CSR - Earnings call transcript Q2 2022

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Operator

Good morning and welcome to today's Centerspace Second Quarter Earnings Call. My name is Candice and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Joe McComish, Vice Principle of Finance to begin.

Joe McComish

Centerspace’s Form 10-Q for the quarter ended June 30, 2022 was filed with the SEC yesterday after the market closed.

Additionally, our earnings release and supplemental disclosure package has been posted to our website at centerspacehomes.com and filed on Form 8-K. assumptions. that and will are other management’s views note our statements based to current outlook business forward-looking and important today’s include remarks about on It’s statements that uncertainties These with discussed for statements the year XX, Risk SEC. section December under ended to other Factors are risks and the in Form in XX-K subject our filed the titled XXXX and recent filings forward-looking you statements. that any reliance forward-looking are and cautioned guarantee materialize undue not cannot We on will these place to statement Please earnings may of discussed our refer non-GAAP on any reconciliation to a for release call. information, be which today’s now CEO, company's the I'll over it turn to Mark Decker, remarks. our for prepared

Mark Decker

Thanks, Joe, everyone. good and morning

incredible this Patel, in the time Officer is morning our Olson, housing and business. me our Chief Officer. Bhairav Financial Operating an to Joining Chief be Anne remains It

appears from been renting the clear revenues quarter, versus the on for our witnessing primarily business, for results supply-demand, a In the industry's more positive which current increasing strong traffic environment have our of business. fundamentals our the both our home the inflation, we're to that outlook of light growth owning and attributable of about and optimistic standing year. never While is we're and the expenses, it attractiveness

and XXXX. Our since FFO, This NOI XX% each is NOI testament same-store drive track been the a of able grow to our year in portfolio. increase a and few nearly growth will an core to now resiliency FFO match can we've and consecutive of record core

investments. to Turning

direction road and that a us as our market the of all strategy. concluded result and before a and last while and several billion would got that hot portfolio December constituents, environment looked forward. we're deals our an their you another selling and got way to some to the we'll versus just these weeks outcome a things got team, went markets in leverage, capital by and counterpart improve longer-term-oriented January, pursuit We due the portfolio was is something strive learn best the may that This pursuit million we diligence current we take like into we almost in our $X white in It the conducting choppy, announced benefit market can the in as We accelerated down on the portfolio conditions large for over great of was at encouraged remain individually significant see, large effort given that new scale $X have and As company. they a our abandoned. every And investors would opportunities that Centerspace, and small. active in spent we day lower announcement. roughly

cash key distributable portfolio share improvement, per Our remain flow. earnings criteria greater quality,

highlights Our orientation. and great home. and culture team awesome of improvement Two foster bring continues point team this to a deliver results to

a year third our we place Tribune. the as a for by row, the award be that to Minnesota belong for for in to congratulations a well people improve. our the Star equity inclusion. were Congrats where organizations and a big diversity, First, Association's inaugural This named work national as risks award National in top Apartment receiving team can recognizes take leading and to workplace in on

focus. considerable it's momentum thank you. exceed into never but and would space team, and XXXX Anne, our accounts. as always perfect, as to a provide ops And update? comes say, will reach graph, continue you Our done please now, it's I courage Well Center quick the has

Anne Olson

with revenues growth, Thank continue Revenues to and quarter XX.X% you, XXXX. the second same increasing over in morning. Mark, period drive good

. strong over of rental leasing growth leases renewals second XX.X%. prior July. a the achieved was quarter XX% During same-store rate rates lease increases same-store second average through our blended new increased quarter, On These average X.X%. our basis, trends and continue on

the see average same-store quarter. on we rental income of affordability. Mountain West Significant has was second for our are the quarter. per XX, nationwide those household us growth $X,XXX in with Midwestern XX the our portfolio, raised confidence and homes in monthly over Our in of the XX.X% in gives of XX.X% rent first population. rates of renter This and an average June wide a basis occupied XXXX, weighted question points of increase applicants tenant But occupancy average to affordable revenue communities credit segment our

