Centerspace Q2 2025 Earnings Report

Centerspace EPS Results

• Actual EPS: $1.28
• Consensus EPS: $1.26
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Centerspace Revenue Results

• Actual Revenue: $68.55 million
• Expected Revenue: $67.89 million
• Beat/Miss: Beat by +$661.00 thousand
• YoY Revenue Growth: N/A

Centerspace Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 10:00AM ET

Centerspace (NYSE:CSR) is an owner and operator of apartment communities committed to providing great homes by focusing on integrity and serving others. Founded in 1970, as of September 30, 2023, Centerspace owned interests in 71 apartment communities consisting of 12,785 apartment homes located in Colorado, Minnesota, Montana, Nebraska, North Dakota, and South Dakota. Centerspace was named a Top Workplace for the fourth consecutive year in 2023 by the Minneapolis Star Tribune.

Centerspace Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 same-store revenue rose 2.7% year-over-year, driving a 2.9% increase in NOI, alongside 96.1% occupancy, 60.2% retention, and 2.4% blended lease growth.
• Negative Sentiment: The company lowered full-year core FFO guidance midpoint by $0.04 to $4.88–$5.00 per share due to strategic capital recycling activities.
• Positive Sentiment: Completed $281 million of acquisitions in Salt Lake City and Colorado and initiated dispositions of 12 Minnesota communities to reallocate capital into institutional markets, boosting average rents by $50 and targeting higher NOI margins.
• Negative Sentiment: Denver market headwinds persist with record supply pressuring lease spreads and renewals (just 0.6% growth), though anticipated supply declines and job growth suggest improving conditions.
• Positive Sentiment: Expanded the line of credit by $150 million, with pro forma net debt/EBITDA targeting low-to-mid 7× by year-end and a weighted average debt cost of 3.6% over 7.3 years maturity.

Presentation

[Operator]

Good morning, everyone, and welcome to the CentrusSpace Second Quarter twenty twenty five Earnings Call. My name is Elisa, and I will be the moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Josh Klage with CenterSpace. You may proceed.

[Josh Klaetsch, Director - IR at Centerspace]

Good morning, everyone. CenterSpace's Form 10 Q for the quarter ended 06/30/2025 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 eight ks. 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 filings under the section titled Risk Factors and in our other filings with the SEC.

[Josh Klaetsch, Director - IR at Centerspace]

We cannot guarantee that any forward looking statements will materialize, and you're cautioned not to place undue reliance on these forward looking statements. Please refer to our earnings release for reconciliations of any non information, which may be discussed on today's call. I'll now turn it over to CenterState's President and CEO, Ann Wolfson, for the company's prepared remarks.

[Anne Olson, President & CEO at Centerspace]

Good morning, everyone, and thank you for joining us. I'm joined today by our SVP of Investments and Capital Markets, Grant Campbell and our CFO, Bharat Patel. Last night, we reported strong results from our same store portfolio with a 2.7% year over year increase in revenues driving 2.9% year over year growth in NOI. However, due to our planned strategic transaction, we're lowering the midpoint of our guidance by $04 to account for the impact of capital recycling activities. While Bharat will provide detail on the financial results and outlook, I want to spend a few minutes on the execution of our longer term strategy.

[Anne Olson, President & CEO at Centerspace]

In June, we announced a series of transactions focused on accelerating capital recycling efforts with a focused goal of improving portfolio metrics, increasing exposure to institutional markets, and enhancing the overall growth profile while leveraging the stability of our strong Midwest portfolio. These strategic moves included acquisitions in both Colorado and Utah and dispositions that reduced our exposure to Minnesota. We entered a new market, Salt Lake City, and added to our existing base in Boulder, Fort Collins, while staying true to our differentiated footprint in the Mid And Mountain West regions. Operationally, the results give us confidence platform is well prepared to undertake these repositioning efforts. Absorption remains at or near record levels in many of our markets, which led to 96.1% occupancy in the quarter.

[Anne Olson, President & CEO at Centerspace]

Combined with high retention of 60.2% and exceptional expense control, we are set up well for the remainder of the year. Leasing spreads are following a similar seasonal pattern to last year and we saw second quarter same store lease growth of 2.4% on a blended basis, with new lease growth of 2.1% and renewal growth of 2.6%. These excellent results demonstrate the strength of our platform and provide a solid base to continue execution of our longer term market repositioning while still growing earnings. Our Midwest focused markets continue to show their stability and consistency. In our largest market of Minneapolis, strong absorption and decreasing supply led to some of the nation's best market level occupancy gains.

