10-Q 1 csr-20220331.htm 10-Q csr-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2022
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-35624
CENTERSPACE
(Exact name of registrant as specified in its charter)
North Dakota45-0311232
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3100 10th Street SWPost Office Box 1988MinotND58702-1988
(Address of principal executive offices)(Zip code)
(701) 837-4738
(Registrant’s telephone number, including area code)
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.
YesNo
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesNo
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated filer Non-accelerated filer
Smaller Reporting CompanyEmerging growth company
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesNo
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares of Beneficial Interest, no par valueCSRNew York Stock Exchange
Series C Cumulative Redeemable Preferred SharesCSR-PRCNew York Stock Exchange
    The number of common shares of beneficial interest outstanding as of April 25, 2022, was 15,365,272.


TABLE OF CONTENTS
 Page
 
  
 
2

PART I
Item 1. Financial Statements.

CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 (in thousands, except per share data)
 March 31, 2022December 31, 2021
ASSETS  
Real estate investments  
Property owned$2,390,952 $2,271,170 
Less accumulated depreciation(465,752)(443,592)
 1,925,200 1,827,578 
Mortgage loans receivable at fair value 43,276 
Total real estate investments1,925,200 1,870,854 
Cash and cash equivalents13,313 31,267 
Restricted cash2,409 7,358 
Other assets24,651 30,582 
TOTAL ASSETS$1,965,573 $1,940,061 
LIABILITIES, MEZZANINE EQUITY, AND EQUITY  
LIABILITIES  
Accounts payable and accrued expenses$50,360 $62,403 
Revolving lines of credit46,000 76,000 
Notes payable, net of unamortized loan costs of $641 and $656, respectively
299,359 299,344 
Mortgages payable, net of unamortized loan costs of $3,648 and $3,187, respectively
521,536 480,703 
TOTAL LIABILITIES$917,255 $918,450 
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at March 31, 2022 and December 31, 2021, aggregate liquidation preference of $16,560)
$22,412 $25,331 
EQUITY  
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,881 shares issued and outstanding at March 31, 2022 and December 31, 2021, aggregate liquidation preference of $97,036)
93,530 93,530 
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,366 shares issued and outstanding at March 31, 2022 and 15,016 shares issued and outstanding at December 31, 2021)
1,203,685 1,157,255 
Accumulated distributions in excess of net income(495,732)(474,318)
Accumulated other comprehensive income (loss)(2,550)(4,435)
Total shareholders’ equity$798,933 $772,032 
Noncontrolling interests – Operating Partnership and Series E preferred units226,302 223,600 
Noncontrolling interests – consolidated real estate entities671 648 
Total equity$1,025,906 $996,280 
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY$1,965,573 $1,940,061 
See accompanying Notes to Condensed Consolidated Financial Statements.
3

CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 (in thousands, except per share data)
 Three Months Ended March 31,
 20222021
REVENUE$60,314 $46,648 
EXPENSES  
Property operating expenses, excluding real estate taxes19,014 13,449 
Real estate taxes6,859 5,792 
Property management expense2,253 1,767 
Casualty (gain) loss598 101 
Depreciation and amortization31,001 19,992 
General and administrative expenses4,500 3,906 
TOTAL EXPENSES$64,225 $45,007 
Operating income (loss)(3,911)1,641 
Interest expense(7,715)(7,231)
Interest and other income (loss)1,063 431 
NET INCOME (LOSS)$(10,563)$(5,159)
Dividends to Series D preferred unitholders(160)(160)
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units2,157 469 
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities(23)(17)
Net income (loss) attributable to controlling interests(8,589)(4,867)
Dividends to preferred shareholders(1,607)(1,607)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS$(10,196)$(6,474)
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC$(0.68)$(0.49)
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED$(0.68)$(0.49)
See accompanying Notes to Condensed Consolidated Financial Statements.
4

CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


(in thousands)
Three Months Ended March 31,
 20222021
Net income (loss)$(10,563)$(5,159)
Other comprehensive income:
Unrealized gain (loss) from derivative instrument1,581 2,011 
(Gain) loss on derivative instrument reclassified into earnings304 1,095 
Total comprehensive income (loss)$(8,678)$(2,053)
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units2,480 261 
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities(23)(17)
Comprehensive income (loss) attributable to controlling interests$(6,221)$(1,809)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

 (in thousands, except per share data)
Three Months Ended March 31, 2021PREFERRED
SHARES
NUMBER
OF
COMMON
SHARES
COMMON
SHARES
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF
NET INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
NONCONTROLLING
INTERESTS
TOTAL
EQUITY
Balance December 31, 2020$93,530 13,027 $968,263 $(427,681)$(15,905)$54,616 $672,823 
Net income (loss) attributable to controlling interests and noncontrolling interests   (4,867)(452)(5,319)
Change in fair value of derivatives   3,107 3,107 
Distributions - common shares and units ($0.70 per share and unit)
   (9,254)(665)(9,919)
Distributions – Series C preferred shares ($0.414063 per Series C share)
(1,607)(1,607)
Share-based compensation, net of forfeitures 3 810   810 
Sale of common shares, net164 11,782 11,782 
Redemption of units for common shares26 (220)220  
Other — (182) (43)(225)
Balance March 31, 2021$93,530 13,220 $980,453 $(443,409)$(12,798)$53,676 $671,452 
Three Months Ended March 31, 2022
Balance December 31, 2021$93,530 15,016 $1,157,255 $(474,318)$(4,435)$224,248 $996,280 
Net income (loss) attributable to controlling interests and noncontrolling interests   (8,589)(2,134)(10,723)
Change in fair value of derivatives1,885 1,885 
Distributions - common shares and units ($0.73 per share and unit)
   (11,218)(728)(11,946)
Distributions – Series C preferred shares ($0.414063 per Series C share)
   (1,607) (1,607)
Distributions - Series E preferred units ($0.968750 per unit)
(1,757)(1,757)
Share-based compensation, net of forfeitures 19 719   719 
Sale of common shares, net321 31,684 31,684 
Issuance of Units13,023 9,859 22,882 
Redemption of units for common shares10 (388)388  
Redemption of units for cash    (2,903)(2,903)
Change in value of Series D preferred units2,919 2,919 
Shares withheld for taxes(1,274)(1,274)
Other — (253) — (253)
Balance March 31, 2022$93,530 15,366 $1,203,685 $(495,732)$(2,550)$226,973 $1,025,906 

See accompanying Notes to Condensed Consolidated Financial Statements.




 

6

CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 (in thousands)
 Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income (loss)$(10,563)$(5,159)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization, including amortization of capitalized loan costs31,096 20,245 
Share-based compensation expense719 810 
(Gain) loss on interest rate swap termination, amortization, and mark-to-market(613) 
Other, net416 836 
Changes in other assets and liabilities:  
Other assets1,316 (533)
Accounts payable and accrued expenses(10,773)(1,244)
Net cash provided by (used by) operating activities$11,598 $14,955 
CASH FLOWS FROM INVESTING ACTIVITIES  
Increase in mortgages and notes receivable (5,445)
Payments for acquisitions of real estate investments(9,545)(77,585)
Payments for improvements of real estate investments(3,474)(2,165)
Other investing activities288 160 
Net cash provided by (used by) investing activities$(12,731)$(85,035)
CASH FLOWS FROM FINANCING ACTIVITIES  
Principal payments on mortgages payable(2,154)(3,566)
Proceeds from revolving lines of credit13,000 105,716 
Principal payments on revolving lines of credit(43,000)(77,044)
Net proceeds from notes payable 49,940 
Payment for termination of interest rate swap(3,209) 
Net proceeds from issuance of common shares31,684 11,782 
Redemption of partnership units(2,903)
Distributions paid to common shareholders(10,812)(9,119)
Distributions paid to preferred shareholders(1,607)(1,607)
Distributions paid to preferred unitholders(160)(160)
Distributions paid to noncontrolling interests – Operating Partnership and Series E preferred units(2,356)(683)
Other financing activities(253)(63)
Net cash provided by (used by) financing activities$(21,770)$75,196 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(22,903)5,116 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD38,625 7,310 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$15,722 $12,426 
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES  
Accrued capital expenditures$2,656 $2,418 
Operating partnership units converted to shares(388)(220)
Distributions declared but not paid to common shareholders11,944 9,919 
Retirement of shares withheld for taxes1,273  
Real estate assets acquired through assumption of debt41,623  
Fair value adjustment to debt1,224  
Note receivable exchanged through real estate acquisition43,276  
Real estate assets acquired through issuance of operating partnership units22,882  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION  
Cash paid for interest$7,182 $6,787 
(in thousands)
Balance sheet descriptionMarch 31, 2022December 31, 2021March 31, 2021
Cash and cash equivalents$13,313 $31,267 $10,816 
Restricted cash2,409 7,358 1,610 
Total cash, cash equivalents and restricted cash$15,722 $38,625 $12,426 
See accompanying Notes to Condensed Consolidated Financial Statements.
7

