D/B/A Centerspace

Hello everyone. Thank you for joining us and welcome to the CenterSpace Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. The presentation will now begin.

Thank you and good morning. CenterSpace's Form 10-Q for the quarter ended June 30th, 2026 was filed with the SEC yesterday after market closed. Our earnings release and supplemental disclosure package are available on CenterspaceHomes.com and were filed on Form 8-K. Today's remarks include forward-looking statements based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our risk factors and other SEC filings. We cannot guarantee these statements will materialize and you should not place undue reliance on them. Please refer to our earnings release for reconciliations of any non-GAAP measures discussed on today's call. Joining me today are Bhairav Patel, our Chief Financial Officer, and Grant Campbell, Senior Vice President of Investments and Capital Markets. During our remarks, we will give a brief update related to our portfolio repositioning and operating trends after which Grant will elaborate on the status of our dispositions and investment activities, and we'll close out with Bhairav providing context for the guidance updates we outlined in a release last evening. In the last 14 months, we have sold or are under contract to sell 20 communities for approximately $530 million. These transactions have significantly improved the profile of our portfolio and balance sheet, increasing exposure to institutional markets eliminating exposure to tertiary markets like St. Cloud, Rapid City, and Bismarck, and reducing leverage. Executing the strategy is intentional. Our goal is a higher quality portfolio with stronger growth potential, lower net debt to EBITDA, and greater financial flexibility. Operationally, the quarter was in line with our expectations. We have updated our same-store reporting to reflect the disposition activity, and now our same-store results are more weighted to Denver and Minneapolis. This impacted our overall revenue, which was flat year-over-year, primarily due to concessions in the Denver market. However, disciplined expense management led to NOI growth of 30 basis points in the second quarter when compared to the second quarter of 2025. Expenses declined 10 basis points year-over-year as our teams controlled costs across categories. Most of the savings came from lower R&M costs, including turn expenses. Within the same store, we had an excellent quarter for retention. Of residents with lease expirations, 61.3% of our residents renewed at a renewal rate growth of 3.4%. New lease rate growth was negative 60 basis points, which was an improvement of 190 basis points over the first quarter and resulted in blended lease growth of 1.8%. And the blended lease increases have held steady through July. While Denver remains softer as new supply continues to be absorbed, It is notable that our blended spreads for July were positive, and overall the softness in Denver is offset by strong results out of North Dakota, Nebraska, and Minnesota. In particular, Minneapolis delivered blended rent growth of 3.4%, with retention at 65%, evidence that the market has absorbed the elevated supply that had challenged many markets across the country. We are capturing run increases in markets where supply has been absorbed and new supply is muted, Outside of the Mountain West, all of our markets had blended lease growth in June in excess of 3%. While we believe we have stability in operations and an opportunity as deliveries diminish in the Mountain West into 2027, we also have a strong opportunity to capture value through our portfolio repositioning. Grant, can you discuss more specifics on our disposition and capital markets activities?

Thanks, Anne. Good morning, everyone. We continue making progress on our portfolio optimization and deleveraging plan announced in early June. On June 29th, we sold Civic Lofts in Denver, Colorado for $30 million. This was a smaller community relative to our other Denver assets and no longer core to our long-term strategy in that market. The transaction represented a mid-3% cap rate on P-12 financials, including non-stabilized vacancy and concessions this particular urban Denver submarket is experiencing today. From a stabilized operations perspective, the transaction represents a low 5% cap rate. More broadly in Denver, first half of the year transaction volume is down 46% from the same time period in 2025 and 72% compared to 2024. Despite lower transaction volumes, high conviction investors have recently been active on individual community acquisitions. have seen recent acquisitions at significant discounts to replacement costs in urban submarkets with going-in cap rates at mid-4% and below, along with select newer vintage suburban communities pricing at high 4% to low 5% in-place cap rates. These investment decisions are informed by first half of 2026 absorption figures being the highest on record in Denver, markets continued high cost of homeownership and deceleration of the new construction pipeline. Moving to other portfolio markets, on July 9th, we closed the sale of five communities in Rapid City, South Dakota for $66 million. This sale exited us from the Rapid City market. In Bismarck, North Dakota, we remain in process on executing the sale of six communities for approximately $150 million, with closing expected in August. This transaction will exit us from the Bismarck market. Pricing on the Rapid City and Bismarck sales is a mid-6% cap rate, and we saw strong interest from potential buyers, including both regional and national platforms, highlighting the capital interest in secondary markets driven by healthy regional economies and measured new supply pipelines. In total, our disposition activity in Denver, Rapid City, and Bismarck includes 12 communities, two market exits, and total sale price of approximately $245 million, all consistent with pro forma outcomes described in our early June portfolio optimization plan. In addition to these initiatives, we also made the decision to sell two communities in Minneapolis. This was driven by strong asset pricing received given the strength of Minneapolis fundamentals, management of our portfolio concentrations and further advancement of balance sheet strategy. On July 14th, we closed the sale of Red 20 in Ironwood to newer vintage communities totaling 312 homes sold for $73.8 million. In aggregate, all 2026 disposition activity includes 14 communities, 1,810 apartment homes, and total sale price of approximately $320 million. These sales improve our overall portfolio quality and operating efficiency, including average rent per community increasing 1.4% and average homes per community increasing from 201 to 222. Our 2026 dispositions have allowed us to move forward with certainty and speed in executing deleveraging outcomes associated with our strategic review and manage related tax implications. All of our sales priced inside of the implied mid to high 7% portfolio cap rate our stock currently trades at. Given this valuation disconnect, we bought back shares in the quarter, repurchasing $2.5 million at an average price of 55.54 per share. While active with buybacks, we are also focused on our leverage profile, seeking to strike an appropriate balance between the two, and this quarter's initiatives achieve this. I'll now turn it over to Bhairav to discuss our financial results, balance sheet, and revised guidance.