[Anne Olson, President & CEO at Centerspace]

For Center Space, this dynamic aided Minneapolis blended same store leasing spreads where they increased 2.7% in the quarter, which consisted of new leases increasing 2.5% and renewals increasing 2.8%. In our Denver portfolio, we're still seeing the impact of record recent supply in that market with leasing spreads remaining challenged even in the face of favorable absorption. That said, the anticipated supply drop off, combined with expectations for a pickup in job growth in that market into 2026 and 2027, point to current headwinds becoming tailwinds. While our initial expectations of pricing power returning to Denver in the second half of the year may be delayed, we are optimistic about the market overall. Resident health remains strong with rent to income ratio of 22.5% and same store bad debt at roughly 40 basis points for the quarter.

[Anne Olson, President & CEO at Centerspace]

I mentioned that our retention rate was 60.2%, and that brings us to 56.8% for the year. This is a testament to our team members and their commitment to providing an exceptional customer experience. This commitment is also evidenced by continual improvement in our online review score, which reached its highest point in the company's history during the second quarter. Before I turn it over to Grant to share an overview on the recent transactions, I want to reiterate our commitment to our strategy, which includes not only capital recycling to enhance our future growth profile, but maintaining best in class operations, driving shareholder results through continued year over year earnings growth and staying nimble to take advantage of opportunities while keeping an eye on our balance sheet. While our stock price continues to be subject to macro volatility, we're excited about the path forward for Center Space.

[Anne Olson, President & CEO at Centerspace]

Grant, I'll turn it over to you for a discussion of the transactions and current transaction market.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Thanks, Ann, and good morning, everyone. Our transaction initiatives include two recent acquisitions, both of which we have completed, and the disposition of 12 communities in St. Cloud and Minneapolis, Minnesota. We closed on the acquisition of Sugarmont, a 341 home community in Salt Lake City at the May for 149,000,000. The property was built in 2021 and is located in Sugarhouse, one of Salt Lake City's most desirable submarkets.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Salt Lake City is a natural extension of our existing Mountain West footprint. Our team has been spending a lot of time in market, and we have been actively pursuing opportunities there. That on the ground presence is what led to this off market acquisition. The Salt Lake City Valley features a diverse and growing economic base with a large presence of jobs in technology, finance, education, and health care, along with four large universities totaling approximately 145,000 students. While many other institutional markets have recently realized the slowdown in effective rents due to a period of peak lease ups, Salt Lake City has the second highest level of momentum in the country across institutional markets when measuring year over year effective rent change from March to June.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

These variables coupled with the high cost of housing, the state's business friendly backdrop, robust outdoor amenities, and Utah ranking sixth nationally for forecasted growth in young adult population between 2023 and 2033 provide both near and long term tailwinds to the market as we execute our strategy. In conjunction with earnings last night, we also announced the acquisition of Railway Flats, a four twenty home community in Loveland, Colorado for total consideration of $132,000,000 This acquisition included the assumption of 76,000,000 of long term HUD debt at an average effective interest rate of 3.26%. The community is proximate to our 2023 acquisition, Lake Vista, and we expect operational synergies between our three communities located in the Boulder Fort Collins market as well as with our broader Colorado portfolio. Fort Collins is a market that has displayed relative outperformance in annual rent growth and vacancy when compared to Metro Denver fundamentals. To fund these acquisitions, we are currently marketing for sale 12 communities in Minnesota.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Buyer interest has been strong for individual community offers and portfolio offers. We are under letter of intent to sell the entirety of our Saint Cloud portfolio, which includes five communities totaling 832 apartment homes. Closing of this sale is anticipated in September. In addition, we are currently in the marketing phase for seven communities in Minneapolis totaling 679 apartment homes. First round bids for these Minneapolis communities will be received this week and closing is anticipated in q four.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Pricing indications to date remain supportive of the $210,000,000 to $230,000,000 total sale price for dispositions we noted in early June, and this pricing results in individual community cap rates well inside of the mid to high 7% implied cap rate that our stock currently trades at. Taken together, these acquisitions and planned dispositions improve our diversification, reducing Minneapolis NOI exposure in our portfolio by 300 basis points while adding exposure to a new institutional market in Salt Lake City. They improve our portfolio quality with pro form a average portfolio rent increasing $50 versus Q1 twenty twenty five levels and they improve our portfolio margins with year one NOI margins on acquisitions projected to be between sixty five percent and seventy percent while the disposition communities are low 50%. Taking a step back, our transaction events also coincide with a broader thawing in the transaction market. Capital allocators have recently been communicating and displaying more conviction to place capital as we move further into the year.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

While we don't expect the market to see transaction volumes like in 2021 and 2022, incrementally more transactions are happening at a cadence analogous to pre COVID levels, and these should suggest favorable valuation marks for our portfolio and our stock price. With that, I'll turn it over to Bharav to discuss our financial results and our guidance.

