CENTERSPACE Q3 FY2024 earnings call

• Core FFO for Q3 was $1.18 per share, driven by stable revenue growth and expense control. • Occupancy improved to 95.3%, a 70 basis point increase year-over-year. • Same-store revenue grew 3% YoY, with renewal leases up 3.2% and new lease trade-outs seasonally slowing 1.2%. • Blended lease increases of 1.5% for the quarter. • Acquired Lydian in Denver, funded by assumed mortgage debt and OP unit issuance, expecting mid-to-high 5% NOI yield post-stabilization. • Strengthened balance sheet by redeeming Series C preferred shares and using ATM proceeds to reduce line of credit. • Leasing trends showed resident retention above 58%, with markets like North Dakota and Nebraska performing strongly, while Minneapolis was a top absorption market.

For the third quarter, same-store revenue increased 3% over the same period in 2023. Occupancy reached 95.3%, a 70 basis point improvement year-over-year. North Dakota communities led with blended spreads of 5.4%, Nebraska communities at 3.3%, and Minneapolis recognized 1.2% blended rent increases. Same-store new lease trade-outs seasonally slowed 1.2% while renewal leases increased 3.2%, resulting in 1.5% blended lease increases. Revenue contribution from various markets varied, with North Dakota, Nebraska, and Minneapolis showing distinct performance trends.

• Raised midpoint of full-year core FFO to $4.86 per share. • Maintained midpoint of same-store NOI growth guidance at 3.5% but lowered revenue growth expectation to 3%-3.5% and expense growth to 2.5%-3.25% for 2024. • G&A and property management expenses expected to range $26.5M-$27M, interest expense $37.3M-$37.6M. • Impact of Lydian acquisition on interest expense due to assumed debt. • No additional acquisitions, dispositions, issuances, or borrowings factored into guidance post-Lydian.

• Market rent softening more than expected affecting revenue growth. • Uncertainty in insurance renewal outcomes, potentially impacting expenses. • Bad debt year-to-date trending higher than historical norms, though no specific market trends identified. • Seasonality and prioritization of occupancy over new lease pricing as a trade-off.

Q: You mentioned market rent softening more than expected. Is that greater than normal seasonal trend and what's the attribution?

A: Anne Olson said it's more than expected seasonal trend, mostly due to supply/demand, with expectations higher than actual.

Q: What's the preliminary read on October leasing stats?

A: Anne Olson said it's very early in the month, reflected in guidance, with blended expected to be flat, new leases slightly negative and renewals slightly positive.

Q: For fourth quarter lease results, what components between new lease and renewals are driving lower numbers?

A: Bhairav Patel said renewals expected mid-2s, new leases mid-negative on trade-outs, balancing to flat expectations.

Q: View on next year's earnings?

A: Bhairav Patel said earn-in close to 2.4% for this year, less than 1% for next year, subject to leasing trends.

Q: Time to reach mid-to-high 5% yield in Denver acquisition?

A: Grant Campbell said 18 months for holistic implementation, with operational best practices and initiatives taking 90-120 days and 12-18 months for mark-to-market rents and tax savings.

Q: Insurance renewal in mid-to-late November and wildfire impact in Denver?

A: Bhairav Patel said in final stages of renewal, initial favorable but recent storms may impact, no specific wildfire impact yet known.

Q: Bad debt for the quarter and markets?

A: Bhairav Patel said 3Q bad debt 45-50 basis points, year-to-date towards high end of 30-40 basis point range, no specific market trends.

Q: New lease growth in Q3, where driven?

A: Anne Olson said North Dakota and Nebraska strong, but Denver and Minneapolis had bigger declines, other Mountain West markets leveling off.

Q: Technology savings and future tech spend?

A: Anne Olson said technology stack mostly implemented, smart rent expansion planned, next year expected full year savings from staffing model changes.

Q: Future acquisitions in Denver and portfolio exposure?

A: Anne Olson said actively looking in Mountain West, aiming to keep Denver exposure below 25%, but may rise temporarily.

Q: Breakdown of yield improvement in Denver acquisition?

A: Grant Campbell said mark-to-market rents, tax savings, and resident experience initiatives contribute, with different timelines for each component.

Q: Tenant stress and demand metrics?

A: Anne Olson said no additional stress seen, rent-to-income levels sustainable, bad debt slight increase but no major tenant stress.

Q: Denver supply and demand outlook, new vs renewal rates?

A: Grant Campbell said Denver supply down from peak, next 12-month deliveries lower, Anne Olson said Denver occupancy 95%, retention over 50%, renewal rates slightly over 1-1.3%, new lease trade-outs slightly over 2.