D/B/A Centerspace

Hello, everyone, and thank you for joining the Santa Space Q4 2025 Earnings Call. My name is Gabrielle, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Josh Klage. Please go ahead.

Thank you, and good morning, everyone. Center Space's Form 10-K for the year ended December 31st, 2025, was filed with the FEC 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 statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our filing under the section titled Risk Factors and in our other filings for the SEC. We cannot guarantee that any forward-looking statements will materialize, and your caution is 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'll now turn it over to CenterSpace's President and CEO, Ann Olson, for the company's prepared remarks.

Thank you, Josh, and good morning, everyone. I'm here with our SVP of Investments and Capital Markets, Grant Campbell, and our CFO, Bharat Patel. We're coming Tuesday live from our annual leadership conference, where our operating team is together to celebrate our 2025 wins and prepare to meet our 2026 goals. I'll start by addressing our strategic review. In November, we shared that our Board of Trustees is overseeing a formal evaluation of strategic alternatives to maximize shareholder value. This process was initiated from a position of strength, having transformed Center Space into a pure play multi-family REIT while improving profitability, operating scale, and our balance sheet. Our strategic review underscores our commitment to acting in the best interest of our shareholders, and this evaluation remains ongoing. As we said when we announced this evaluation, there can be no assurance that this process will result in Center Space pursuing a transaction or any other strategic outcomes. And we do not intend to provide further details on the process in connection with the discussion of our fourth quarter earnings results today. We sincerely appreciate the thoughtful conversations we've had with shareholders thus far. And thank you for your understanding today as we keep our comments focused on our results and outlook. CenterSpace's fourth quarter capped a year of progress for the company and demonstrated the health and resilience of our market. Importantly, our results for the year showed that our portfolio and approach yields results. With our same store in Hawaii growth of 3.5%, outpacing peers on the back of steady occupancy and expense discipline. Rent growth was strong, reflecting the durability of our resident base and our exceptional focus on resident experience and optimization of revenue. Operationally, our portfolio benefits from Midwest exposure. Blended leasing spreads in the quarter were up 10 basis points. While new lease spreads were down 4.8%, renewal spreads showed their highest growth of the year at 3.9%, and retention of 55.2% moved the blended rate into positive territory. Retention for the full year was 58.2%, demonstrating relative affordability for our residents. favorable absorption in Minneapolis, our largest market, led to positive blended increases of 1.1%, while in our other markets, North Dakota once again led the portfolio with blended increases of 4.5% in the quarter. In Denver, supply continues to put downward pressure on rent, with Q4 blended rent trade-outs down 4.3%. Absorption in the market has continued at rates above historical norms, with 2025 the second highest year of absorption in the post-pandemic era. Additionally, new construction starts in the market have plummeted, tapering deliveries, and we expect Denver fundamentals to normalize as we progress through 2026 and into 2027. Before I turn it over to Grant to comment on the state of the transaction market and review our 2025 transactions, I'd like to offer a special thanks to many of you for your well wishes for Minneapolis and our communities there, and also to thank our Minneapolis team and all of our teams for their dedicated service to their communities and community members. Grant.

Thanks, Anne, and good morning, everyone. In 2025, CenterSpace executed a strategic transaction program that continued reshaping our portfolio while maintaining balance sheet strength. We executed $493 million of transaction activity which included entering the Salt Lake City market, expanding our presence in Fort Collins, exiting the St. Cloud, Minnesota market, and pruning our holdings in the city of Minneapolis. Over time, we have undertaken initiatives to improve our portfolio, and these 2025 transactions continue that, resulting in further diversification of our cash flow and improvements to our portfolio's average monthly rent per home, homes per community, age, and operating margins. Alongside these property transactions, CenterSpace demonstrated disciplined balance sheet and shareholder capital management. The company expanded its unsecured credit facility by $150 million, and we assumed 76 million of attractively priced long-term debt in conjunction with our Fort Collins acquisition, enhancing our liquidity and improving our debt profile. At the same time, we repurchased 3.5 million of common shares, reinforcing our belief in the value of our stock and willingness to explore multiple avenues to unlock value. Looking ahead to 2026, we expect momentum in many of our markets, driven by measured supply profiles, resident financial strength, and strong local economies. In Minneapolis, on the ground fundamentals are positioned well, compare favorably to most markets in the country, and we anticipate this year to be a year of stability and growth. In Denver, solid absorption is outweighed by the volume of new deliveries from late 2024 through 2025. These supply dynamics, coupled with slow job growth and recent regulatory changes, has generally put Denver's transaction market in a wait-and-see environment. Premium assets and locations are still commanding strong pricing, including recent trades at sub-5% in-place cap rates, though the divide between premium profile and the rest of the market has widened. We believe this theme will continue until growth indicators translate into hard data, providing investors more conviction in underwriting strengthening fundamentals. I'll now turn it over to Bharat to discuss our financial results and guidance.