[Bhairav Patel, EVP & CFO at Centerspace]

Thanks Grant and hello everyone. Last night we reported second quarter core FFO of $1.28 per diluted share driven by a 2.9% year on year increase to same store NOI. This NOI growth was driven by a 2.7% increase in same store revenues with revenue growth composed of a 60 basis point increase in occupancy and a 2.1% increase in average monthly revenue per occupied home. On the same store expense side, Q2 numbers were up 2.4 year over year with controllable expenses up 3.2% and non controllables up 1.2%. Please note that same store results exclude the 12 communities that are currently being marketed for sale.

[Bhairav Patel, EVP & CFO at Centerspace]

These properties have been carved out of the same store pool and included in the held for sale category on our balance sheet. Relatedly, we have booked an impairment charge of $14,500,000 with the shorter holding period for the properties driving the impairment assessment. To clarify, the impairment charge is based on our GAAP carrying value and like depreciation is excluded from our non GAAP metrics. Turning to guidance, we now anticipate full year core FFO per share of $4.88 to $5 per share with expectations for 2025 same store NOI growth to be 2.5% to 3.5. As our 2Q results indicate, our operating performance remains solid.

[Bhairav Patel, EVP & CFO at Centerspace]

We are roughly in line with our initial revenue projections allowing us to maintain our midpoint of revenue growth at 2.5% for the year. As Ann alluded to in our remarks, we have maintained our focus and discipline on managing expenses and now expect nominal growth in control expenses for the year leading to total same store expense growth of 1% to 2.5% and NOI growth of 3% at the midpoint, an increase of 70 basis points above our previous expectations. Core FFO guidance is lower at the midpoint by $04 per share due to the expected impact of our announced transactions and the projected dispositions that Grant discussed in his remarks. To reiterate collectively they represent progress on the planned evolution of our portfolio. They will improve the quality of our portfolio and enhance our market exposure thereby lifting margins and the long term growth profile of the company all while maintaining our differentiated footprint.

[Bhairav Patel, EVP & CFO at Centerspace]

And as we do so, we are still growing earnings which at the midpoint of $4.94 per share represents a 1.2% increase over the prior year. Once again, as a reminder, the same store pool excludes the 12 properties that are being marketed for sale. To help facilitate the announced transactions, we added to our balance sheet flexibility in the quarter by expanding our line of credit capacity by $150,000,000 This flexibility was used to fund the recent purchases and we anticipate paying down the facility as our dispositions close later this year. We expect our net debt to EBITDA to trend back down to the low to mid seven times level by year end as this occurs. Our transaction activity also helps extend our maturity profile.

[Bhairav Patel, EVP & CFO at Centerspace]

Pro form a for the transactions, our debt has a weighted average rate of 3.6% and a weighted average time to maturity of seven point three years. To conclude, Q2 was another good quarter for CenterSpace with our results benefiting from continued occupancy growth, high retention and continued expense controls, all of which set us up well into the back half of this year. Operator, please open the line for questions.

[Operator]

Absolutely. We will now begin the question and answer session. The first question comes from Brad Heffern with RBC. Your line is now open.

[Brad Heffern, Director at RBC Capital Markets]

Yes. Thanks. Good morning, everybody. On the capital recycling program, can you talk about any guardrails you have around how much you would allow dilution to offset organic growth in any given year?

[Anne Olson, President & CEO at Centerspace]

Yeah. Good morning, Brad. It's it's good to have you on the call. I think as we look at the strategic plan to recycle capital and get into more institutional markets, we are thinking of guardrails a couple ways. One, we're really keeping an eye on the balance sheet.

[Anne Olson, President & CEO at Centerspace]

So it's so to the extent we have, like we did in this quarter, temporary upticks in leverage, you know, we really wanna make sure that we've match funded those with dispositions to bring that leverage back down in line. And then, you know, I think we've stated and and shown in this guidance, we do want to continue to grow earnings year over year. So while we may be willing to take some dilution off of the growth, you know, we really do want to continue to show progress year over year in growing earnings.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Got it. Thanks for that. And then do you have any July leasing stats you could quote?

[Bhairav Patel, EVP & CFO at Centerspace]

Morning, Brett. With respect to July, I think the trends that we saw in in June have continued, you know, with Denver actually turning the corner a little bit. What we saw in in late q two in Denver was a spike in concessions, which kind of, impacted occupancy as well as rent growth. We are seeing that reverse a little bit. We're not out of the woods yet, but the rest of the portfolio is offsetting that and chugging along of through the rest of the leasing season.

[Anne Olson, President & CEO at Centerspace]

Yeah. And, Brad, we're you know, right now, where we sit today, you know, we really only have about 17% of the leases to lock in for the rest of the year. So, you know, renewals are being pushed out into kind of October. We're still seeing really healthy renewal rents across the portfolio, and those renewal rents are, you know, just barely off of market rents. So I think the loss to lease as we get to this end of the year, we feel good about shrinking that and being in a really good position to for pricing power as we head into the winter and, look forward to 2026.