CENTERSPACE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
for the three months ended March 31, 2022 and 2021
NOTE 1 • ORGANIZATION 
Centerspace, collectively with its consolidated subsidiaries (“Centerspace,” “the Company,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of March 31, 2022, Centerspace owned interests in 83 apartment communities consisting of 14,838 apartment homes.
NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 
BASIS OF PRESENTATION
Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP (f/k/a IRET Properties), a North Dakota limited partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities. The accompanying Condensed Consolidated Financial Statements include the Company’s accounts and the accounts of all its subsidiaries in which it maintains a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.
The Condensed Consolidated Financial Statements also reflect the Operating Partnership’s ownership of a joint venture entity in which the Operating Partnership has a general partner or controlling interest. This entity is consolidated into the Company’s operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Centerspace’s interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial position, results of operations, and cash flows for the interim periods, have been included.
The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim Condensed Consolidated Financial Statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
As of March 31, 2022 and December 31, 2021, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.
LEASES
As a lessor, Centerspace primarily leases multifamily apartment homes which qualify as operating leases with terms that are generally one year or less. Rental revenues are recognized in accordance with ASC 842, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 98.1% of total revenues and includes gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt. Other property revenues represent the remaining 1.9% of total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.
8

Some of the Company’s apartment communities have commercial spaces available for lease. Lease terms for these spaces typically range from three to fifteen years. The leases for commercial spaces generally include options to extend the lease for additional terms.
Many of the leases contain non-lease components for utility reimbursement from residents and common area maintenance from commercial tenants. Centerspace has elected the practical expedient to combine lease and non-lease components for all asset classes. The combined components are included in lease income and are accounted for under ASC 842.
The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of March 31, 2022, was as follows:
(in thousands)
2022 (remainder)$1,958 
20232,627 
20242,577 
20252,528 
20261,935 
Thereafter1,548 
Total scheduled lease income - commercial operating leases$13,173 
REVENUES
Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the Company expects to be entitled for those goods and services.
Revenue streams that are included in revenues from contracts with customers include:
Other property revenue: Centerspace recognizes revenue for rental related income not included as a component of a lease, such as application fees, as earned.
Gains or losses on sales of real estate: A gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.
The following table presents the disaggregation of revenue streams for the three months ended March 31, 2022 and 2021:
(in thousands)
Three Months Ended March 31,
Revenue StreamApplicable Standard20222021
Fixed lease income - operating leasesLeases$56,673 $43,840 
Variable lease income - operating leasesLeases2,523 1,969 
Other property revenueRevenue from contracts with customers1,118 839 
Total revenue$60,314 $46,648 

IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets, including investments in real estate, for impairment indicators at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns. If indicators exist, the Company compares the expected future undiscounted cash flows for the property against the carrying amount of that property. If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount. If the anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, the evaluation of impairment charges may be different and such differences could be material to the consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results. Reducing planned property holding periods may increase the likelihood of recording impairment losses.
During the three months ended March 31, 2022 and 2021, the Company recorded no impairment charges.
9

MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE
In March 2020, in connection with the acquisition of Ironwood, an apartment community in New Hope, Minnesota, the Company acquired a tax increment financing note receivable (“TIF”) with a principal balance of $6.1 million and $6.4 million at March 31, 2022 and December 31, 2021, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets. The note bears an interest rate of 4.5% with payments due in February and August of each year.
In December 2019, Centerspace originated a $29.9 million construction loan and a $15.3 million mezzanine loan for the development of a multifamily community located in Minneapolis, Minnesota. During the three months ended September 30, 2021, construction on the project was completed and the lease-up phase began. The construction and mezzanine loans bore and accrued interest at 4.5% and 11.5%, respectively. During the three months ended March 31, 2022, the Company exercised its option to purchase the apartment community in exchange for the loans and cash. As of March 31, 2022, the loans had no remaining balance. As of December 31, 2021, the Company had fully funded the $29.9 million construction loan and $13.4 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets.
VARIABLE INTEREST ENTITIES
Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are VIEs, as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on the balance sheet because the Company has a controlling financial interest in the VIEs and has both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.
NOTE 3 • EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period. Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on the earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units). Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”). Upon the exercise of Exchange Rights, and in Centerspace’s sole discretion, it may issue common shares in exchange for Units on a one-for-one basis.
For the three months ended March 31, 2022 and 2021, performance-based RSUs of 33,000 and 46,000, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the three months ended March 31, 2022, operating partnership units of 965,000, Series D preferred units of 228,000, Series E preferred units of 2.2 million, time-based RSUs of 14,000, and weighted average stock options of 52,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the three months ended March 31, 2021, Series D preferred units of 228,000, time-based RSUs of 19,000, and weighted average stock options of 44,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the Condensed Consolidated Financial Statements for the three months ended March 31, 2022 and 2021:  
10

 (in thousands, except per share data)
 Three Months Ended March 31,
 20222021
NUMERATOR  
Net income (loss) attributable to controlling interests$(8,589)$(4,867)
Dividends to preferred shareholders(1,607)(1,607)
Numerator for basic earnings (loss) per share – net income available to common shareholders(10,196)(6,474)
Noncontrolling interests – Operating Partnership and Series E preferred units(2,157)(469)
Dividends to preferred unitholders160 160 
Numerator for diluted earnings (loss) per share$(12,193)$(6,783)
DENOMINATOR  
Denominator for basic earnings per share weighted average shares15,097 13,078 
Effect of redeemable operating partnership units 957 
Denominator for diluted earnings per share15,097 14,035 
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC$(0.68)$(0.49)
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED$(0.68)$(0.49)

NOTE 4 • EQUITY AND MEZZANINE EQUITY
Operating Partnership Units. The Operating Partnership had 997,000 and 832,000 outstanding Units at March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities.
Exchange Rights. Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three months ended March 31, 2022 and 2021 as detailed in the table below.
(in thousands)
Three Months Ended March 31,Number of UnitsNet Book Basis
202210 $(388)
202126 $(220)
Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three months ended March 31, 2022 and 2021 as detailed in the table below.
(in thousands)
Three Months Ended March 31,Number of UnitsAggregate CostAverage Price Per Unit
202231 $2,903 $93.14 
2021 $9 $71.55 
Series E Preferred Units (Noncontrolling Interests). On September 1, 2021, Centerspace 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. 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 $181.4 million. The holders of the Series E preferred units do not have voting rights and are required to hold the units for one year before they may elect to convert.
Common Shares and Equity Awards. Common shares outstanding on March 31, 2022 and December 31, 2021, totaled 15.4 million and 15.0 million, respectively. There were 18,759 and 2,801 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three months ended March 31, 2022 and 2021, respectively, with a total grant-date fair value of $1.5 million and $164,000, respectively. These shares vested based on performance and service criteria.
Equity Distribution Agreement. Centerspace had an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which it could offer and sell common shares having an aggregate sales price of up to $150.0 million. In September 2021, the Company replaced the 2019 ATM Program with a new at-the-market offering (“2021 ATM Program”) through which it 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. Under the 2021 ATM Program, the Company may enter into separate
11