Thanks, Grant, and hello, everyone. Last night, we reported fourth quarter core FFO of $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 non-controllable expenses. On the controllable side, decreases in repairs and maintenance as well as administrative and marketing costs were both drivers of the improvement. For non-controllable expenses, favorable tax assessments drove much of the improvement. Turning to 2026, we introduced our expectations for the year in last night's press release. We expect core FFO per diluted share to remain stable year over year with an expectation of full year core FFO per share of $4.93 at the midpoint. Guidance assumes that at their midpoints, 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%. We expect blended spreads will again be highest in our North Dakota communities, followed by Minneapolis and Omaha. That strength will bolster our Denver portfolio, where we expect spreads to be down for the year, though improving as the year progresses. Regulatory changes are expected to temper revenue growth in the Colorado portfolio, with expense recoveries expected to be down nearly $1 million. Within expenses, controllables are expected to increase by 1%, while non-controllables increase by 2%, both at their midpoints. I also want to highlight our expectation for the amortization of assumed debt, which we expect to be $1.5 million for the year. This amount will be higher in the first half of the year and then trail off in the second half upon the maturity of one of our mortgages in June. On CapEx, we expect value-add expenditures of $2.5 million to $12.5 million with recurring CapEx per home of $1,300 at the midpoint. Our guidance does not include any acquisitions or dispositions. Turning to our balance sheet, following the Minneapolis disposition we completed in November, our leverage profile improved in the quarter to 7.5 times net debt to EBITDA. We have a well-laddered debt maturity schedule with a weighted average rate of 3.6% and weighted average maturity of 6.9 years. Our liquidity remains strong with nearly 268 million of cash and line of credit availability compared to 99.2 million of debt maturing over the next two years. To conclude, this was a successful year for CenterSpace with our results demonstrating our commitments to both operational excellence and financial discipline and positioning us well for 2026. Operator, please open the line for questions.

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Jamie Feldman from Wells Fargo. Your line is now open. Please go ahead.

Hi, thank you. This is Connor on with Jamie. Can you talk us through some of your assumptions within the 2026 Revenue Guide? It'd be helpful to understand your blended lease rate growth outlook and how that breaks out between new and renewals and any contribution from other incomes.

Kaveh Khoshnood, Sure, good morning yeah so let's start with the building blocks for 2026. Kaveh Khoshnood, You know, we had an earning of about 80 basis points at the at the end of the year, so that will be the first piece, you know that goes into revenue. Kaveh Khoshnood, We expect blended rent growth to be in the mid 1% range, resulting in about half of that showing up in revenue for 2026. And that will be offset by about 40 basis points year-over-year decline in RUBS for about $1 million due to the changing regulations in Colorado. And then our base case occupancy is a little bit lower than it was in 2025. So that contributes about 30 basis points. So that gives you about 90 basis points of year-over-year revenue growth. From a market perspective, we expect our Midwest markets to deliver growth that is in line with what we saw in 2025 with Denver obviously remaining pressured. as the absorption of units delivered in 2024 and 2025 continues. We expect renewals to once again lead the way with written renewal trade-offs in the high 2% range. And we do expect new lease trade-offs to come in better than 2025 in most of the Midwest markets. Markets like North Dakota, Omaha, and other Mountain West are not really expected to be any supply. And the demand there remains robust. Even in markets like Rochester, that saw some pressure in the second half of the year. We seem to be coming out on the other side. and the expected strong showing in 2026 from that market. Minneapolis has shown like pretty solid absorption in 2025 and is expected to improve in 2026, given that the deliveries will go down significantly. So, you know, that's really what's underpinning our revenue guidance.

Thank you. Maybe if we could talk a little bit more about what you're seeing in Denver. How do you see that market playing out in 2026? And any thoughts on when we could see an inflection, particularly in new lease rate growth?

