended December 31, 2022, we used capital for various activities, including: • Acquisition of five apartment communities in Minneapolis, Minnesota and Centennial, Colorado for $104.7 million in cash, including transaction costs, with the remainder of the purchase price in issuance of Units, assumption of mortgage debt, and the exchange of mortgages receivable which we financed; • Repaying approximately $29.0 million of mortgage principal; • Repurchase of 432,000 common shares for $29.1 million, net of issuance costs; • Repurchase of 46,000 Units for $4.1 million • Paying $3.2 million for the termination of interest rate swaps; • Paying distributions on common shares, Series E preferred units, Units, and Series C preferred shares of $60.7 million; and • Funding capital improvements for apartment communities of approximately $56.6 million. 34 Table of Contents Contractual Obligations and Other Commitments Our primary contractual obligations relate to borrowings under our lines of credit, unsecured senior notes, term loan, and mortgages payable.
During the year ended December 31, 2023, we used capital for various activities, including: • Acquiring an apartment community in Loveland, Colorado for $42.2 million in cash, including transaction costs, with the remainder of the purchase price in assumption of mortgage debt; • Repaying $83.5 million on our line of credit, net of proceeds; • Repaying approximately $46.7 million of mortgage principal; • Repaying $100.0 million on notes payable; • Repurchasing of 216,000 common shares for $11.5 million, net of issuance costs; • Paying distributions on common shares, Series E preferred units, Units, and Series C preferred shares of $59.7 million; and • Funding capital improvements for apartment communities of approximately $58.8 million. 35 Table of Contents Contractual Obligations and Other Commitments Our primary contractual obligations relate to borrowings under our lines of credit, unsecured senior notes, and mortgages payable.
As of December 31, 2022, we had $21.0 million remaining authorized for purchase under this program. (in thousands, except per share amounts) Number of Common Shares Aggregate Cost (1) Average Price Per Share (1) Year ended December 31, 2022 432 $ 29,059 $ 67.23 (1) Amount includes commissions.
(in thousands, except per share amounts) Number of Common Shares Aggregate Cost (1) Average Price Per Share (1) Year ended December 31, 2023 216 $ 11,539 $ 53.44 Year ended December 31, 2022 432 $ 29,059 $ 67.23 (1) Amount includes commissions.
As of December 31, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM program.
As of December 31, 2023, common shares having an aggregate offering price of up to $126.6 34 Table of Contents million remained available under the 2021 ATM program. Refer to Note 4 of our Consolidated Financial Statements contained in this Report.
Property operating expenses from non-same-store apartment communities increased by $20.0 million. Net operating income from non-same-store communities increased by $19.4 million. The increase in revenue, property operating expenses, and NOI from non-same-store communities is primarily due to the addition of apartment communities in the latter part of 2021 and throughout 2022. Other and dispositions analysis.
The increase in revenue, property operating expenses, and NOI from non-same-store communities is primarily due to the addition of apartment communities in the latter part of 2022 and 2023. Other and dispositions analysis. Revenue from other, which encompasses our commercial and mixed use activity, increased by 5.5% or $135,000 while revenue from dispositions decreased by $17.5 million.
FFO applicable to common shares and Units for the year ended December 31, 2022, increased to $79.9 million compared to $54.9 million for the year ended December 31, 2021, a change of 45.5%, primarily due to increased NOI from same-store and non-same-store communities and a $5.4 million loss related to the termination of interest rate swaps in the same period of the prior year that did not occur in the current year, offset by increased interest expense, general and administrative expenses, property management, and casualty losses, and decreased NOI from dispositions.
FFO applicable to common shares and Units for the year ended December 31, 2023, decreased to $77.3 million compared to $79.9 million for the year ended December 31, 2022, a change of 3.3%, primarily due to $3.2 million in severance and transition expenses related to the departure of Mark Decker, former CEO, increased interest expense, loss on litigation settlement, and decreased NOI from dispositions, offset by increased NOI from same-store and non-same-store communities and $2.2 million in abandoned pursuit costs and technology implementation costs from the prior year that did not occur in the year ended December 31, 2023.
Outlook We intend to continue our focus on maximizing the financial performance of the communities in our existing portfolio. To accomplish this, we have introduced initiatives to expand our operating margin by enhancing the resident experience, making value-add investments, and implementing technology solutions and expense controls.
To accomplish this, we have introduced initiatives to expand our operating margin by enhancing the resident experience, making value-add investments, and implementing technology solutions and expense controls. We will actively manage our existing portfolio and strategically pursue acquisitions of multifamily communities and selective dispositions as opportunities arise and market conditions allow.
