Centerspace Q2 FY2026 earnings call

Portfolio Repositioning & Disposition Activity

• Over 14 months, CenterSpace has sold or entered contracts to sell 20 communities for ~$530 million, with the goal of upgrading portfolio quality, increasing exposure to high-growth institutional markets, eliminating exposure to tertiary markets (St. Cloud, Rapid City, Bismarck), reducing leverage, and improving financial flexibility.
• YTD 2026, the company has closed sales of 14 communities (1,810 apartment homes) totaling ~$320 million, exiting the Rapid City market and scheduled to exit the Bismarck market in August 2026. Additional dispositions include two high-performing Minneapolis communities sold for $73.8 million to reduce portfolio concentration and capitalize on strong market pricing.
• All 2026 dispositions have priced inside the implied mid-to-high 7% portfolio cap rate that CenterSpace stock currently trades at, highlighting a valuation disconnect the company is leveraging to improve its balance sheet.

Operating Performance Trends

• Retention improved significantly in Q2, with 61.3% of expiring leases renewed, marking 3.4% year-over-year growth in renewal rates. Blended lease growth held steady at 1.8% through July 2026, with strength in non-Mountain West markets offsetting ongoing softness in Denver.
• Minneapolis has fully absorbed prior new supply, with muted future new construction pipeline, and is performing in line with or slightly better than management expectations entering 2026.
• Denver's 2026 first half absorption hit an all-time record, and the company expects ongoing supply absorption through 2027, with improving blended lease trends as 2025 concessions cycle off in the second half of 2026.

Capital Structure & Capital Allocation

• Annualized net debt to EBITDA fell sharply to 7.3x at the end of Q2 2026, down from 8.2x in Q1. After all pending dispositions and the planned special distribution, net debt to EBITDA is expected to settle in the mid-6x range, which management states will leave CenterSpace with the strongest balance sheet in its history.
• The company repurchased $2.5 million of its own shares in Q2 at an average price of $55.54 per share, balancing share repurchases with deleveraging goals.
• Overhead is being aligned with the smaller, higher-quality post-disposition portfolio, with an expected $2 million annualized reduction in G&A expenses from organizational realignment.

Since CenterSpace operates as a single multi-family apartment portfolio repositioned around core markets (Denver and Minneapolis, with additional smaller exposure to North Dakota, Nebraska, and other Mountain West/Midwest markets), no distinct product segments are formally reported. For the updated same-store portfolio (which excludes 14 communities sold or held for sale as of quarter end), overall year-over-year revenue was flat. Same-store net operating income (NOI) grew 30 basis points year-over-year, driven by disciplined expense management that reduced expenses 10 basis points, with cost savings concentrated in repair and maintenance (R&M) and turn expenses. Blended lease growth for the same-store portfolio hit 1.8% in Q2, with 61.3% resident retention (up 3.4% year-over-year) and negative 60 basis points new lease rate growth (an improvement of 190 basis points from Q1 2026). Minneapolis, the portfolio's largest NOI contributor, delivered 3.4% blended rent growth and 65% retention. Denver, the market facing ongoing new supply absorption, reported Q2 blended lease spreads down 2.6% (an improvement from Q1's 4.8% decline), with July 2026 blended spreads turning positive at 1% and portfolio vacancy half the Denver MSA average of 10%. Outside the Mountain West, all markets posted blended lease growth over 3% in June 2026.

• Full year 2026 same-store NOI guidance is revised to a range of flat to down 1% year-over-year, driven entirely by the reconstitution of the same-store pool to exclude the 14 sold or held-for-sale communities (which included high-performing assets in Bismarck and Minneapolis that will not contribute to second half 2026 earnings). At the midpoint of the new guidance, revenue growth is 50 basis points and expense growth is 2%.
• Core FFO full year 2026 midpoint guidance is lowered to $4.63 per diluted share, adjusted for the removal of disposed asset earnings from the second half of the year.
• Full year 2026 net G&A and property management expense guidance midpoint is set at $28.3 million, including non-routine severance and strategic review costs. The full $2 million annualized overhead reduction from post-disposition realignment will not be fully reflected in 2026 results due to mid-year implementation of cost cuts.
• Management expects net debt to EBITDA to fall to the mid-6x range after all pending dispositions and the planned REIT special distribution, positioning the company for future stability. Management expects potential FFO stability in 2027, supported by organic growth in non-Denver markets, a projected recovery in Denver, and $2 million in annualized G&A savings offsetting the loss of disposed asset NOI.

• Ongoing new supply delivery in the Denver MSA continues to pressure rental rates and requires continued concessions, contributing to soft operating results for the company's Denver portfolio, though the market has seen record absorption in the first half of 2026 and management expects continued improvement into 2027.
• Higher current cost of capital limits the company's ability to pursue accretive new acquisitions to scale core markets like Salt Lake City, forcing the firm to wait for more favorable capital market conditions to pursue expansion plans.
• Transaction volumes in Denver are down 46% year-over-year in the first half of 2026, reducing market liquidity for multi-family assets, though high-conviction investors remain active for individual well-located properties.

Q: What led to the decision to add two Minneapolis properties to the 2026 disposition plan, and how will the proceeds from these sales be allocated? / A: The decision to sell the two Minneapolis properties was driven by two factors: strong market pricing offers received during the strategic review process, and a goal to reduce portfolio concentration in the market as the company refines its portfolio profile. Proceeds will be split between paying down existing debt, funding the required fourth quarter 2026 special distribution to maintain REIT status, and holding a small cash balance to retire secured mortgages early in 2027.

Q: Has the performance of the Minneapolis market changed from management's expectations at the start of 2026, after passing its prior supply inflection point? / A: Minneapolis is performing right in line with, or slightly better than, management's 2026 entry expectations, with strong new lease rents, high retention, and muted new supply pipeline. The market is now one full year past its supply inflection point, and management expects demand to hold up and continued solid performance going forward, offsetting ongoing softness in Denver.

Q: Can FFO growth be achieved in 2027 after the disposition of high-performing assets, and are there additional planned 2026 dispositions beyond the already announced transactions? / A: Management expects that a projected recovery in Denver, ongoing organic growth in all non-Denver markets that have already worked through prior supply pressures, and $2 million (or $0.10 per share) in annualized G&A cost savings will offset the loss of disposed asset NOI and at minimum support stable FFO in 2027. There are no additional dispositions planned for 2026 beyond the already announced transactions, including the pending Bismarck sales.

Q: What is the core driver of the downward revision to 2026 same-store guidance, and how is Denver performing relative to the broader MSA? / A: Nearly all of the downward guidance revision stems from removing high-performing disposed assets (top-performing Bismarck and solid Minneapolis properties) from the same-store pool; the assets excluded from the pool collectively had 7.5% year-over-year NOI growth. CenterSpace's Denver portfolio is outperforming the broader MSA: portfolio vacancy is 5%, half the MSA average of 10%, and Q2 2026 blended lease declines improved to -2.6% from -4.8% in Q1, with July 2026 blended leases turning positive at 1%. Weakness is almost entirely supply-driven, with demand supported by ongoing high absorption and high homeownership costs.