Thanks, Grant, and hello, everyone. Last night we reported second quarter core FFO of $1.27 diluted share given by a 30 basis point year-over-year increase in same-store NOI as revenues and expenses remain relatively flat. Our same-store results exclude NOI from the 14 communities sold or held for sale as of quarter end. As a result, they are not comparable to first quarter same-store results or prior same-store guidance, both of which included those assets. Turning to full year 2026 expectations, the reconstitution of our same store pool to exclude the 14 communities now results in expected same store NOI growth ranging from flat to down 1% year-over-year. At the midpoint, we expect revenue growth of 50 basis points and expense growth of 2%. Most of the change in same store guidance reflects the updated same store pool as Bismarck and Minneapolis had strong first halves and were expected to continue performing well. These communities will not meaningfully contribute to earnings in the second half of the year, and as a result, we are lowering our core FFO midpoint to $4.63 per share. We will use the proceeds to fully repay our line of credit and expect to have approximately 100 million of cash on hand, including 50 to 60 million year mark for our special distribution that may be required to maintain our REIT status. We continue to refine our taxable income projections, and any required special distribution would likely occur in the fourth quarter. Lastly, we expect full-year net G&A and property management expenses of $28.3 million at the midpoint, including non-routine severance and strategic review items. The reductions we implemented in connection with the dispositions reflect our ongoing effort to align our overhead structure with the evolution of our portfolio. However, the reduction in overhead this year does not fully capture the total impact because several actions were implemented mid-year. We expect our annualized run rate, which better captures the overall impact, to be lowered by approximately $2 million because of the realignment. Moving to the balance sheet, we ended the quarter with more than $240 million of liquidity. Annualized net debt to EBITDA was 7.3 times, down sharply from 8.2 times in Q1. We had approximately $1 billion of debt outstanding with a weighted average rate of 3.6% and a weighted average maturity of 6.7 years. This position activity after quarter end will further strengthen our position. Following this, we expect total debt to be below 850 million and assuming 50 to 60 million in special distributions later this year, net debt to EBITDA should settle in the mid six times range. Together with approximately 450 million in total liquidity, this would put us in the strongest balance sheet position in our history. To conclude, I want to commend our team for maintaining operating discipline while making significant progress against our strategic plan in a challenging market. With a stronger balance sheet and a more focused portfolio, we are well positioned to deliver solid operating results in the second half of the year. With that, operator, please open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Brad Heffern of RBC Capital Markets. Your line is now open. Please go ahead.

Yeah, thanks. Morning, everybody. You added the roughly $75 million to the disposition plan with the Minneapolis properties. I guess first, can you just sort of talk through that decision, and then can you also talk about the use of those proceeds? Will that also be for deleveraging, or might you allocate some of that to repurchases or something else?

Good morning, Brad. Thanks for the question. I'm going to have Grant take that and talk a little bit about our decision to sell those additional two assets.

Yeah, good morning, Brad. That decision really resulted from a couple different things. One, strong pricing received as we worked through our process. Two, you know, as we sell out of some of these non-institutional secondary markets, you know, we are mindful of portfolio concentrations and managing that, so this was an ability to not only achieve strong pricing, but also manage our portfolio concentrations as we think about the company moving forward. And then I'll pass it over to Bhairav to talk about proceeds.

Sure. Morning, Brad. You know, with respect to proceeds, part of those proceeds may be used to pay down debt. Part of those will be earmarked for special distribution that we expect may happen in the fourth quarter of this year. And then there's going to be a small amount of cash on hand, which we may hold. and used to kind of retire secured mortgages early next year.