The is and also While labor driver tailwind are revenue for increasing providing a expenses. our of main affecting inflation utilities, growth, our materials. expenses

seeing the XXXX are the increased Our reflects on of in and revenue business. expense the remainder trends leasing the of for the pressure and we both guidance expense side

XX% goals technology implementations of XXXX revenue. to efficiencies our and of containment year, same-store year-to-date, the first the our been X.X% half to customer for year. full year to second the growth increase expect to of and a growth realization half operating of experience income from drive of the for of accelerate in Our expense with It's a XX% net the enhancement great that assist range we include

our I'll it Now over to results. Bhairav to financial turn discuss

Bhairav Patel

to G&A end will to of $XXX,XXX completed total Last compared is same-store core strong FFO last million property of . share, by year. same Included implementation, discussed management of same-store and NOI $X.XX increase diluted reported the driven for quarter we G&A included in million. respectively, and year. year. period an the last his in XX.X% expense costs to of this expect as with related earlier. same for Yardi the be or the core combined growth million in period XX.X% results FFO per $X.X $X.X by Mark ending night, $X.X remarks Anne. $X.X the $X.XX pursuit by is our Thanks, which we a was The from million, our increasing XXXX, June primarily related were Also XX,

As excluded implementation FFO. result, our we pursuit and a from have core costs the

to year-over-year increase our is better driven rate. combined Excluding of $XXX,XXX the our by year-over-year has $XXX,XXX fall increase quarter of material year, run in of total management increase our portfolio. increase compensation in office is part the in an represents million, XX% acquired last related IT-related was G&A expenses, costs. increased mainly an representation Including acquisition, an and of we these is last properties, XX which period revenues by acquisition The costs, property or expenses which and have for an basis. $XXX,XXX same annualized the expense from KMS XX% a significant the since and in It $X.X almost a on of

strong remains us and ample flexibility. Our with balance sheet provides

$XXX.X including our years debt $XXX and quarter, the the X the June maturity liquidity, As we XXXX, lines end credits. weighted approximately average average of was weighted rate of was of of of XX, At million had our available on interest total million X.X%. the

supplemental. will which financial our discuss I of XX outlook Now Page on presented XXXX is the

we second are NOI viewing our XX% strong a to increase guidance of same-store an to XX% Following quarter, year-over-year.

quarter leasing Anne at revenue As raise trends prompting July, continued the X.XX% to second the was guidance our positive midpoint. mentioned, the through us an revenue in and extremely year-over-year strong growth to of increase

On we the quarter. saw expense the of side continued second during pressure P&L, the other

increase expectations half While expect expenses we of higher do be our moderate guidance a the year-over-year XXXX, rate our second to to to adjusting to relative the during are at X% accordingly midpoint. and prior of year-over-year expect we growth the

I midpoint core in for to over with And guidance to of an with for per that, turn it $X.XX operator that to $X.XX will share. per to XXXX FFO questions $X.XX to the our increase open of it translates a All share up

Operator

of Our question Instructions] [Operator Kim the from of line first comes John BMO.

Your line go is open. now Please ahead.

John Kim

in this to this, entirety, on several that addition wanted items a seller into it there's new by portfolio markets. decided mentioned get some wondering pursued would put just your was to if in on its this? this you color premium And could if interesting you means to Mark, that not portfolio also Nashville? if you thoughts that any you I some I provide

Mark Decker

was markets And tax it we've going things Nashville. . I some It markets many and considerations. John. all to -- their their then collaborate team, say the with are said, mean, have premium we be our like of that to on on were that, the we fact, by we percent were on, seller XX-plus getting cut include with as I'd of in not this time several Thanks, focused we Sure. opportunistic, and spend i.e., didn't team, was spend time things that portfolio. folks the going other to of because there respect that And

just package, I the you paying really It's we and solving about money. we're when the price. was whole It look problems money. about thematically, think a it hard not And at problems. most most when to It's solve pay the wasn't to something objectives. So max of different like that's easy bunch

a the different of a So I solution sort we they would bespoke say, end, had, solution. wanted engineered. And in very