At same-store communities, controllable expenses (which exclude insurance and real estate taxes), increased by $6.7 million, primarily due to $2.1 million in rising utilities costs, $1.7 million in compensation costs, and $2.4 million in repairs and maintenance and turnover costs. Non-controllable expenses at same-store communities increased by $1.7 million primarily due to insurance premiums and deductibles on claims.
Property operating expenses at same-store communities increased by 4.6% or $4.1 million in the year ended December 31, 2023, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes), increased by $1.5 million, primarily due to $2.1 million in compensation costs, offset by decreased utilities and turnover costs.
Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.
Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP. 30 Table of Contents Net income available to common shareholders for the year ended December 31, 2023 increased to $34.9 million compared to a net loss of $20.5 million for the year ended December 31, 2022.
Management believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our communities are performing year-over-year. Management uses this measure to assess whether or not it has been successful in increasing NOI, renewing the leases of existing residents, controlling operating costs, and making prudent capital improvements.
Management uses this measure to assess whether or not it has been successful in increasing NOI, raising average rental revenue, renewing the leases of existing residents, controlling operating costs, and making prudent capital improvements.
On September 1, 2021, we issued 1.8 million Series E preferred units with a par value of $100 per Series E preferred unit as partial consideration for the acquisition of 17 apartment communities. The Series E preferred unit holders receive a preferred distribution at the rate of 3.875% per year.
We had 1.7 million and 1.8 million Series E preferred units outstanding on December 31, 2023 and 2022, respectively. Each Series E preferred unit has a par value of $100. The Series E preferred unit holders receive a preferred distribution at the rate of 3.875% per year.
The interest rate on the Term Loan is based on SOFR, plus a margin that ranges from 120 to 175 basis points based on our consolidated leverage ratio. The Term Loan has a 364-day term but may be extended, at our option and subject to certain conditions, for one additional 364-day term.
The interest rate on the Term Loan was based on SOFR, plus a margin that ranged from 120 to 175 basis points based on our consolidated leverage ratio. The Term Loan had a 364-day term with an option for an additional 364-day term. As of December 31, 2023, the Term Loan was paid in full.
Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property. Land value is assigned based on the purchase price if land is acquired separately or based on a relative fair value allocation if acquired in a portfolio acquisition.
Techniques used to estimate fair value include discounted cash flow analysis and reference to recent sales of comparable properties. Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property.
As of December 31, 2021, the line of credit borrowing capacity was $250.0 million based on the value of our unencumbered properties, of which $76.0 million was drawn on the line.
As of December 31, 2022, the line of credit borrowing capacity was $250.0 million based on the value of our unencumbered properties, of which $113.5 million was drawn on the line. The line of credit is utilized to refinance existing indebtedness, to finance property acquisitions, to finance capital expenditures, and for general corporate purposes.
The line of credit bears interest either at the lender’s base rate plus a margin ranging from 25 to 80 basis points, or LIBOR, plus a margin 32 Table of Contents ranging from 125 to 180 basis points based on our consolidated leverage.
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.
General and administrative expenses. General and administrative expenses increased by 8.0% to $17.5 million in the year ended December 31, 2022, compared to $16.2 million in the year ended December 31, 2021, primarily attributable to $1.3 million in pursuit costs and increased compensation costs, offset by a decrease in technology implementation costs.
General and administrative expenses increased by 14.6% to $20.1 million in the year ended December 31, 2023, compared to $17.5 million in the year ended December 31, 2022, primarily attributable to $3.2 million in executive severance and transition costs related to the CEO departure, $910,000 in incentive related compensation, and $406,000 in legal fees related to the loss on litigation settlement, offset by $1.3 million in abandoned pursuit costs and $873,000 in technology implementation costs that did not occur in the current year.
Depreciation and amortization increased by 14.2% to $105.3 million in the year ended December 31, 2022, compared to $92.2 million in the year ended December 31, 2021, attributable to an increase of $15.7 million from non-same-store properties primarily due to an increase in the number of apartment communities being depreciated, offset by decreases of $1.5 million and $1.4 million at same-store communities and sold properties, respectively.
Depreciation and amortization decreased by 3.4% to $101.7 million in the year ended December 31, 2023, compared to $105.3 million in the year ended December 31, 2022, attributable to a decrease of $5.6 million from dispositions and $378,000 from other properties, offset by increases at same-store communities and non-same-store communities driven by the addition of an apartment community in the fourth quarter of the current year and value add and acquisition capital projects.
Operating income decreased by 53.6% to $13.9 million in the year ended December 31, 2022, compared to $29.9 million in the year ended December 31, 2021. Interest expense.
Operating income increased by 509.3% to $84.5 million in the year ended December 31, 2023, compared to $13.9 million in the year ended December 31, 2022. Interest expense. Interest expense increased 11.2% to $36.4 million in the year ended December 31, 2023, compared to $32.8 million in the year ended December 31, 2022, primarily due to higher interest rates.
