Centerspace Q2 FY2025 earnings call

Strategic Transactions - Announced series of transactions in June to accelerate capital recycling, including acquisitions in Colorado and Utah, and dispositions in Minnesota. - Entered new market Salt Lake City and expanded in Boulder and Fort Collins. ### Same-Stores Performance - Same-store portfolio had 2.7% Y/Y revenue increase and 2.9% Y/Y NOI growth. - 96.1% occupancy, 16.2% retention, and exceptional expense control. - Blended same-store leasing spreads: 2.4% Y/Y growth, with new leases 2.1% and renewals 2.6%. ### Financials - Core FFO $1.28 per diluted share for Q2. - Planned strategic transactions led to lowering midpoint of guidance by $0.04. ### Balance Sheet - Expanded line of credit by $150 million to fund acquisitions. - Net debt to EBITDA expected to trend back to low to mid 7x by year-end.

The same-store portfolio showed a 2.7% year-over-year increase in revenues, driving a 2.9% year-over-year growth in NOI. Acquisitions included the $149 million purchase of Sugarmont, a 341-home community in Salt Lake City, and the $132 million acquisition of Railway Flats, a 420-home community in Loveland, Colorado. Dispositions reduced exposure to Minnesota, with 12 communities in St. Cloud and Minneapolis being marketed for sale. The Salt Lake City acquisition added to the Mountain West footprint, while the Colorado acquisition provided operational synergies.

Full-Year Outlook - Lowered midpoint of core FFO guidance by $0.04 to $4.88-$5 per share. - Same-store NOI growth expected 2.5%-3.5%. - Net debt to EBITDA expected to trend back to low to mid 7x by year-end. ### Transaction Impact - Acquisitions and dispositions impact guidance, with about $0.06-$0.08 dilution due to transaction timing and holdbacks.

Macro Volatility - Stock price subject to macro volatility. ### Transaction Timing - Impact of disposition timing on guidance, with closing dates affecting dilution. ### Market Conditions - Cap rates and financing markets affecting pricing of acquisitions and dispositions, and leverage management.

Q: On the capital recycling program, can you talk about any guardrails you have around how much you would allow dilution to offset organic growth in any given year?

A: Anne Olson mentioned keeping an eye on balance sheet, matching temporary leverage upticks with dispositions to bring leverage back down, and wanting to continue year-over-year earnings growth.

Q: Do you have any July leasing stats you could quote?

A: Bhairav Patel said trends from June continued, Denver turning corner with concessions reversing, rest of portfolio chugging along.

Q: Just one more little accounting thing, Bhairav, can you just give the net impact of the acquisition and disposition activity on the guidance?

A: Bhairav Patel said about $0.06-$0.08 of dilution due to transaction timing and holdbacks, with dispositions closing in late Q3 and early to mid-Q4.

Q: How much of a drag Denver was on the 2.6% renewal lease rate growth? And were there any other markets that had an outsized impact on that number?

A: Anne Olson said Denver brought it in 20-30 basis points, with other markets like North Dakota, Minneapolis, Rochester having strong growth in high 2s to 5s.

Q: Can you talk about how much of a drag Denver was on the 2.6% renewal lease rate growth? And were there any other markets that had an outsized impact on that number?

A: Anne Olson said Denver brought it in 20-30 basis points, with other markets like North Dakota, Minneapolis, Rochester having strong growth in high 2s to 5s.

Q: How do you think about timing of capital allocation, like why not take a more measured pace to avoid dilution?

A: Anne Olson said they are taking advantage of off-market opportunities like Salt Lake City and Railway, and have a track record of taking advantage of opportunities, but are mindful of timing and balance with other initiatives.