Yes, I'll start off and maybe end and chime in. But with respect to our base case, we expect some concessionary pressure to continue. In the first half of 2026, we are seeing on average about two to four weeks of concessions on a per move-in basis, which we do expect will continue at least for the first half of the year. And that's really going to pressure year-over-year revenue growth. Another note on concessions is, you know, any concessions we gave out in the second half also get amortized over the lease term. So we'll see some of that pressure. in 2026 as well. But overall, we do expect things to improve as we go through the year and work through some of the supply there. The deliveries are supposed to be the lowest since we've, you know, in the last few years. But I'll hand it off to Grant to comment a little bit on that in detail.

Yeah, thanks, Rob. Good morning. Regarding supply dynamics, about 16,000 units were delivered in 2025, an additional 9,000 units will be coming online or delivered in 26. So some continued lease-up activity that that market will need to work through. When you look at forecasted, you know, supply pipeline, new construction starts, 2027 data, you know, really falling off in terms of new deliveries. So we do think that'll provide tailwinds to the market. When you look at foot traffic in downtown Denver, based on a couple different measurements, You know, we are seeing increases at year end 2025 foot traffic levels that are comparable to 2019 data. So that gives us some positivity that things are turning. There's also been some significant investments in bond funding without a property tax increase that has been passed for, you know, a whole host of projects across the city, parks, bike lanes, expansions to libraries, et cetera. So we do feel like, you know, the wheel is incrementally turning. Looking to 27 for true tailwinds.

Thank you, Jamie. Our next question is from Brad Heffin from RBC Capital Markets. Your line is now open. Please go ahead.

Hey, good morning, everyone. Thanks. No, we're not supposed to ask about the strategic review. This is kind of strategic review adjacent. I'm wondering, is the underlying plan for the company sort of continuing in the background? Obviously, the past few years you've sold out of tertiary markets to build Denver and Salt Lake. Is that continuing on in the background while you're looking at the broader strategic plan, or is kind of the strategy of the company just on hold until this is completed?

Yeah, good morning, Brad. You know, we feel great about what we executed on strategically in 2025. We highlighted some of those in our prepared remarks. So we feel great about that. The part of the strategic review really is reviewing, you know, what we want to do with every dollar of capital. And so, you know, a little early in the year to tell and still ongoing with that. So no further comments on what that might mean for us as we move into through 2026.

Okay. And then do you have any like January or quarter to date leasing stats that you can give?

Yeah, I can give you some details. Overall blends were flat to slightly negative, which is not uncommon for this time of the year. Renewals remained pretty strong and in the mid 3% range. So that's a positive. And we clawed back some occupancy. So there's weakness on the new lease trade outside, which we expect led by Denver.

Really small sample size in January. We have very few leases expiring this month.

Yeah. Okay. Okay. And then just one clarification. I feel like in the prepared remarks, you said that blends for 26 were 2%. But then, Brav, I think you said one and a half later on. Maybe I heard it wrong, but just want to clarify what that number is.

Yeah. I would say mid-1% range in our base case. You know, in certain markets, it can be in the twos. But overall, for the portfolio, We expect it to be in the mid-1% range.

Okay. Thank you.

Thanks, Brad. Thank you, Brad. Our next question is from Alexander Goldfarb from Piper Sandler. Your line is now open. Please go ahead.

Hey. Good morning out there. And Anne, always good to hear North Dakota leading. We like that. Two questions here. First, I guess going to the strategic review, are you allowed or can you buy back stock while that process is going on? You highlighted the stock buybacks that you had performed, but are you able to go into the market or you have to complete the process before you can resume buying back stock?

Yeah, at this point, we need to complete the process, just given the rules about what kind of information that the company has available. We do have a current authorization for buyback. You know, as we're trading today, I think that isn't the most attractive use of our capital. Our 2025 buybacks were executed more in the $54 range.

Okay. And second question is, You know, rent control regulations, legal costs, it's been a big growing topic. You know, you outlined Denver, you know, the situation, the contrast between St. Paul and many has been well documented. As you're assessing other markets, how has the experience in those two markets affected? Are you seeing other markets slowly roll out, whether it's overt rent control or utility restrictions or other restrictions that mean markets that formerly were on your radar or existing markets where you were looking to expand, you want to dial back given the local politics or those two markets that I cited are really the standouts and the other markets that you either are currently in or thinking about expanding to really don't have that political risk?