Same-store NOI increased by $9.6 million to $117.0 million for the year ended December 31, 2022 compared to $107.3 million in the same period in the prior year. Non-same-store analysis. Revenue non-same-store apartment communities increased by $39.3 million in the year ended December 31, 2022, compared to the same period in the prior year.
Non-controllable expenses at same-store communities increased by $2.6 million primarily due to insurance premiums and deductibles on claims and real estate taxes. Same-store NOI increased by $11.3 million to $137.5 million for the year ended December 31, 2023 compared to $126.2 million in the same period in the prior year. Non-same-store analysis.
During the year ended December 31, 2022, we completed the following transactions in furtherance of our strategic plan: • Acquired a portfolio of three apartment communities in the Minneapolis, Minnesota area, totaling 267 apartment homes, for an aggregate purchase price of $70.3 million; • Acquired Noko Apartments, a 130 home apartment community, located in Minneapolis, Minnesota for an aggregate purchase price of $46.6 million; and • Acquired Lyra Apartments, a 215 home apartment community in Centennial, Colorado for an aggregate purchase price of $95.0 million.
During the year ended December 31, 2023, we completed the following transactions in furtherance of our strategic plan: • Disposed of 13 non-core apartment communities for an aggregate sales price of $226.8 million and a realized gain on sale of $71.2 million; and • Acquired Lake Vista Apartment Homes, a 303 home apartment community in Loveland, Colorado for an aggregate purchase price of $94.5 million.
This credit facility matures in September 2025 and has an accordion option to increase borrowing capacity up to $400.0 million. We also have a $6.0 million unsecured operating line of credit. This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances.
This operating line of credit 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. We have a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.
In addition to cash flows from operations, during the year ended December 31, 2022, we generated capital from various activities, including: • Receipt of $99.5 million, net of fees, from the issuance of a term loan; • Receipt of $37.5 million in net proceeds from our lines of credit; and • Receipt of $31.4 million, net of fees, from the issuance of 321,000 common shares under our 2021 ATM program.
In addition to cash flows from operations, during the year ended December 31, 2023, we generated capital from various activities, including: • Receiving $223.3 million in net proceeds from the sale of 13 apartment communities and associated commercial space; and • Receiving $90.0 million in proceeds from a new mortgage on our Parkhouse community.
Casualty loss increased to $1.6 million in the year ended December 31, 2022, compared to $344,000 in the year ended December 31, 2021. The increase was primarily due to increased claims activity over the prior year period and more apartment communities over the comparable period. Depreciation and amortization.
The decrease was primarily due to decreased costs for technology initiatives and compensation costs combined with fewer properties due to dispositions. Casualty loss. Casualty loss increased to $2.1 million in the year ended December 31, 2023, compared to $1.6 million in the year ended December 31, 2022.
(in thousands) Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years Lines of credit (principal and interest) (1) $ 126,879 $ 4,689 $ 122,190 — — Notes payable (principal and interest) $ 476,840 $ 115,016 $ 18,980 $ 18,954 $ 323,890 Mortgages payable (principal and interest) $ 601,193 $ 62,337 $ 68,488 $ 119,669 $ 350,699 Total $ 1,204,912 $ 182,042 $ 209,658 $ 138,623 $ 674,589 (1) The future interest payments on the lines of credit were estimated using the outstanding principal balance and interest rate in effect as of December 31, 2022.
(in thousands) Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years Lines of credit (principal and interest) (1) $ 33,483 $ 1,995 $ 31,488 — — Notes payable (principal and interest) $ 360,390 $ 9,347 $ 18,694 $ 68,233 $ 264,116 Mortgages payable (principal and interest) $ 727,180 $ 28,285 $ 173,457 $ 145,576 $ 379,862 Total $ 1,121,053 $ 39,627 $ 223,639 $ 213,809 $ 643,978 (1) The future interest payments on the lines of credit were estimated using the outstanding principal balance and interest rate in effect as of December 31, 2023.
Removed
During the year ended December 31, 2022, we completed the following financing transactions: • Issued 321,000 common shares at an average price of $98.89 per share for total consideration, net of commissions and issuance costs, of approximately $31.4 million; • Repurchased 432,000 common shares for total consideration of $29.1 million and an average of $67.23 per share; and • Closed on a $100.0 million term loan which bears interest at a floating rate of 120 to 175 basis points over the Secured Overnight Financing Rate (“SOFR”) based upon our leverage ratio and is for a 364-day term with an option to extend for an additional 364-day term.
Added
Financing Transactions. During the year ended December 31, 2023, we completed the following financing transactions: • Repurchased 216,000 common shares for total consideration of $11.5 million and an average of $53.44 per share. Outlook We intend to continue our focus on maximizing the financial performance of the communities in our existing portfolio.