John Kim

sale? for running portfolio Are any for the the are parts that of you in

Mark Decker

a I I'd willingness a it's thumb There's we No, and. chance, recognition don't our really take so. Lloyd is to to our believe desire -- think like but that this say going don't with scale getting from charge this more to markets. the portfolio. worth sum the the was anything parts really of parts about all mean, us. is in than I It's to happen always

not one-offs in interested in, that that probably markets unless we're So in we're buying markets. strategic they're not currently

John Kim

Got it.

lease to wanted ask loss current your then for And and earning Okay. you to about just XXXX. have the

Mark Decker

to want that? you do Anne, take Sure.

Anne Olson

Yes.

think around the lease I right right looking at XX%. we're now, last

forward, there's blended around around of that, So XX% right as be the -- our July earning think leases XX%. lease in do measure growth results expect going potentially kind moderation strong, really our rate although July were and that of if in some would you it We X%. we right

really to And lease, still last that. So capturing hoping strong. we're with really, that keep

John Kim

that growth, right? And lease Or potential Anne, is on your revenue? quoting

Anne Olson

Right on lease.

Operator

from Capital. Our comes Brad next of of question RBC the Heffern line

ahead. line go is Please now open. Your

Brad Heffern

current guess, markets. were point how the like was et similar sort added you can they geography? a any you new to were, about So as few Sunbelt of I And would portfolio broad and deal, I things it details any where in cetera? $X price know give terms said to give strokes you those markets, additional it the have billion Can of

Mark Decker

Yes. Sure. Yes. Brad.

terms value and Sunbelt get was can to Midwest, which, a a reason portfolio of in some if we're being presence good similar kind trying large will, way markets. per with unless through there, home, opportunistic no of South to or not you Sunbelt So rents find commonality again, existing product our we accumulate It kind example. a average of

Brad Heffern

Yes.

negotiated sense? was a are cost current market seeing of that still downturn. it make and before Okay. opportunities was I And given of sort you sounded that this Got like the cost guess, broader then capital acquisition the of deal debt, it.

Mark Decker

pricing door Are our for of counterparty. they Blue last Blackstone pretty really the kind motivating all making APTS, deal purchase sense? then X of yes, on handle was $XXX cap of I a more lots in Rock fall that at market and top So conviction -- again, terms and virus was resource was and And rates levered much negotiated leverage today. of February good product tippy leverage, The think . absolute is less the kind availability, market. in much of the less has of

calls So amount listening the we're did, kind assets in depending strongest on or locations I as leverage out. our is is and window do we XX%, minus get to I same and X-year off same almost on think from to a of is because get more not to least diminution. way as of think as price hearing the things But you the coming and/or always case strongest market the little and which see other X- maybe bit plus I folks, the you're is reliant see deal think pricing heavy and the XX% location the much

Brad Heffern

Yes.

then, here on thoughts today? Okay. as of And sit debt we guess, cost incremental I any

Mark Decker

debt higher. right X that is average market were think both year. of -- Fannie a pretty reality did reliably unsecured mathematical in more obviously, X.X. was came Fannie piece there around today. I/O, The had the we of did the and I We was XX If recreated the don't lot unsecured that the little pieces I like reprice we of X we unsecured, into weighted I of than bit it. years can I/O. duration, paper that got early that. is a It's on But thoughts of the the kind No, pieces line the both

would when in first think that there I spreads to that of general market that because got folks than lot even dictate sort a little repaper So done bit a it's half. we talk in the was wider priced just of

rate, similar paper think relatively paper, for call it I unsecured So which advance has five right a similar was Fannie XX% of is terms, front around X.X. in a duration. The high it, that

better, pricing but in. their might more than a bit Freddie get behind market more so double depending than on little that's So or double which this Fannie you're goals, and today. production year the are on math

Operator

next of question line comes the of Our Stevenson from Rob Janney.

ahead. Please now Your line open. is go

Rob Stevenson

growth what low the changes at of the that With to in expense the to you second midpoint put year? down sort into sort the in growth range same-store half you mid-X% to get of for year-to-date XX.X%, of guidance rate

Mark Decker

take will Anne Yes, that.