[Brad Heffern, Director at RBC Capital Markets]

Okay. And then just one more little accounting thing. Rob, can you just give the net impact of the acquisition and disposition activity on the guidance?

[Bhairav Patel, EVP & CFO at Centerspace]

Sure. It's about $06 to $08 of dilution as a result of the transactions. There's a lot of moving parts there. The biggest being the timing of the timing of the dispositions. We expect some of the dispositions to close in late q three, some of them to close in early to mid q four, so that can change, the number eventually based on the actual closing date.

[Bhairav Patel, EVP & CFO at Centerspace]

The two things, we we got we closed the acquisition, so that's no longer a factor in terms of the impact on the range. But in addition to the timing of the dispositions, there's some friction with respect to hold back of proceeds to complete the reverse ten thirty one that we've set up. So all of that combined results in about $06 to $08 of a range from a disposition standpoint.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Thank you.

[Operator]

Thank you so much for your questions. The next question comes from Jamie Feldman with Wells Fargo. Your line is now open.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Great. Thank you for taking the question. I guess just focusing still on rents, a bunch of your peers have changed their outlooks for top line growth, new lease growth. Have have your expectations changed at all across any of the markets, whether up or down through the back half of the year?

[Anne Olson, President & CEO at Centerspace]

Yeah. As we as we look and forecast out into the back half of the year, I'd say our expectations for Denver have come in a little bit. You know, we really believed at the beginning of the year that, the strong absorption in that market would lead us to turn the corner a little sooner than than we're seeing. So while we see some positivity, as Brad noted, that comes a little bit with a lot of concessions. So I'd say we pulled in our revenue expectations for Denver, but that's really been offset by the really strong performance in the tertiary markets.

[Anne Olson, President & CEO at Centerspace]

If you you know, across North Dakota, we're seeing just tremendous growth. You know, these areas with no supply, we're really seeing good rent growth. We're still encountering high cost of housing, high mortgage rates, and, you know, very high retention. So, I think as it as it netted out, you know, we we feel confident about where the revenue was. We're just getting to the our initial revenue projections in a little bit different way.

[Anne Olson, President & CEO at Centerspace]

So softer in Denver, better in the rest of the portfolio.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. That's helpful. And then, you know, the comments about the disposition market heating up. Can you talk more about the types of buyers that are out there? The pipeline of buyers for the assets you're trying to sell.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

I mean, is it multiple bids? Are you working with single buyers? And then what kind of returns are people looking for? And how are they underwriting and financing these projects?

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Yeah. Morning, Jamie. This is Grant. From a bid sheet or bid depth perspective, multiple offers are certainly there. There's been a whole host of interested parties for both of the offerings that we have in the market ranging from local capital that may be interested in one specific community to national platform capital that may be interested in an entire portfolio or a sub portfolio of the offering.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

So it really runs the gamut, and there is a lot of depth there that we're seeing currently. From an underwriting and pricing perspective, in the case of Saint Cloud, folks generally are looking for, call it, mid six NOI cap rate. In the case of Minneapolis, you know, as we said in our prepared remarks, too early to tell from an offer perspective. We'll have more visibility this week, but we expect that portfolio, broadly speaking, to be in the mid fives. And then just anecdotally, if you look at our other secondary market locations throughout the Midwest, Really the status of the financing markets at any moment in time is gonna drive pricing there as folks are looking for neutral to positive leverage day one.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. Thanks for that. And this is on what forward NOI or trailing NOI? These cap rates?

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

That would be on pro form a year one.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

And then I, you know, I appreciate the comments about getting back to, low seven times leverage by year end. Just, you know, what's the long term plan again in terms of where you'd like leverage to be and how long does it take you to get there?

[Anne Olson, President & CEO at Centerspace]

Yeah. I mean, long term, we'd really like leverage to be lower than seven. You know, ideally, I think over a a period of time, we'd like to get down into the five. There's a few steps there. Right?

[Anne Olson, President & CEO at Centerspace]

So we we need to, one, make our cost of capital work, And I think this capital recycling is really an effort by us to show where the value is in the portfolio and start bridging that gap between where from where we're trading, you know, to what we actually think the portfolio is worth. Both the sales are gonna give everyone some good marks, and then, of course, the acquisitions are gonna be in markets where there's high visibility into what cap rates are and what valuation and what the market trends are. Once we can do that, I think the the deleveraging is gonna come from a couple ways. One, we can use excess sale proceeds as we move through recycling. And two, as we get larger, we'll be able to bring that leverage down, you know, more naturally.

[Anne Olson, President & CEO at Centerspace]

But we're we're very focused on it. Last year, you know, we used the chance we had to raise equity in the market last summer. You know, that took out a $110,000,000 of our preferred, which lowered our overall leverage. So, you know, we're thinking about ways to take opportunities to lower that leverage while still repositioning repositioning the market exposure of the company. But I I think it's gonna take a little time. It's gonna take a little bit bigger scale.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. Alright. Thanks for your thoughts.