forward sale agreements. The proceeds from the sale of common shares under the 2021 ATM Program are intended to be used for general purposes, which may include the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. The table below provides details on the sale of common shares during the three months ended March 31, 2022 and 2021 under both the 2019 and 2021 ATM Programs. As of March 31, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM Program.
(in thousands, except per share amounts)
Three Months Ended March 31,Number of Common Shares
Net Consideration(1)
Average Net Price Per Share
2022321 $31,732 $98.89 
2021164 $11,859 $72.19 
(1)Total consideration is net of $338 and $181 in commissions and issuance costs during the three months ended March 31, 2022 and 2021, respectively.
Series C Preferred Shares. Series C preferred shares outstanding were 3.9 million shares at March 31, 2022 and December 31, 2021. The Series C preferred shares are nonvoting and redeemable for cash at $25.00 per share at Centerspace’s option after October 2, 2022. Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees). Distributions accrue at an annual rate of $1.65625 per share, which is equal to 6.625% of the $25.00 per share liquidation preference ($97.0 million liquidation preference in the aggregate).
Series D Preferred Units (Mezzanine Equity). Series D preferred units outstanding were 165,600 preferred units at March 31, 2022 and December 31, 2021. The Series D preferred units have a par value price of $100 per preferred unit. The Series D preferred unit holders receive a preferred distribution at the rate of 3.862% per year. The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issuance price. Each Series D preferred unit is convertible, at the holder’s option, into 1.37931 Units. The Series D preferred units have an aggregate liquidation preference of $16.6 million. Changes in the redemption value are charged to common shares on the Condensed Consolidated Balance Sheets from period to period. The holders of the Series D preferred units do not have voting rights. Distributions to Series D unitholders are presented in the Condensed Consolidated Statements of Equity within net income (loss) attributable to controlling interests and noncontrolling interests.
NOTE 5 • DEBT
As of March 31, 2022, 49 apartment communities were not encumbered by mortgages and are available to provide credit support for the unsecured borrowings. The Company’s primary unsecured credit facility (“unsecured credit facility”) is a revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent. The line of credit has total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of March 31, 2022, the additional borrowing availability was $204.0 million beyond the $46.0 million drawn. This unsecured credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and to provide for a $400.0 million accordion option.
The interest rates on the line of credit and term loans are based, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 25-80 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 125-180 basis points based on the consolidated leverage ratio, as defined under the Third Amended and Restated Credit Agreement. The unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations. The Company believes that it is in compliance with all such financial covenants and limitations as of March 31, 2022.
In January 2021, Centerspace amended and expanded its private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) to increase the aggregate amount available for issuance of unsecured senior promissory notes (“unsecured senior notes”) to $225.0 million. Under this agreement, the Company has issued $200.0 million unsecured senior notes with $25.0 million remaining available as of March 31, 2022. In September 2021, the Company 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.
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(in thousands)
AmountMaturity DateInterest Rate
Series A$75,000 September 13, 20293.84 %
Series B$50,000 September 30, 20283.69 %
Series C$50,000 June 6, 20302.70 %
Series 2021-A$35,000 September 17, 20302.50 %
Series 2021-B$50,000 September 17, 20312.62 %
Series 2021-C$25,000 September 17, 20322.68 %
Series 2021-D$15,000 September 17, 20342.78 %
In September 2021, Centerspace entered into a $198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”) for the acquisition of 16 apartment communities. The FMCF is currently secured by mortgages on those apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%. As of March 31, 2022, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.