Anne Olson

really, half of do the recall, about year, really more So particularly -- last But a it. going can if second the in and we on in to happened second the of are about you of monitoring eye expenses prices be the energy improve closely the we year. comparison, it's to have what run-up although half keen

second first in saw last we we additional on in some happened of increase That price. set call, had significant noted our but was our as So half up because in increase in -- year. tough the we comparison really a price half increase usage, last --

rate growth simply will just -- the the So moderate because comparison. of our

a that ability backs other the how to impacts tenants can to of we're capturing of to billing into will. undertaking being And push tenants, sure are of obviously, costs our our our we revenue extent revenue, rents. to on and couple passing to kind more of changes ratio keep goal utility that mindful We make the some bill that maximizing of to system, we to and push is those our cost

Rob Stevenson

you this much much What you're versus getting is in of how are exposed at point how exposure your utilities terms to? back

Anne Olson

widely widely, by market. varies Well, it pretty

some say So XX% it's low and our very probably Minneapolis, in smaller -- XX% markets percentages. I very, and in would in to capturing we're Denver markets,

rent a to of or pay and take want are Whether people shopping, product properties it if the things. for. their next So pay get door, they'll their they not of less when that's bill can heat in will to for pay lot market a paid comparable order or heat either they

pretty varies widely. it So

Rob Stevenson

guys efficiency, gains in of in Okay. you operating also smart of homes, the future of maintenance, all the and et reaping same-store? left apps, for And both spending then what's self-touring, cetera, terms terms upfront in

Mark Decker

tech it. going Yes, say as But solution, And this in to able about technology I'd way but side. very a couple the really lot talked we to can't go of X we've Rob, of example, jump mean, that over integrate could that have essentially maintenance we the one. smart we being a implementing of in on technology things, I rent I I'm last were bespoke kick not different this, deep of Yardi, this self-hosted had look all those before, front a a to to allows one, good not into. that some us overly MRI quarters on no you on and virtually employed solution that really on almost single-stack

type So because multi-property as a our heritage owner. of

and really So this us for that of sets that has table year. the kind stabilized well

forward. really we're looking as So we that's go something at

Rob Stevenson

of left type What's terms in next those the you years? what over of to couple spend -- expect on programs of

Anne Olson

Yes.

a that's So question. great

technology way implementation expenses that the I going not -- the has. think going it's hit to to it's in

likely what solution had most Software-as-a-Service that different we've or current one with that's replacing service So we it's historically. have replacing left,

a expecting massive technology spend. investment not amount I'm in So of

run hundred I what year, would dollars investment think was. our have And probably rate a pretty of be close thousand of we general to a invested. a which is technology couple historical

As we leasing presence. we've great have way, gone along really online the

still of percentage out of to pretty have do a That's to on markets, go. leads. We some some have really prospects solutions point, just online. XXX% using of We Mark's well. our way what online high in leasing that's But do. with AI Matterport We've a properties working started tours long we we

just they that creating start are optimizing of tracking stages so them in portfolio. them in we beginning really efficiencies beginning the implementing of and what the we're of can So stages the

Rob Stevenson

get do savings you of with that that there? at when point what still the is cetera? headcount and And Or occurred? labor greatest costs terms in you can Has people, et fewer already operate come to

Anne Olson

Yes.