[Operator]

And thank you so much for your questions. The next question comes from Connor Mitchell with Piper Sandler. Your line is now open.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

Hey, good morning. Thanks for taking my questions. First off, maybe I missed it, but could you just remind us what the cap rates were on the recent acquisitions for, the Colorado assets, Salt Lake City? And then, what what's the timeline or what's the inflection point, that you're expecting for these acquisitions, especially maybe the Denver and Colorado, markets to turn accretive? I know you mentioned that, some of the rent pricing is a little softer than expected in the back half of the year.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

And I think, Anne, you had a few comments on maybe the job growth for the market. Anything we could think about for maybe the timeline for when when these lower cap rate acquisitions will turn more accretive for the overall portfolio?

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Hey. Good morning, Connor. This is Grant. To your first question from a cap rate perspective on the recent acquisitions, high fours. In the case of Railway, it was an unlevered four eight.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

In the case of Sugar Mountain and Salt Lake City, 46547. As we alluded to in our remarks related to Railway, there was debt that we assumed there at a 3.26% effective interest rate. So profile of accretion there, if you will, looks obviously much better, much different than something that we're buying unencumbered or something that we would have to place new debt on today. In the case of Salt Lake, you know, you also alluded to jobs. And when you look at the job growth profile of Salt Lake, it's been a clear outperformer for a very long period of time.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Also, this asset is located in a submarket that is highly highly desirable. So when we put those variables alongside the physical quality of the asset, you know, we do think the growth potential is there. And as you move into years two and three of the pro form a, you know, start to think that we'll see some some healthy growth on cash flows.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

Okay. Yeah. That that's helpful. So, I guess, just how much can we split it between maybe supply tempering and, some some healthy job gains for the market? And then also just bring the assets onto your platform to, you know, boost, boost the accretion as well, maybe a year or two out.

[Anne Olson, President & CEO at Centerspace]

Yeah. I'll I'll I'll I'll try that one. So I think on on Salt Lake City, we're not expecting any boost from bringing it on to our platform. In fact, during this first year, it's gonna continue to be managed while we build some additional scale. It'll be continue to be managed by Cottonwood Residential on their platform.

[Anne Olson, President & CEO at Centerspace]

So not anything immediate from that standpoint. And then I'd say, you know, the impact of tapering supply in Salt Lake City is going to be very positive, and that's going to be exacerbated by the strong job growth. So, you know, I think the the fundamental change is going to be that supply is diminishing in Salt Lake City, and they have very, very high absorption, you know, given the given the strong underlying fundamentals of population and jobs. So I'd say there, it's probably fifty fifty on, you know, what which one of those drives, drives movement into territory where we think that's really a cash flow accretive acquisition.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

Okay. That's helpful. And then maybe switching gears a little bit. I know you guys mentioned how how you're, focused on the plan to move into institutional markets. Just kind of looking at some recent performance, you know, the secondary or tertiary markets like North Dakota, Omaha, Rochester continue to see strong revenue and rent growth.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

I guess just what what is the plan for the long term for these markets in particular? And then is there any potential to see maybe even increased exposure to some of these markets with, to some of your points, the the low supply and strong economic backdrop?

[Anne Olson, President & CEO at Centerspace]

Yeah. This this is a great question and one I think that we spend a lot of time on both with our management team and in our boardroom. You know, historically, over the last three, four years, really, since 2021 2020, 2021, we have been putting up, you know, really good numbers out of these tertiary markets. But it's not reflected in our stock price or the way in institutional investors value that cash flow. So the the credit I think we're getting is from, you know, our exposure to markets like Denver and and somewhat Minneapolis, where there's really good visibility for our investors and potential investors to see what the value of those properties are and what the growth trajectory of those properties are.

[Anne Olson, President & CEO at Centerspace]

So, ideally, Connor, we would like to grow on top of those markets, you know, have a cost of capital where we could expand into into institutional markets while keeping our exposure to these tertiary markets over time. It would just get smaller, but it would provide that balance that we're seeing right now of, you know, really stable cash flows and the ability to grow counter cyclically. One of the things about these markets is right now and for the past three years few years, they've had no supply and very good regional economies. But it's also the case that because they're small, a small amount of supply or a small interruption in job growth or the economy there can have a really big impact. And I would use same cloud that we're selling as an example of that.

