Centerspace Q4 FY2025 earnings call

Board of Trustees is overseeing a formal evaluation of strategic alternatives to maximize shareholder value, ongoing. 2025 saw $493 million of transaction activity including entering Salt Lake City market, expanding in Fort Collins, exiting St. Cloud market and pruning Minneapolis holdings. Maintained balance sheet strength, expanded unsecured credit facility by $150 million, assumed attractively priced long-term debt, repurchased 3.5 million common shares. 2026 expects momentum in many markets with Minneapolis having strong fundamentals and Denver expected to normalize as supply tapers and job growth and regulations change.

Centerspace's fourth quarter core FFO was $1.25 per diluted share, driven by a 4.8% year-over-year increase in Q4 same-store NOI. Revenues from same-store communities increased by 1% compared to the same quarter in 2024, driven by a 1.5% increase in average monthly revenue per occupied home, which offset a 40 basis point decline in occupancy. On the same-store expense side, Q4 numbers were down 5.1% year-over-year with favorability in both controllable and noncontrollable expenses. For 2026, core FFO per diluted share is expected to remain stable year-over-year with an expectation of full year core FFO per share of $4.93 at the midpoint. Guidance assumes same-store NOI increases by 75 basis points, same-store revenues increase 88 basis points and same-store expenses increase 150 basis points. Revenue growth assumes blended leasing spreads of approximately 2% with occupancy in the mid-95% range and retention of about 52%. Blended spreads are highest in North Dakota communities, followed by Minneapolis and Omaha, while Denver's portfolio is expected to have lower spreads but improve as the year progresses with regulatory changes tempering revenue growth there and expense recoveries down nearly $1 million.

Expect core FFO per diluted share of $4.93 at midpoint for 2026. Same-store NOI to increase 75 basis points, same-store revenues 88 basis points, same-store expenses 150 basis points. Blended leasing spreads approx 2%, occupancy mid-95% range, retention ~52%. North Dakota, Minneapolis, Omaha have highest spreads; Denver spreads down but improve. Regulatory changes in Colorado to temper revenue growth, expense recoveries down nearly $1 million. Amortization of assumed debt expected $1.5 million, with higher first half and trailing off in second half. CapEx expected $2.5 million to $12.5 million with recurring CapEx per home $1,300 at midpoint, no acquisitions or dispositions planned.

Uncertainty in strategic review process with no assurance of pursuing a transaction or other strategic outcome. Denver's market affected by supply volume, slow job growth, and regulatory changes. Colorado regulatory changes tempering revenue growth. Labor market and related operational risks. Minneapolis-related events and potential long-term impacts as monitored.

Q: Can you talk us through some of your assumptions within the 2026 revenue guide?

A: Blended rent growth mid-1% range, earn-in at end of year, offset by Colorado regulation change and lower occupancy contributing to revenue growth. Renewals to lead with high 2% range trade-outs, new lease trade-outs better in Midwest markets with strong demand.

Q: How do you see Denver market playing out in 2026?

A: Concessionary pressure to continue in first half of 2026 with 2-4 weeks of concessions, deliveries to be lowest in years but foot traffic increasing and investments in city projects, expecting improvement as year progresses.

Q: Is the underlying plan for the company continuing while strategic review is ongoing?

A: Feel great about 2025 strategic execution, strategic review is about reviewing capital use, no further comments on 2026 plan.

Q: Any January or quarter-to-date leasing stats?

A: Blends flat to slightly negative, renewals strong mid-3% range, clawed back some occupancy with weakness in new lease trade-out led by Denver.

Q: Are you allowed to buy back stock while strategic review is going on?

A: Need to complete process given rules, current buyback authorization with trading not most attractive use of capital.

Q: How has experience in Denver and Minneapolis affected assessment of other markets?

A: Considering business friendliness including regulatory environment, taxation when looking at new markets, happy with current markets with good operations.

Q: Parallels to 2026 tax refunds compared to 2021-2022?

A: Tax refunds seen as onetime item, not expected to impact multifamily demand significantly.

Q: Rent growth ahead of revenue growth in fourth quarter?

A: Occupancy pressures in some markets, Colorado regulations to impact 2026, Rochester turning corner and regaining occupancy.

Q: Why lower retention rate forecast?

A: Being conservative in retention assumptions, saw downtick in Q4, waiting to adjust assumptions after first couple of quarters.

Q: Wider range in value add outlook?

A: Selective in projects due to higher cost of capital and execution risk, holding back due to strategic review process, low end $2.5 million completion of prior year projects.

Q: Concern about affordability in markets with consistent CPI plus renewal growth?

A: Rent to income held steady or slightly lowered with incomes increasing faster than rent increases, strong income and wage growth across markets.

Q: On-site comp flat despite tight labor markets?

A: Less turnover and steadiness in employment, vendors and company seeing less turnover, Q4 had health reserve adjustment contributing to comparison.

Q: Impact of Minneapolis turmoil on leasing activity?

A: Minimal impact seen in January with low lease expirations, monitoring closely but demand expected to hold up with little supply and good growth projected.