Okay. Got it. Thank you for that. And then, Bhairav, maybe sticking with you. Obviously, tons of moving pieces between the sales, timing, deleveraging, et cetera. Not really looking for 27 guidance, but I'm wondering if there's any color you can give us on just what the FFO run rate of the business looks like approximately after all of these transactions are completed.

Sure. So, I'll start with the impact on the second half. Let's go through some of the big components. About $300 million in sales. Grant mentioned a cap rate of . So, let's add 50 basis points from an NOI standpoint. So, that approximates about $11.5 million for the second half, which is roughly in line with the reduction in NOI compared to our prior guidance. Now that's offset with the use of proceeds as we talked about, which for the second half are about $6.5 million. So the net impact is $5 million. That's roughly $0.25. That's for the second half. Now for the full year, you have to annualize that, but we also have organic growth coming from the rest of the portfolio. So going forward, that's how I would kind of think about the run rate guidance. Obviously, you have to analyze what's going to happen in the second half, but there's growth coming from the rest of the portfolio in 2027 as well to offset that.

Okay, thank you.

The next question is from James Feldman of Wells Fargo. Your line is now open. Please go ahead.

Hi, thank you. This is Connor on with Jamie. Blended lease spreads improved to 1.8 and 2Q and retention also increased to 61 from 60 last year. Can you walk through what you're seeing in July and whether that improvement is being driven more by new lease pricing, renewals, or reduced concessions?

Yeah, good morning, Connor. I'll start and then Bhairav can add a little bit more color about where we're at, particularly as we send out renewals You know, into July, we saw that blended rate hold firm at 1.8%. We're seeing some strengthening in renewal pricing or in new lease pricing, particularly as Denver continues to work through. But really that strength on the renewal side, which we're expecting to come in in the, you know, kind of mid threes again. Bhairav, do you have any more color that you want to give on leasing?

No, I would just add that renewals remain strong. New lease tradeouts may fluctuate a little bit just because we typically hit our peak in June and July. But overall, as Anne mentioned, from a blended standpoint, we're seeing solid blended rate growth. I'll also add that for the second half, Denver has a better comp. That may have an impact on new lease tradeouts. because the concessions that we started offering started in the second half of last year. So we have a favorable calm going into the second half, which may affect the only straight outs.

Thank you. That's helpful. And then on Minneapolis, it generated 2.5% NOI growth this quarter, remains the largest NOI contributor within the portfolio. I think last quarter you described Minneapolis as moving beyond the supply inflection point here. Has anything changed in your outlook and is this market performing better than you expected entering the year?

Yeah, I would say it's performing right in line with our expectations, maybe slightly better as Denver's been, you know, slightly down from where we may be expected and those are offsetting each other. But definitely have seen really good growth in Minneapolis. You know, we're seeing good new lease rents. We're seeing great retention. And, you know, I'd say we're probably now a year into past the inflection point where we really saw a pickup last summer around this time. So You know, feeling really great about Minneapolis and the supply picture here remains really muted as to new deliveries. And so we think that demand will hold up and we'll continue to see good results out of out of Minneapolis.

Great, thank you.

The next question is from Rich Anderson of Cantor Fitzgerald. Your line is now open. Please go ahead.

Okay, thanks. Good morning. So you, I think you just kind of went through an annualized full year headwind of 50 cents. I think I got that right. And if you're, and you said offset TBD on organic growth for the rest of the portfolio, all makes sense. So if you're, if I was trying to do this math before my question came up, so I didn't get fully completed on it, but If there's $120 million of same-store NOI, I think that it's, again, about right. So that's got to grow by a certain percentage to offset. The genesis of the question is, in what world could there be FFO growth next year, is basically the question.

Rob, do you want to check Rich's math here?

I think a component to consider there is we mentioned G&A savings on an annualized basis. That's about $2 million or $0.10 a share. So depending on where NOI goes next year, again, we expect Denver to recover in 2027. All of the other markets are doing really well and have passed the supply pressures. So once Denver recovers, depending on organic rent growth, we can at least expect some Offset coming from NOI and at least hold FFO steady going forward when you kind of combine the organic growth along with some of the savings on the G&A side.

Okay, fair enough. Thanks for that. You also mentioned, you know, the reason to sell Minneapolis was I think what you were implying when you were going through the strategic review, you know, that kind of came out in the wash that there would be some strong pricing in certain assets. Is there anything else that came out of that broader process that you're working on as a potential change in the future, like you had it with the mini sales? Or is that it in terms of what you think might be different from where you're viewing dispositions today?

