D/B/A Centerspace

Good morning and welcome to the CenterSpace third quarter 2021 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mark Decker, Chief Executive Officer. Please go ahead.

Good morning, everyone. Center Space's Form 10-Q for the quarter ending September 30, 2021, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com. and filed on Form 8-K. It's important to note that today's remarks will include our business outlook and other forward-looking statements that are based on management's current views and assumptions, and we cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information which may be discussed on today's call. I'm joined this morning by Anne Olson, our Chief Operating Officer, and John Kirchman, our Chief Financial Officer. I'd like to start by welcoming my team members out there on the line, many of whom are shareholders, and thanking them for the fantastic efforts as we endeavor to create better every day. It's an incredible time to be in the housing business, and the CenterSpace team is giving outstanding effort and getting results. 2021 is a big year for the company. So far this year, we've implemented and integrated a new operating system that will enable our team to deliver a consistent resident experience, welcomed over 100 team members, and integrated 17 new communities, growing our portfolio by 20%, and refinanced over one-third of our debt outstanding, lowering rates, adding considerable duration, and providing greater financial flexibility and certainty. All of this in addition to our day jobs. As shareholders, we're so fortunate to have this CenterSpace team and these key foundational steps position us for further growth and efficiency. Meanwhile, our business remains resilient. We posted an outstanding quarter, and our outlook for the year has improved. The results are driven by broad-based strength across all of our markets, with notable improvement in the Twin Cities and Denver. We discussed in past calls our expectation that these markets would serve as a bit of a second gear, and that is coming to fruition. So with just 60 days left in the year, we begin to turn towards 2022, where we'll focus on taking our recent platform investments and using them to deepen the value proposition for our residents. We'll also continue to invest in communities to grow the quality of our portfolio and our long-term earnings power. It's true that we've never witnessed a more competitive investment climate, and at the same time, we've never had a higher quality earning stream or better cost of capital. so we are able to be competitive for assets that we like, and we are actively underwriting and offering on communities in our focus markets. We're also always opportunistic should we come across a portfolio that makes sense. We do see challenges in the years ahead for the industry and ourselves with respect to labor, property taxes, insurance, and a more difficult regulatory environment. Of these, the one we can have the most influence over is labor. And we're working to address this critical issue by maintaining an environment where people want to be and providing compensation benefits and tools that allow our team to thrive here. Balancing these headwinds out are very strong fundamentals, and we believe those will prevail in the months and years ahead. One specific area of pressure is rent control. This is an important day here in Minnesota for the housing industry, as both Minneapolis and St. Paul, our largest cities, have rent control initiatives on their ballots. In St. Paul, the ballot includes rent control measures that are far more restrictive than we've seen anywhere in the U.S. And in Minneapolis, the vote is to determine whether or not to give the city council the authority to regulate residential rents. We are monitoring these initiatives closely. The passage of the St. Paul initiative would impact one community that contains 191 homes, representing approximately 1.4% of our NOI. In Minneapolis, potential rent control measures could affect four of our communities with 385 homes and 3.1 percent of our NOI. So, in total, five communities, 576 homes, and approximately 4.5 percent of expected NOI. We'll know more tomorrow. We've supported efforts opposing these initiatives in both cities because we know that the way to improve the quality and affordability of housing is to make it easier to add supply. Adding restrictive regulations inhibits investment. And with that, Ann, would you please provide us with an operating update?

Thank you, Mark, and good morning. Our third quarter results demonstrate that the improvements to our operating platform are providing us with leverage to capitalize on the strong fundamentals of 2021. Our same-store portfolio is performing well with stable occupancy and 6.2% revenue growth in the third quarter compared to the same period last year, driving a year-over-year increase in NOI of 7.5%. Our revenue growth is the result of very strong leasing activity, with 10.8% average effective lease over lease increases and average effective renewal increases of 7.2% across our same-store portfolio. This resulted in blended effective rent increases of 9% in the third quarter, comprising 41% of our total lease exposure. While all of our markets experienced same-store sequential revenue growth in the third quarter, Our largest market, Minneapolis, experienced 7.8% revenue growth and 15.7% NOI growth. This is a positive trend given the slower recovery we had been seeing in Minneapolis and Denver. Across our Minnesota markets, we are encouraged by the progress within our portfolio as the eviction moratorium has expired and rental assistance programs have gained momentum. Our collections this quarter were 98.7%. a 70 basis point improvement over the second quarter. With strong occupancy, we grew our same store average monthly rental rate per unit to $1,279, a $46 or 3.7% per unit increase over the second quarter of this year. As we head into the fourth quarter, initial results are positive. In October, we saw significantly increased traffic over 2020, and our same store portfolio achieved 7% average lease-over-lease effective rent increases and 7.4% average effective renewal increases. Our current same store occupancy is 94%, and with just 12% of our leases expiring in the fourth quarter, we expect to be able to capture rent increases while boosting occupancy throughout the quarter. These results take the right systems and the right people. Our teams have worked tremendously hard this year, And on top of that, we onboarded 17 new Minnesota communities and over 100 new team members in September. We're 60 days in, and while we expect some volatility in our non-same-store results as we move our new communities onto our systems, we remain optimistic about the opportunities for growth that the new portfolio brings. We're going to execute on these opportunities by keeping our mission to provide great homes and our focus on customer experience at the forefront. Our Rise by Five Margin Improvement Program demonstrates this commitment. Our 2021 focus has been on our transition to a single-stack technology platform and value-add improvements. We're now live across our portfolio on our new systems and working our adoption plan to ensure we take full advantage of all that it has to offer. The non-recurring expense related to this implementation in the third quarter was $625,000, and we're expecting $466,000 of additional non-recurring expense by year-end. These costs are higher than we originally anticipated due to the expansion of the implementation across our 17 new communities, and we are carefully assessing the project results and spend to make the most of each dollar invested. On the value-add front, we delivered 338 renovated units in the third quarter, spending approximately $4.8 million and averaging $206 per unit in premium, achieving an approximate year one ROI of 16%. With respect to both the value-add renovations and our expense planning for the remainder of 2021 and into 2022, we're monitoring supply chain disruption and the rise in costs of labor and materials. The effects of inflation are being felt across all areas of our business and will be a headwind in our quest for improved margin. I'm so grateful to our teams across the company. Each individual is contributing to better every day's. and we truly are better together. Our efforts show positively for our residents, for each other, and in our financial results, which I will now ask John to discuss.