at the the centralization that a how really allow site, can needs and than comes rather units the think may technology these of really support XXX the of I that technology continue given when to It's on units be it technology solutions that anywhere really solutions we services that not we only It's having move. because so services when that support some to community focus. that. can kind enable level ability X,XXX the position and house in to only side country position they on we -- maybe

So that's might positions we to identify where to I can as the of in them support these certain leverage take when centralized have and think see in we're really some order headcount going a the way. reductions portfolio how across we

Rob Stevenson

a more that event? is of And 'XX

Mark Decker

also assets another is that Rob, services technology, work of But about scale are perspective. is for say mean And I to a clustered. resident that or talk you different and your the preference real. the easy when you kind for lot lot apartments. which is about the scale what, Yes, is of it one for to mean all, making shop it's and see also adjacencies quality proximate I'd it experience a cut from I about the I customer access I drives think, and all through when of headcount efficiencies think team. increasing most the a

Anne Olson

additional that these your we're start out answer to do To figuring we're like and those really mapping for in us really 'XX. Yes. efficiencies implementing going what accelerate centralized and -- are hoping and services to what I potential look question, think

we're in metrics to that . So yes, the show at tracking things meantime. when obviously, other and like efficiency we'd looking margin that than, start the really 'XX is some of like

Operator

line comes Connor of Our Sandler. line the from Mitchell Piper next of

line Please go open. now ahead. is Your

Connor Mitchell

forward, rate year. going might that And of implementation hundred it along run following technology a couple a mentioned per of Just with the thousand costs. as be

larger quarter costs there in sure understand. Or it this be making Will XXXX rate of was beyond? in starting XXXX, a or as more? that kind such just past little bit I where any is run So more and

Mark Decker

were expense to you take guidance there. want But Anne, that? you know don't Yes. to I give that trying we do

Anne Olson

Yes.

think, make as indicate the that advancements in it's going has I XX office just of the yes, are implementation been changing there. won't hundred that couple as we did. back This we be Yardi thousand kind to to is months, significant this to really continue nearly system. There of anything

those how So value-add investments. those towards are proposition technology there. implementations, there's look as on our a I . assessing of expecting no kind would now future say, return are is immediate we we we right

dollars be will dollars. invested of instead those So expense

part of project we don't we really I going Our it's think next returns, do kind to that was This a do give mean, that value-add it. not implementation as us on return value-add a to of the to where stage. expect set investment. get just we

Mark Decker

our our No and more on office rent. experience feel spend go easier on efficient time care willing for things it and more making presidents better have one should about we is for to has back it been really that about be My forward, I office. awesome. the it your back a mean -- at because team looks to paying it's well, isn't residents do this it. the pay says, Whereas

the for functionality operations change I side instantly, drivers are There is side you about from value been in a by think larger there, out being smart automatically. look locks customer having from those really peers. proposition terms us. And to of in terms of again, detection leak and the a value able at our of rent, talked which has both if lot greater

Anne Olson

the at the expense. expecting implementation, are of the and repeats same are end truly we on next the not quarter expense tail But that we Yardi

Connor Mitchell

back to kind Okay. helpful. going the And then That's expenses. operating of

is of to comparison lower the half guys in or rising. You first guys that even XXXX, in looking that Or year about future really is last might further any you to you expect to? that half -- slightly the utilities touched this be on into But flat? year stay do even there second based way comparison versus with that the able

Mark Decker

to guidance. you trying take Bhairav, 'XX that one? get don't Connor, why are . you

Bhairav Patel

of is Yes. the increase half From as driven see second last half year. the a utilities second said, We did comps. perspective, yes, Anne in by really utilities

usage from a that's moderating year-over-year cost. unit of and perspective, per in So terms

a We recently. stabilize have little seen bit that

So have if it kind increasing, the we that hopefully the of we'll range watch. was be back trend again, as if costs to should keep and in before. continues, just wait same But