Yeah, good morning, Rich. I think, correct. As we worked through the process, it was evident that, you know, these assets in Minneapolis, we had strong interest. I think a couple other notes that came out of the process. One, we had strong pricing in the secondary markets that was consistent all the way through the process. in terms of, you know, additional sales in Minneapolis at this time. We're not thinking about any additional sales in 2026, if that answers your question.

Yep. Thank you. And last for me, you know, you had a nice transaction in Salt Lake City. I'm wondering, you know, what your thoughts are on that market on a go-forward basis in terms of building scale. Thanks.

Yeah. Thanks, Rich. You know, when we acquired the project in Salt Lake City, you know, our goal was really to scale that market. And we are keeping tabs on it. I'll ask Grant to just give a little bit of an overview here in a second of how that market is trending. But, you know, the cost of capital has really changed since we undertook that transaction and the overall market relative to our cost of capital. So, you know, the things that are out of our control that are driving our investment decisions remain, keep us a little bit stymied from a new investment perspective. So as we look to scale that market, we'd be looking for really discreet transactions where we could have sales that match fund that until a time when our cost of capital comes back in line to make that accretive. But Grant, maybe you can just give a couple sentences on how that market is trending and why we still like it.

Yeah, we continue to be highly constructive on the Salt Lake market. We would like to grow our presence there. As Anne mentioned, we are evaluating the best use of a dollar. What is the best capital allocation decision? And right now, given our cost of capital, it is not new acquisitions in Salt Lake. Our investment that we made there, it's hitting its marks from a pro forma and underwriting perspective. We're very encouraged by that. There has been a little bit of an uptick in marketed offerings here. In particular, the past three to six months, we've seen a few more broadly marketed opportunities. We continue to talk to all of our market relationships. We continue to do all the work there. So we're staying close to the market. And if and when we're in a position where that is our best capital allocation decision, we feel confident that we can continue our evolution there.

Okay, thanks very much.

The next question is from Amy Probant of UBS. Your line is now open. Please go ahead.

Good morning. Thank you. I'm just wondering how much of an impact did the asset sales have on Seamster Revenue? So would you likely have maintained the Seamster Rev Guide if you hadn't sold some of your stronger performing assets?

Yeah, morning, Amy. Yes, from a same-store perspective, the recomposition of the pool has a significant impact on our guidance, and that will be the main contributor to it. For reference, you know, while NOI for the same-store pool is down 1.3% year-over-year, the 14 communities that are not excluded, they're collectively up 7.5%. On the revenue side, the performance is, you know, similar as well with Bismarck topping the portfolio and same store revenue growth. And the Minneapolis communities that were included in the dispositions were also solid contributors. So, yeah, I mean, a majority of the change in the same store guidance would be because of the dispositions.

Okay, got it. That's helpful. And then I was hoping that you could dig in a little bit more on Denver. How is your portfolio performing versus the MSA as a whole? Do you have pricing power in any of the sub-markets? And is the decline in same-store revenue in Denver that you've been seeing still mostly a supply issue or is there anything to note on the demand side?

Yeah, Amy, I'll start there and then Bhairav can give a little bit of detail, but we continue to really like our Denver portfolio from a position standpoint. You know, we don't have a, we're a, you know, pretty equally weighted suburban and suburban, and we're really along the I-25 corridor. So while we have had a lot of supply impacts for our properties, you know, maybe not as much, we're not in the really heavy supply impacted areas, and that has helped us trend Thank you for joining us today. In Denver, we've all watched that kind of as we watch all the markets across the U.S. But the first half absorption of 2026 was the strongest on record for Denver. So we really do think it's a supply and demand story. And Bhairav, maybe you can just give a little bit of detail about how we're performing relative to the market on our Denver specific stats.

Sure, I'll just add a couple of stats there. So blends for the second quarter in Denver were down 2.6%, but that was an improvement over the first quarter where the blends were down 4.8%. Concessions did pick up a little bit at about four weeks, but that's in line with the market. The increase kind of makes sense given the increase in expirations in peak leasing season. and we should have a much better comp for the second half. In fact, we're already seeing it in our July blends for Denver, which are actually positive at about 1%. And it's led by renewals where we would see the first impact of concessions rolling off. And then despite the supply pressure, we feel good about our positioning in the market. If you kind of think about the overall market vacancy, that's about 10%. Our portfolio average is half of that. So overall, we feel like we're very well positioned in the market. and a great place to take advantage of a potential recovery in 2027.

Great, thank you.

There are no further questions at this time. I will now turn the call back to Anne Olson, President and CEO, for closing remarks.

Thank you all for joining us today and a special thanks to our team who has done a tremendous job throughout the quarter, specifically as we've undertaken a lot of transactional activity and we're looking forward to a great second half of the year. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.