Centerspace Q1 FY2026 earnings call

Strategic review initiated in 2025 is ongoing, with more substantive update expected before Q2 earnings. Revenues in Q1 in line with expectations, impacted by Colorado regulations, timing of expenses, and strategic review costs. Operationally, leasing showed seasonal pickup with blended spreads improving from negative 90 basis points in January to positive 140 basis points in March, and continuing into April. Retention in same store portfolio improved to 54.1%. Midwest markets had rent growth outpacing national averages, with Minneapolis showing strong blended spreads. Denver was impacted by regulatory changes and high concessions, but absorption levels were high and expected to improve. Team recognized with USA Today Top Workplace award.

Revenues for Q1 were in line with expectations, supported by stable demand. First quarter results were impacted by Colorado regulations, timing of expenses, and strategic review costs. Core FFO per diluted share was $1.12. Full-year core FFO guidance remains unchanged at $4.93. Same-store NOI decreased 1.1% year-over-year, but same-store revenue was flat with a 1.7% increase in average monthly rental rate offset by occupancy decrease and lower RUBS revenue in Colorado. Same-store expenses were up 1.7% with controllable expenses up 3.5% and non-controllables down 1.1%.

Full-year core FFO guidance remains at $4.93, with same-store NOI growth 75 basis points, same-store revenue growth 88 basis points, and same-store expense growth 1.5% at midpoints. Casualty recoveries increased neighborhood FSO expectations to $4.78 per share. Revenue growth assumes blended gross leasing spreads ~2%, occupancy mid-95% range, retention ~52%. Midwest communities expected to have highest spreads, Denver spreads expected to improve but be down for the year. Regulatory changes to temper Colorado portfolio revenue, already incorporated into guidance. Expenses in Q1 slightly higher due to timing, but expected to normalize with appeal savings and other offsets. G&A expected to be lower than initial projection.

Risks include uncertainty regarding outcome of strategic review, potential impact of Colorado regulations on revenue, volatility in non-reimbursable losses, and potential impact of economic and market conditions on transaction activity and portfolio performance. Also, impairment of assets due to change in holding period considerations related to strategic review.

Q: On Minneapolis, do you view that market as back to normal and expect overshoot?

A: Minneapolis past inflection point, demand steady, supply tapering, expect outperformance.

Q: On guidance, path to midpoints?

A: Revenue in line, controllables timing to correct, tax drops expected to be offset, non-reimbursable losses volatile, G&A to normalize.

Q: On other Mountain West markets?

A: Impacted by supply and softer job picture post-COVID.

Q: On retention, will it come down?

A: Higher retention due to industry shifts, absorption may lead to fewer choices, April retention up.

Q: On capital allocation with review ongoing?

A: Focus on managing revolver balance and value add spend.

Q: On market outlook changes?

A: Revenue in line, Denver absorption strong but growth slower, Minneapolis better than expected.

Q: On real estate investment impairments?

A: Driven by change in holding period due to strategic review.

Q: On Colorado regulatory concerns?

A: Already seeing impact on RUBS, watching job growth and regulatory impacts.

Q: On hiring outlook for college grads in Midwest?

A: Strong companies in Midwest, affordability a draw, markets like Minneapolis and Rochester attracting grads.