Removed
We will actively manage our existing portfolio and strategically pursue acquisitions of multifamily communities and selective dispositions as opportunities arise and 26 Table of Contents market conditions allow. We will explore potential new markets and acquisition opportunities as market conditions allow.
Added
Management believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of communities are performing year-over-year.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
5 edited+2 added−4 removed2 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
5 edited+2 added−4 removed2 unchanged
2022 filing
2023 filing
Biggest changeAs of December 31, 2022, the weighted average rate of interest on our mortgage debt was 3.85%, compared to 3.81% on December 31, 2021.
Biggest changeAs of December 31, 2023 and 2022, all of our mortgage debt, $391.1 million and $299.4 million, respectively, was at fixed rates of interest with staggered maturities. As of December 31, 2023, the weighted average rate of interest on our mortgage debt was 4.05%, compared to 3.85% on December 31, 2022.
Even 36 Table of Contents though our goal is to maintain a fairly low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future repricing or refinancing of our fixed or variable rate debt or future debt.
Even though our goal is to maintain a fairly low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future repricing or refinancing of our fixed or variable rate debt or future debt.
We estimate that a change in 30-day LIBOR or SOFR of 100 basis points with constant risk spreads would result in a $2.1 million reduction to our net income (loss) on an annual basis. We estimate that a decrease in a 30-day LIBOR or SOFR of 100 basis points would increase our net income (loss) by a similar amount.
We estimate that an increase in 30-day SOFR of 100 basis points with constant risk spreads would result in a $300,000 reduction to our net income (loss) on an annual basis. We estimate that a decrease in 30-day SOFR of 100 basis points would increase our net income (loss) by a similar amount.
Our exposure to market risk is primarily related to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations. Our operating results are, therefore, affected by changes in interest rates, including LIBOR and SOFR.
Our exposure to market risk is primarily related to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations. Our operating results are, therefore, affected by changes in interest rates, including SOFR. As of December 31, 2023, we had $30.0 million of variable-rate borrowings under our lines of credit.
Mortgage loan indebtedness, excluding the FMCF, increased by $14.5 million as of December 31, 2022, compared to December 31, 2021, primarily due to assumption of mortgage debt with acquisitions. As of December 31, 2022 and 2021, 100.0% of our $299.4 million of mortgage debt was at fixed rates of interest, with staggered maturities.
Mortgage loan indebtedness, excluding the FMCF, increased by $91.7 million as of December 31, 2023, compared to December 31, 2022, primarily due to one new mortgage loan and the assumption of a mortgage loan in connection with a 2023 acquisition, offset by the payoff of mortgages.
Removed
We have used interest rate swaps to offset the impact of interest rate fluctuations on our variable-rate debt. During the year ended December 31, 2022, we terminated our remaining interest rate swaps, which consisted of a swap with a notional of $75.0 million and a forward swap with a notional of $70.0 million.
Added
Average variable rates are based on rates in effect at the reporting date. 37 Table of Contents Future Principal Payments (in thousands, except percentages) Fair Debt 2024 2025 2026 2027 2028 Thereafter Total Value Fixed Rate $ 6,860 $ 36,290 $ 99,120 $ 48,666 $ 118,365 $ 580,689 $ 889,990 $ 787,743 Average Interest Rate (1) 3.59 % 3.61 % 3.60 % 3.57 % 3.58 % 3.71 % 3.61 % Variable Rate — $ 30,000 — $ — $ — — $ 30,000 $ 30,000 Average Interest Rate (1)(2) — 6.74 % — — — — 6.74 % (1) Interest rate is annualized.
Removed
We do not enter into derivative instruments for trading or speculative purposes. As of December 31, 2022, we had $213.5 million of variable-rate borrowings under our lines of credit and term loan.
Added
(2) Interest rate excludes any unused facility fees and amounts reclassified from accumulated other comprehensive income into interest expense from terminated interest rate swaps
Removed
Average variable rates are based on rates in effect at the reporting date.
Removed
Future Principal Payments (in thousands, except percentages) Fair Debt 2023 2024 2025 2026 2027 Thereafter Total Value Fixed Rate $ 45,988 $ 5,012 $ 33,850 $ 50,088 $ 47,088 $ 616,251 $ 798,277 $ 673,772 Average Interest Rate (1) 3.83 % 3.81 % 3.81 % 3.83 % 3.85 % 3.19 % 3.31 % Variable Rate $ 100,000 $ — 113,500 $ — $ — — $ 213,500 $ 213,500 Average Interest Rate (1) 5.57 % — 4.12 % — — — 4.8 % (1) Interest rate is annualized.