Yeah, this is a great question, certainly a hot topic. I would say, you know, across the nation, we're seeing either municipalities or states you know, really start looking at everything, fee, income, regulatory requirements, not just straight rent control. So while we're happy with the markets that we're in, you know, we have great operations and good operating scale in both Denver and Minneapolis so that we can really absorb and do a great job of handling those regulatory changes. I would say when we're looking at new markets, business friendliness is one of our key categories that we're looking forward at. That includes things like, do they have a heavy regulatory environment? What's the taxation, both property taxes and income taxes? How are they attracting new businesses, subsidies, things like that? So when we're thinking about new markets, it's definitely, I'd say, one of the key categories that we're considering. But we're happy with the status in our current markets. We haven't seen any movement in markets like or in states like Nebraska, North Dakota, South Dakota, Montana, you know, to enhance any of their regulatory requirements. And, you know, we have seen some pullback on the federal level, particularly around environmental regulation.

Okay. Thank you.

Thank you, Alexander. Our next question is from Amy Probant from UBS. Your line is now open. Please go ahead.

Good morning. Thank you. So far, tax refunds are trending much higher this year. So understanding that the post-COVID period is different from what we're currently having, I'm wondering if there are any parallels that you can draw to 2026 in terms of tax refunds compared to 2021 and 2022 when refunds were also elevated. Do you think that this could lead to an increase in demand or pricing power, or is it sort of a one-time boost that doesn't really have a big impact?

Hi, Amy. You know, the taxation is more about the valuation cycle, you know, coming in, coming into 2021, 20, and there's a lag between when the tax go up. Sorry.

I was going to say in terms of individual tax refunds, um, not, not the property tax.

Yeah. Um, Yeah, this is, that's an interesting question. I don't know that we're, we think that it's going to impact demand. You know, it's going to, it's going to be more of a one-time, um, item and, um, you know, our bad debt looks great and we feel good about the resident health. So we hope when we see those tax refunds that maybe we'll see a little bit more consumer demand or better consumer credit overall. Um, I think we're going to see that disposable income on the consumer spending side, not necessarily creating any demand on the multifamily side.

Got it. Thanks. And my second question.

Usually when we're talking about tax refunds, we're talking about property tax refunds.

Yeah. No, of course. So second question. It's been a while since growth in monthly revenue per unit has been below growth in monthly rent per unit. So in the fourth quarter rent growth was ahead of revenue growth did the changes in Colorado rebuilding impact that what other dynamics could be driving that shift.

yeah and the fourth quarter, we saw some occupancy pressures that's contributing to it a little bit amy you know the Colorado regulations really kicked off in jam. So we expect the impact from that to be in 2026, not really in 2025. But we did see some occupancy pressure in a couple of our markets. I mentioned Rochester as one, but I think we've turned the corner there and we are, you know, we've kind of regained some of the occupancy back in Jan. So that's really what was driving the difference there.

Got it. Thank you.

Thank you. Amy? As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question is from Mason Well from Barrett. Your line is now open. Please go ahead.

Hey, good morning, everyone. Looks like your retention rate was down both sequentially and year over year, and you're forecasting it to be lower in 2026. Is this due to focusing more on rate instead of occupancy, or what is driving the lower retention rate?

yeah you know we've seen it um come down a little bit overall from a base case perspective for 2026 we're just being measured um in in what we expect from retention standpoint we expected the same level for 2025 we outperformed a little bit we saw a little bit of a downtick in q4 so we're just kind of building in a little bit of uh you know i would say um we're just being measured about retention being a little conservative to start of the year because Well, we want to see what happens in the first couple of quarters before we adjust our assumptions there.

Great. And then your outlook for value add, it seems like it's a wider range than you previously had in your outlook and midpoints expected to be lower than 2025. I guess why the wider range and what's driving the lower expected value add?

Sure, yeah. So from a value-add perspective, we're kind of holding back projects for a couple of reasons. I mean, one, you know, just being extremely selective in the projects we greenlight due to the higher cost of capital and execution risk. We want to see some improvement in the marketplace before we do that. And secondly, we're holding back approvals due to the ongoing process of evaluating strategic alternatives. We would hate to begin a project that we cannot complete as a result of any decision that comes out of that review. So, you know, that's really driving You know, the range there on the low end, we have about 2.5 million, which is really completion of projects we've started in prior years. So at the very least, we will be starting to put capital out later this year than we typically do. That would drive the range lower. That's what you're seeing in that range.

