Centerspace 2023 Form 10-K Summary
Business context and reporting period
Centerspace is a North Dakota REIT focused on owning, managing, acquiring, developing and redeveloping multifamily apartment communities, primarily in the Midwest and Mountain West. This Form 10-K covers the year ended December 31, 2023; it does not provide a separate fourth-quarter-only income statement.
- Portfolio at year-end: 72 communities and 13,088 apartment homes.
- Net real estate investments: $1.9 billion; gross real estate investments: $2.4 billion.
- Geographic concentration: Minnesota represented 51.5% and Colorado 32.7% of gross real estate investments.
- Weighted average occupancy was 94.9%, compared with 94.6% in 2022.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $261.3 million | $256.7 million | 1.8% increase |
| Net income available to common shareholders | $34.9 million | $(20.5) million | Improved by $55.4 million |
| Diluted earnings per share | $2.32 | $(1.35) | Improved |
| Net operating income | $155.5 million | $148.1 million | 5.0% increase |
| Same-store NOI | $137.5 million | $126.2 million | 9.0% increase |
| Core FFO per diluted share | $4.78 | $4.43 | 7.9% increase |
| Net cash provided by operating activities | $89.5 million | $92.0 million | 2.7% decrease |
Approximate margins were 59.5% for NOI, 32.3% for operating income and 18.8% for net income, based on reported revenue. NOI, FFO and Core FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Cash flow, debt and liquidity
- Cash and cash equivalents were $8.6 million, with $639,000 of restricted cash.
- Total liquidity was approximately $234.6 million, consisting of $226.0 million of available line capacity and $8.6 million of cash.
- Total debt was approximately $920.0 million, down from $1.0 billion at year-end 2022; debt to total gross real estate investments was 38.0%.
- The revolving credit facility had $30.0 million drawn and $220.0 million of additional availability. It matures in September 2025, with extension options.
- Fixed-rate unsecured senior notes totaled $300.0 million. Mortgage debt totaled $589.9 million, including the $198.9 million Fannie Mae facility.
- Variable-rate borrowings were $30.0 million. Management estimated that a 100-basis-point increase in 30-day SOFR would reduce annual net income by approximately $300,000.
- Operating cash flow was $89.5 million. Investing cash flow was $120.2 million, primarily reflecting $223.3 million of net property-sale proceeds. Financing cash flow was $(212.4) million.
- Capital uses included $58.8 million of property improvements, $59.7 million of distributions to equityholders, $100.0 million of note repayment, $46.7 million of mortgage principal repayment and $11.5 million of common-share repurchases.
Material changes versus 2022
- Same-store revenue increased 7.2%, primarily from higher average monthly revenue per occupied home; same-store occupancy increased from 94.6% to 94.9%.
- Same-store operating expenses increased 4.6%, driven principally by compensation, insurance and real estate taxes.
- Centerspace sold 13 non-core apartment communities for $226.8 million and recognized a $71.2 million gain. No real estate was sold in 2022.
- The company acquired Lake Vista Apartment Homes in Loveland, Colorado, for $94.5 million, including assumed debt of $52.7 million.
- The $100.0 million term loan outstanding at year-end 2022 was repaid in full.
- Interest expense increased 11.2% to $36.4 million due primarily to higher interest rates.
- General and administrative expense increased 14.6% to $20.1 million, including $3.2 million of CEO severance and transition costs.
- The company recorded $5.2 million of impairment on two communities and a $3.9 million litigation loss, compared with no impairment or litigation loss in 2022.
- FFO per diluted share declined to $4.27 from $4.32, while Core FFO per diluted share increased because Core FFO excludes or adjusts for specified non-routine items.
Outlook, commentary, risks and unusual items
Management intends to improve operating margins through resident-experience initiatives, value-add investments, technology, expense controls and active portfolio management. It expects to pursue acquisitions, selective dispositions and potential new markets as market conditions permit, while maintaining balance-sheet flexibility.
- Primary operating risks include occupancy and rent pressure, resident turnover and delinquencies, rising operating costs, insurance expense, labor costs and competition.
- Financing risks include higher variable-rate costs, refinancing requirements, debt covenants and the September 2025 maturity of the principal revolving facility.
- Twenty-eight communities, representing approximately 4,935 homes, are subject to limitations on taxable dispositions and may require tax indemnification payments if sold in taxable transactions.
- A retaining-wall litigation matter resulted in a $3.9 million loss; an additional $1.0 million of judgment interest and costs was awarded and paid after year-end. The company stated that the matter remained ongoing and that additional costs could not be estimated with certainty.
- A portion of an apartment community was damaged by fire, and other insurance events resulted in asset write-downs and insurance receivables. The estimated insurance claim related to the fire was $1.9 million at year-end.
- The company disclosed a 2021 ransomware attack that did not materially affect operations or financial results, but cybersecurity and third-party service-provider risks remain material.
- Subsequent to year-end, the company entered agreements to sell two communities for expected gross proceeds of $18.9 million, subject to closing conditions, and repurchased 87,722 common shares for $4.7 million.
- Management reported compliance with applicable debt covenants at December 31, 2023 and stated that liquidity was sufficient for expected requirements over the next twelve months.
Most important facts for investors to verify
- Whether same-store rent growth and occupancy can offset insurance, taxes, compensation and other operating-cost increases.
- The refinancing plan and available capacity for debt maturities beginning in 2025, including the revolving facility maturity.
- The sustainability of distributions relative to operating cash flow, FFO, capital expenditures and debt repayment needs.
- The valuation and disposition assumptions supporting the $5.2 million impairment charge and planned property sales.
- The ultimate resolution and total cost of the retaining-wall litigation.
- The effect of concentrated exposure to Minnesota, Colorado and the broader multifamily housing market.
- The filing’s non-GAAP reconciliations for NOI, FFO and Core FFO before comparing performance with other REITs.