[Anne Olson, President & CEO at Centerspace]

One thing that we're, you know, over the history, it's provided really good returns for us. But then we've been seeing some shifts in the fundamentals there, including declining enrollment at their at the university, lot just overall shrinking of the job base. And so we feel like those are things that we really need to watch carefully because, you know, the small things have a big impact on a small company. But, you know, overall, we really would like to grow on top of those markets and continue to have them. But until we really feel like we're getting, you know, valued appropriately for that cash flow that we're producing out of those markets as reflected in our stock price and total shareholder return, you know, we're we're gonna remain committed to recycling until we hit that balance of when our cost of capital can be used to help us scale the company.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

Okay. No. That that's very helpful. Thank you. And then maybe just one follow-up or one additional question, just quickly.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

With the interest of the Salt Lake, if you guys continue to acquire in Colorado and those markets, just how would you prioritize expanding into Salt Lake to more some additional assets, continuing to scale in, you know, Denver, Boulder, Fort Collins, Colorado, and then any expansion into new markets as well, if you were to prioritize kind of those three or something else that that you may have, on the board?

[Anne Olson, President & CEO at Centerspace]

I think our priorities right now are really focused on scaling in Salt Lake City. Regional scale is really important as an operator. You know, I mentioned earlier that we are having the seller, Cottonwood Residential, continue to manage it on their platform, while we find our next acquisition and really grow that regional scale. It's important because we manage these on our own platform to have a little bit larger team, to be able to get some centralization efficiencies in Salt Lake City. And so I think that's our first priority.

[Anne Olson, President & CEO at Centerspace]

Our second priority would be to start really, assessing what the next market will be for us. And we're keeping, you know, a really close pulse on what the trends are, what the fundamental trends are related to population growth, job growth, household income, the kinds of jobs, and also the business friendliness of other markets. And we really do wanna remain differentiated. So, I think we've turned we've definitely been, over the past couple years, really focused on opportunistic acquisitions in Minneapolis. I think our shift for Denver is is leaning a little bit that way where we're looking more at, you know, real off market opportunities or opportunities that are a good fit for us that might not be, you know, widely widely bid on in the Denver market, you know, with really a pretty laser focus on on scaling in Salt Lake City.

[Connor Mitchell, Equity Research Analyst at Piper Sandler Companies]

Alright. Appreciate it. Thank you.

[Operator]

Thank you so much for your questions. The next question comes from Rob Stevenson with Janney. Your line is now open.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Good morning, guys. Can you talk about how much of a drag Denver was on the 2.6% renewal lease rate growth? And were there any other markets that had an outsized impact on that number?

[Anne Olson, President & CEO at Centerspace]

Yeah. I think Denver really is the only market that had an impact on that on that lease rate growth, and it it probably brought it in, you know, 20 to 30 basis points overall given the given the waiting. You know, Denver renewals on the on the renewal side, we're just above, flat. So, you know, point 6% on renewals, relative to the other markets where we were, you know, we were really seeing, you know, North Dakota in the five, Minneapolis in the high twos, Rochester, Nebraska, you know, in that same range, high two lows. Not a huge impact, but but some.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. And then, Bhrav, post sale of these 1,500 units, does that do anything material to the annual per unit maintenance CapEx of $11.50 dollars to $1,200 that you have in the guidance for this year?

[Bhairav Patel, EVP & CFO at Centerspace]

Yes. What we factored into our guidance which is about 11.75 at the midpoint is some shift in CapEx dollars from the assets that we expect to sell to the now smaller same store portfolio. Overall, when you think about CapEx as we move forward, is, on on a on a portfolio wide basis, we expect, it to be a lot more efficient because we are trading, if you think about it, 12 assets for two assets. So, you know, a lot less to maintain these assets. You know, some increase in turn CapEx because these are higher quality assets, but overall reduction in maintenance cost is going to outweigh, those increases.

[Bhairav Patel, EVP & CFO at Centerspace]

So yes, we expect from a CapEx perspective for the portfolio to be more efficient going forward.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. And then a clarification. The $06 to $08 of dilution that you talked about earlier in terms of the asset recycling program, is that just 2025 or is that an annualized number?

[Bhairav Patel, EVP & CFO at Centerspace]

That is the impact in 2025. As I said, there's a lot of moving pieces in 2025 including the timing of the dispositions and some proceeds holdback. So you should it's it's difficult to analyze that number, you know, given all of those components including some other transaction related costs that will incur as a result of of the plan. So on on a full year basis, you can't just simply annualize that number. We expect on a full year basis the dilution to be around $0.15 in the $0.15 range as you move forward on a full year basis.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. And that guidance basically assumes that St. Cloud closes sometime in September and then the Minneapolis assets are sometime in the fourth quarter at this point?

[Bhairav Patel, EVP & CFO at Centerspace]

That's correct. Saint Cloud is expected to close in September with Minneapolis in November. That's the expectation that we factored into the guidance.

[Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott]

Okay. All right. Thanks guys. Appreciate the time this morning.