As of March 31, 2022, Centerspace owned 18 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations. As of March 31, 2022, the Company believes that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.
Centerspace also has a $6.0 million 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 matures on November 29, 2022, with pricing based on a market spread plus the one-month LIBOR index rate.
The following table summarizes indebtedness:
(in thousands)
March 31, 2022December 31, 2021Weighted Average Maturity in Years at March 31, 2022
Lines of credit$46,000 $76,000 3.75
Unsecured senior notes (1)
300,000 300,000 8.63
Unsecured debt346,000 376,000 7.98
Mortgages payable - Fannie Mae credit facility198,850 198,850 9.56
Mortgages payable - other326,113 284,934 6.71
Total debt$870,963 $859,784 7.14
Weighted average interest rate on lines of credit (rate with swap)(2)
2.56 %2.74 %
Weighted average interest rate on unsecured senior notes3.12 %3.12 %
Weighted average interest rate on mortgages payable - Fannie Mae credit facility2.78 %2.78 %
Weighted average interest rate on mortgages payable - other3.85 %3.81 %
Weighted average interest rate on total debt3.29 %3.26 %
(1)Included within notes payable on the Condensed Consolidated Balance Sheets.
(2)The interest rate swap was terminated during the three months ended March 31, 2022.
The aggregate amount of required future principal payments on unsecured senior notes and mortgages payable as of March 31, 2022, was as follows:
(in thousands)
2022 (remainder)$26,443 
202345,988 
20245,012 
202579,850 
202650,088 
Thereafter663,582 
Total payments$870,963 
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NOTE 6 • DERIVATIVE INSTRUMENTS
Centerspace’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate fluctuations. To accomplish this objective, the Company primarily uses interest rate swap contracts to fix variable interest rate debt.
Changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (“OCI”) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income for the interest rate swaps will be reclassified to interest expense as interest payments are incurred on the hedged variable rate debt. During the next twelve months, the Company estimates an additional $633,000 will be reclassified as an increase to interest expense.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in fair value of derivatives not designated in hedging relationships are recorded directly to earnings within other income (loss) in the Condensed Consolidated Statement of Operations. During the three months ended March 31, 2022, the Company recorded a gain of $582,000 related to the interest rate swap not designated in a hedging relationship, prior to its termination.
During the three months ended March 31, 2022, the Company paid $3.2 million to terminate its $75.0 million interest rate swap and its $70.0 million forward swap. As of March 31, 2022 the Company had no remaining interest rate swaps.
As of December 31, 2021, Centerspace had one interest rate swap contract designated as a cash flow hedge of interest rate risk with a notional amount of $75.0 million to fix the interest rate on the line of credit. The Company also had one additional interest rate swap with an effective date of January 31, 2023 and a notional amount of $70.0 million which was not designated as a hedge in a qualifying hedging relationship.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.
(in thousands)
March 31, 2022December 31, 2021
Balance Sheet LocationFair ValueFair Value
Total derivative instruments designated as hedging instruments - interest rate swapsAccounts Payable and Accrued Expenses$ $4,610 
Total derivative instruments not designated as hedging instruments - interest rate swapsAccounts Payable and Accrued Expenses$ $1,097 
The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of March 31, 2022 and 2021.
(in thousands)
Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from Accumulated OCI into IncomeGain (Loss) Reclassified from Accumulated OCI into Income
Three months ended March 31,2022202120222021
Total derivatives in cash flow hedging relationships - Interest rate contracts$1,581 $2,011 Interest expense$(304)$(1,095)
The Company had agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
NOTE 7 • FAIR VALUE MEASUREMENTS
Cash and cash equivalents, restricted cash, accounts payable, accrued expenses, and other liabilities are carried at amounts that reasonably approximate their fair value due to their short-term nature. For variable rate line of credit debt that re-prices frequently, fair values are based on carrying values.
