Centerspace Q3 FY2025 earnings call

Key Points

• Anne Olson highlighted the health of smaller regional markets, operating platform, and team strength.
• Grant Campbell discussed transaction market activity, including acquisitions in Colorado and Utah, dispositions in Minnesota, and capital allocation.
• Bhairav Patel discussed financial results, Core FFO guidance adjustment, and balance sheet improvements from acquisitions and dispositions.
• Strategic initiatives in June included acquisitions in Colorado and Utah and dispositions in Minnesota to reduce portfolio concentration in Minnesota.
• Same-store NOI growth was driven by revenue increases and expense control, but Core FFO guidance midpoint was lowered by $0.02 due to timing adjustments related to strategic transactions.

For the third quarter, Centerspace reported 4.5% year-over-year growth in NOI within the same-store portfolio. In Minneapolis, results showed blended increases of 2.1% due to improved occupancy and increasing rental rates. North Dakota had portfolio-leading blended increases of 5.2% in the quarter. Denver faced supply pressures but saw improvements in occupancy and tenant incomes, with concession levels varying across the portfolio.

Guidance Details

• Lowered the midpoint of Core FFO guidance by $0.02 to $4.92, with full year Core FFO guidance range $4.88 to $4.96.
• Expected same-store NOI growth of 3% to 3.5% for 2025.
• Net debt to EBITDA expected to move to a low 7x level by year-end, with a pro forma debt profile having an average rate of 3.6% and average time to maturity of 7.2 years.

Risks

• Timing adjustments related to strategic transactions and associated G&A costs impacting Core FFO guidance.
• Concessions in Denver affecting results and earn-in.
• Legislative changes in Colorado limiting the ability to pass on RUBS costs.
• Potential changes in cap rates affecting sales and acquisitions.

Q: On the repurchase, how to balance with reducing leverage?

A: Anne Olson said it's a very small use of proceeds, with excess from the St. Cloud sale, and it sends a signal about the company's perceived value.

Q: Thoughts on Minneapolis recovery?

A: Anne Olson expects a return to normalcy in Minneapolis and outperformance in 2026, with Minneapolis slated for top 5 rent growth in U.S. markets.

Q: Earn-in and Denver concessions?

A: Bhairav Patel said earn-in is just above 1% due to Denver weakness; Anne Olson discussed concession levels in Denver varying from no concessions to 6 weeks free.

Q: Blended lease growth and expense drivers?

A: Bhairav Patel discussed G&A expense drivers and insurance renewal expectations, noting no major one-time items for 2026.

Q: Denver supply and scaling in other markets?

A: Grant Campbell said Denver supply drag is expected to turn in late 2026, with priority on Salt Lake City for scaling efforts