[Operator]

Thank you so much for your question. The next question comes from Avery Probync with UBS. Your line is now open.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Hi, thanks. I think your previous expectation was that occupancy comps were going to be getting a bit more challenging in the 2025 and then remain challenging through the remainder of the year, so less upside from occupancy. So what year markets changed to allow you to achieve both sequential and a really strong year over year increase in occupancy in the quarter? And then do you expect occupancy to fall off in the back half of the year?

[Bhairav Patel, EVP & CFO at Centerspace]

No. We we we expect to sustain the momentum, from an occupancy standpoint. If you look at the first half, even though, some of the blended lease trade outs may have been pressured because of Denver, Our occupancy is ahead of where we expected. We expect to kind of sustain the momentum leading into the or or, you know, going to the second half of the year. We don't expect on an overall portfolio basis for the lease trade outs to change materially, and we do expect to maintain the higher occupancy.

[Bhairav Patel, EVP & CFO at Centerspace]

And that's really allowed us to maintain the midpoint of our revenue range unchanged because year to date the performance has been in line although the mix has been different. Some challenges in Denver but we've offset it pretty well in the rest of the portfolio and continue to and expect to continue to do so in the second half of the year.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Okay. So I guess I'm just curious if you're seeing this really strong occupancy, why isn't there a little bit more pricing power on the rate side as well? Are you seeing some price sensitivity? Is this something that other operators are doing in the market, which is making a little bit more challenging conditions there? Or is there something else going on?

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Or is this maybe a decision to not push as hard to really boost occupancy?

[Anne Olson, President & CEO at Centerspace]

Yeah. Any I think it really lies in the blend of the portfolio. So if you look at where our strongest occupancies are, we're also getting our strongest rent growth, and those would be in markets like North Dakota, you know, Omaha, Rochester. And then but, you know, that that when we give you the whole number, it's a blend of also Denver, which is a large part of our portfolio, and we've had a little bit softer occupancy there. As as Rob noted, we've been seeing quite a bit of concessions.

[Anne Olson, President & CEO at Centerspace]

And so a lot lot of competition for residents, and that puts a lot of a lot of pressure on the rates. So I think, you know, where we have the strongest occupancy, we are getting real pricing power, and you're seeing that in the results. You know, just looking at, you know, the revenue growth across markets like North Dakota and Omaha, Some of those tertiary markets have been really strong. When we put it all together, you know, you do it does get offset somewhat by the softness in Denver.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Got it. Thanks. That's that's helpful context. And then, I guess, my second question is if you mentioned focus on scaling in Salt Lake City, so I'm wondering what you're seeing in terms of opportunities there.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

Good morning, Amy. I would say a couple of thoughts. One, SugarMount was really a continuation of pipeline for us. This was not the first opportunity that came across our desk, and and we jumped at it. We've been spending a lot of time in market.

[Grant Campbell, SVP - Investments & Capital Markets at Centerspace]

We've been building good pipeline and seeing opportunities. A few of the things that we really liked were, you know, just a bit outside from from where we needed to be, from an underwriting and mass perspective. We feel confident that we'll continue to build pipeline and continue to see opportunities in that market moving forward.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Great. Thank you.

[Operator]

Thank you so much for your questions. The next question comes from Mason Gould with Baird. Your line is now open.

[Mason Guell, Equity Research Associate at Baird]

Hey, good morning, everyone. Just curious what you're sending renewals out at today for August and September and then maybe what you expect blended rates to be in the second half of the year.

[Bhairav Patel, EVP & CFO at Centerspace]

Good morning, Mason. Yes. So renewals continue to be healthy, you know, with all the renewals that we've sent out to date, which takes us all the way to October in the high twos to close to 3% range. For the second half of the year as I mentioned earlier, we do expect blended rate growth to be in line with what we saw in the first half with renewals leading rent growth and as Ann mentioned there's some softness in Denver. So we expect renewals to outpace new lease trade outs but overall the expectation in the second half versus the first half is not that different.

[Mason Guell, Equity Research Associate at Baird]

Thank you. And appreciate all the color on rate growth by market so far. I was just wondering if you could provide some numbers around maybe the new rates and the blended rates in some of your tertiary market?

[Bhairav Patel, EVP & CFO at Centerspace]

Yes. So certainly for the second quarter we had about six to 7% rent growth in Nebraska and North Dakota and pretty much all our markets were positive including Minneapolis in the 3% range with the exception of Denver which was negative overall. As I said, blended rent growth also for those markets was in the you know, single digits, high single digits in certain instances. You know, again, the the the challenge has been in Denver. We we encountered some concessions which is built into these new lease trade outs, which, you know, is, you know, we we are seeing, you know, some some changes there in terms of, turning the corner.

[Bhairav Patel, EVP & CFO at Centerspace]

We are returning the corner with respect to occupancy, which should actually help rent growth moving forward. So we saw some challenges in June, quickly addressed it, in July, and I think the trends are moving in the right direction as we head into August and the rest of the year.