In determining the fair value of other financial instruments, Centerspace applies FASB ASC 820, “Fair Value Measurement and Disclosures.” Fair value hierarchy under ASC 820 distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Levels 1 and 2) and the reporting entity’s own assumptions
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about market participant assumptions (Level 3). Fair value estimates may differ from the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities.
Fair Value Measurements on a Recurring Basis
(in thousands)
TotalLevel 1Level 2Level 3
March 31, 2022
Assets
Notes receivable$6,068   $6,068 
December 31, 2021    
Assets
Mortgages and notes receivable$49,484   $49,484 
Liabilities
Derivative instruments - interest rate swaps$5,707 $  $5,707 
The fair value of the interest rate swaps was determined using the market standard methodology of netting discounted expected variable cash payments and receipts. The variable cash payments and receipts were based on an expectation of future interest rates (a forward curve) derived from observable market interest rate curves. The Company also considered both its own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurement (Level 3).
Centerspace utilizes an income approach with Level 3 inputs based on expected future cash flows to value mortgages and notes receivable. The inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 3.75% to 10.75%), and instrument specific credit risk (range of 0.5% to 1.0%). Changes in the fair value of these receivables from period to period are reported in interest and other income on the Condensed Consolidated Statements of Operations.
(in thousands)
Fair Value Measurement at March 31,Other Gains (Losses)Interest IncomeTotal Changes in Fair Value Included in Current-Period Earnings
Three months ended March 31, 2022
Notes receivable$6,068 $4 $460 $464 
Three months ended March 31, 2021
Mortgage loans and notes receivable$36,443 $4 $407 $411 
As of March 31, 2022 and December 31, 2021, Centerspace has an investment of $890,000 and $903,000, respectively, in a real estate technology venture consisting of privately held entities that develop technology related to the real estate industry. This investment is measured at net asset value (“NAV”) as a practical expedient under ASC 820. As of March 31, 2022, the Company had unfunded commitments of $1.2 million.
Fair Value Measurements on a Nonrecurring Basis
There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021.
Financial Assets and Liabilities Not Measured at Fair Value
The fair value of unsecured senior notes and mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates, excluding any prepayment penalties (Level 3).
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The estimated fair values of the Company’s financial instruments as of March 31, 2022 and December 31, 2021, respectively, are as follows:
(in thousands)
March 31, 2022December 31, 2021
Carrying AmountFair ValueCarrying AmountFair Value
FINANCIAL ASSETS    
Cash and cash equivalents$13,313 $13,313 $31,267 $31,267 
Restricted cash$2,409 $2,409 $7,358 $7,358 
FINANCIAL LIABILITIES    
Revolving lines of credit(1)
$46,000 $46,000 $76,000 $76,000 
Unsecured senior notes$300,000 $273,973 $300,000 $308,302 
Mortgages payable - Fannie Mae$198,850 $176,055 $198,850 $198,850 
Mortgages payable - other$326,113 $308,363 $284,934 $284,546 
(1)Excluding the effect of interest rate swap agreements. Refer to Note 6 for discussion on the fair value of the interest rate swap agreements.
NOTE 8 • ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Centerspace acquired four new apartment communities for an aggregate acquisition cost of $116.9 million during the three months ended March 31, 2022 compared to acquisitions of $76.9 million in the three months ended March 31, 2021. The acquisitions during the three months ended March 31, 2022 and 2021 are detailed below.
Three Months Ended March 31, 2022
Date
Acquired
(in thousands)
Total
Acquisition
Cost
Form of ConsiderationInvestment Allocation
AcquisitionsCash
Units(1)
Other(2)
LandBuildingIntangible
Assets
Other(3)
191 homes - Martin Blu - Minneapolis, MN
January 4, 2022$49,825 $3,031 $18,885 $27,909 $3,547 $45,212 $1,813 $(747)
31 homes - Zest - Minneapolis, MN
January 4, 20229,066 1,290 1,748 6,028 941 7,853 335 (63)
45 homes - Elements - Minneapolis, MN
January 4, 2022