Great. Thank you.

Thank you. Mason? As a final reminder, to ask a question, please press star followed by one on your telephone keypad. We have a follow-up question from Amy Proband from UBS. Your line is now open. Please go ahead.

Thanks. So a quick one on the consumer. You mentioned no changes in bad debt, but for some of the markets where you've had consistent CPI plus renewal growth, is there any concern about affordability?

You know, we're seeing great affordability. I think our rent to income is held steady, if not lowered slightly over the course of the year. Really that's been driven by incomes increasing faster than we're seeing rent increases. So even in those markets like North Dakota, where we're getting really great renewal spreads and seeing positive new leasing, the incomes there are growing faster than the rent amount. So we've seen really strong,

income growth wage growth across our markets great thanks that's all for me thank you amy our next question is a follow-up question from alexander goldfarb from piper sandler your line is now open please go ahead uh hey thank you for the taking the follow-up just quickly

A number of your markets, you guys always talk about the lack of labor, tight markets, heavy, tough getting people to work on site. And yet, I saw that your onsite comp was basically flat for the year. In fact, it was a little down in the fourth quarter. But I'm just curious what's going on there, just given, again, you guys have spoken about the tight labor markets in a number of the places that you operate.

I think just like we've seen, Alex, in our company, most of our vendors have also experienced less turnover. And so across our markets, it is very strong employment, very low unemployment. There's the opposite of that. But what we've seen is a lot less turnover, more steadiness in that employment. In the past, when we've had vendors and they lose someone, it's very hard for them to replace it, but people are staying in the jobs longer. We saw that in our company as well. Tenure is up and turnover is lower. So I think that really helped us in 2025, and we saw that trend throughout the year.

Yeah, and specifically in Q4, Alex, there was a health reserve adjustment. That came through in the last quarter when we kind of adjust our health reserves based on, you know, the projections for actual expenses. So that also contributed to that comparison on a year-over-year basis.

Okay. And you expect that, the low turnover, Ann, to continue in 26?

We are expecting low turnover for us, and I think we've seen that extrapolated out with our vendors, you know, just more consistency and who's coming on site and their ability to service our needs from a vendor perspective.

Okay, cool. Listen, thank you.

Thank you, Alexander. Our next question is a follow-up question from Brad Heffin from RBC Capital Markets. Your line is now open. Please go ahead.

Yeah. Thanks, everybody. Thanks for taking the follow up on Minneapolis. You know, you mentioned the comments, of course, been the headlines, a lot of turmoil and rest over the past few months. Did leasing activity look any different as a result? I know it's not a heavy leasing time of year, but I'm curious if you saw an impact. And then do you are you expecting like any sort of longer term impact or did your forecast for Minneapolis for this year change versus maybe what it would have been a few months ago?

Yeah, we, not that we've seen any real change, I think in late 2025, you know, we kind of assess the state of, um, of the immigration enforcement actions. Uh, what we saw in January was, you know, had started a few months before. So we have seen very little activity at our communities. We do monitor, we have a system where that's reported and it's really limited to just a couple of communities where we've seen some interruption and that interruption would be from leasing all the way to, you know, residents skips, but so far it's been really minimal impact. And, um, you know, I think the, the key thing, as you noted is that it's, there's very low turnover. lease expirations in January and not a lot of people looking in January anyway. So hard to tell if there's any real impact. We would see that more once we have, you know, leasing season underway. One of the things that you may have seen about Minnesota is that for the first time we turned the corner where we actually had good migration into the state, I think we finally cracked that U-Haul list, number 14 of people moving here. And so that really did offset this year. Our population growth was offset by kind of the net of lack of immigrant migration in. So we think demand is going to hold up in Minneapolis. And as Graham and Bharat have noted, you know, very little supply there and good projected growth across the board. So not much impact. that we can see right now and we're monitoring closely things like whether or not there'll be any moratoriums or on evictions or things like that. I think it's settled down and it's a little bit of a wait and see on that front.

Okay, thank you.

Thank you, Brad. We currently have no further questions, so I will hand back to Anne for closing remarks.

Thank you. Well, thanks, everyone, for joining us today. And thank you again to our team for our tireless pursuit of better every day. We're going to have a great time at our leadership conference here in Vegas. And we look forward to talking with you all very soon. Have a great day.

This concludes today's Center Space Q4 2025 earnings call. Thank you for joining. You may now disconnect your lines.