[Mason Guell, Equity Research Associate at Baird]

Thank you.

[Operator]

Thank you so much for your questions. We have a follow-up from Jamie Feldman with Wells Fargo. Your line is now open.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Great. Thanks for taking my follow-up. So I had some back and forth with some investors during the call. So I figured we'd just ask you the question. How do you how are you thinking about just timing of capital allocation?

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

I mean, clearly, could be buying back your stock today at much less dilutive outcome than buying the lower cap rate assets than where you're selling. I mean, do you feel like you're kinda racing the clock here to get everything done, or why not take a more measured pace and kinda take shots at the goal when the goal is open rather than, you know, creating dilution to earnings?

[Anne Olson, President & CEO at Centerspace]

Yeah. I think this is something we're also thinking a lot about, Jamie, is just timing. And, I don't feel like we do feel like we have a time clock that we're racing. I do think that the particularly with Salt Lake City, as Grant had mentioned earlier, that really was a big opportunity for us. It was an off market transaction.

[Anne Olson, President & CEO at Centerspace]

We had looked at quite a bit there. And, you know, when we when we when we look at same with railway, you know, that was a that was a property that we have been following for a long time. We had the opportunity to acquire it with with the existing debt in place. So I do think we're taking advantage of opportunities. I think our history also would show that we really are we really are have a good track record of taking advantage of opportunities such as, you know, we we bought back stock at the '23, know, you when it was at 54.

[Anne Olson, President & CEO at Centerspace]

We reissued that stock at 75. We've taken down leverage. So we are looking for those pockets of opportunities. But we're also really trying to be mindful of the fact that, you know, we're not getting credit for the results that we're putting up out of these tertiary markets. So, you know, we really do wanna make sure we're articulating our strategy and that we're making progress on our strategy, but really not a not a gun to the head.

[Anne Olson, President & CEO at Centerspace]

And and when we think about the timing of the acquisitions that we made, you know, the stock wasn't wasn't as low as it is today. It was, you know, closer to 70 when when we inked those deals.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. So would you take a a closer look at share buybacks going forward and get more aggressive? Like, how do you I mean, I guess rates will go lower. I mean, how do we like, how should we just think about the moving pieces here as you or how do you guys think about the moving pieces?

[Anne Olson, President & CEO at Centerspace]

Yeah. Absolutely. And in fact, you know, we we are looking constantly at what the levels of the buyback are and how we balance that with just overall float and the and leverage. You know, as you as you know, we took leverage up in the in the second quarter, But we do wanna make sure that we're ready to execute on buybacks if and when we we think that it's the it's the right time. I would note, you know, I'm I'm sure you're aware, like, you know, where the stock is trading today.

[Anne Olson, President & CEO at Centerspace]

We're we're really thinking hard about it. And every dollar that we have to use, Jamie, we're thinking where does it go? Does it go to debt pay down? Does it go to new acquisitions? And a lot of our a lot of the strategy of trying to grow and scale the company, a lot of those things, you know, really do compete with each other.

[Anne Olson, President & CEO at Centerspace]

So, you know, we wanna make sure that we're ready to take advantage of stock buybacks. And, obviously, with with earnings just released, we're coming out of our blackout period now. So now would be the time we could take advantage of it. The last thirty days, we've we've not been able to.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. Alright. Thanks for your thought.

[Operator]

Thank you so much for your question. There are no additional questions at this time, so I would like to remind everyone to ask a question to start followed by one. We will pause briefly if questions are registered. There are no additional questions registered at this time. So I would like to pass the conference back over to Ann Olson for any closing remarks.

[Anne Olson, President & CEO at Centerspace]

Thanks everyone for joining us today and for the really great questions and the interest in CenterSpace. You know, we're excited about the results we're putting up. We're also, you know, being, carefully optimistic about execution of our strategic plan and happy with the progress we've made to date. And I especially wanna thank all our team for all the hard work that they've put in to the recent transactions, expected to lead a greater growth for our portfolio overall. So, thank you very much, and have a great day.

[Operator]

That will conclude the CenterSpace second quarter twenty twenty five earnings call. Thank you so much for your participation. You may now disconnect your line.

Participants

Executives

• Josh Klaetsch, Director - IR
• Anne Olson, President & CEO
• Grant Campbell, SVP - Investments & Capital Markets
• Bhairav Patel, EVP & CFO

Analysts

• Brad Heffern, Director at RBC Capital Markets
• Jamie Feldman, MD & Head - REIT Research at Wells Fargo
• Connor Mitchell, Equity Research Analyst at Piper Sandler Companies
• Rob Stevenson, MD & Head - Real Estate Research at Janney Montgomery Scott
• Ami Probandt, Equity Research Analyst - REITs at UBS Group
• Mason Guell, Equity Research Associate at Baird