Connor Mitchell

increase mentioned And Is so driving level there is? or the operating it it's the labor. and keeping guys anything mostly where with you that expenses, utilities else the

Bhairav Patel

ahead, -- bulk The sorry, of it Anne. go

Anne Olson

about I is, revenue. think there increases do one to think are expense that so thing drive some

and So turnover, a does lease to Those of when and some maintenance we're higher seeing lines. at little higher good the and Obviously, That of given drive the commissions some really are strong repairs lease our rates. turnover growth turnover higher bit have. expense properties. our expenses and are

because the on do some you some you those are But others? to positive things of revenue. So comment really want want Bhairav,

Bhairav Patel

was mean, just first speak it. a was it I utilities think Yes. to half driving really standpoint, from I I there.

Anne's we sustained of to are As we growth are half. into of expenses standpoint, of year-over-year that the that . revenue. the to look these driving utilities impact moderate. the would the see also But increase compensation are kind driving second expenses do some a the as half, we But from point, second go

Operator

Raymond [Operator Instructions] Buck next line from the question of Horne James. comes Our of

line now Your ahead. open. go is Please

Buck Horne

of how half your how schedule suburban still Denver new maybe in absorption core? you're is supply either thinking may the rates new supply -- the back if your a could into urban for change delivery units about affect Just share and and going going there? you for or of or Minneapolis? particularly the versus seeing portfolio Curious year you competitive healthy are affect for any to and how of outlook out supply XXXX, -- fee the Just

Mark Decker

finished get seeing cause there we're say Buck. -- going absorption. of for any Thanks, Yes. not terms in is concern would underway that's is probably and to I anything

some we've seems seem seen seem it's depending pulling reasons. XX lower. tracking. whole the host of the of of markets LTV tightening that like banks are probably fact, pretty off In for some the strong The pretty debt in a been to clear -- does some risk projects trending on be we've It absorption and

away. Cities, So in-city supply XX, demand, months the I But I mean, seeing well, in and that's proper -- we're the probably is not speaks that probably say and XX any true Twin Denver I'd in here as assets that as are continue still much pricing power not on markets as things still said good from for suburbs. But based an could work that, expect home while experiencing demand. absolute a on those relative seeing basis. the we're and slowdown to quite I in in-town this like And having not we're think that. in and

don't or about -- And concerned our say we're I a portfolio coming I relative it, our in watching of supply the mean, not lowest So on not basis. we're always about a has I we're unduly as about, decks I'd investor concerned. talked and but meeting, some supply. think concerned lot we've

Buck Horne

that. appreciate I

portion that. portfolio get check to disposition channel additional helpful that to -- a some this existing the activity you disposition, accelerating portfolio Just should anticipate deal transaction, were I year? possibly planning we of And going and contemplated on that? the a thinking whole about appreciate on are the there. and later segment funding did And you back how of guys dispositions

Mark Decker

to going NAV on ton of basis. NAV a were equity to an We issue

have positive. have well. would probably It pretty sheet been balance X day neutral it worked would and So

diversity perspective, us that from pricing. would the corporate market think I exercise perspective, lending in a have particularly bit up-tiered and lending probably markets the

we days into kind the us we forward-looking a and to would basis bit been the But percentages secure have in to mid-Xs. little it things unsecured that, would market sort been where tracking debt get EBITDA and a it of work are there of on have a now. EBITDA, Xx to to something would from the we're early So a like been have of north entered there and positive debt of

we're do very that the we're comfortably think in access to insurance us we comfortably direct in a market, that about company when the which or say there. access of about form how frequently maintaining a lot unsecured placement have people debt. about ask So market market think we We

camp. question, that love now, when we're in we don't right Brad not but said the the As earlier, of that I certainly pricing asked alone market

Operator

of Our final Baird. question comes Wes line from of the Golladay

Your go ahead. line open. is now Please

Wes Golladay

like about the rent meaningfully revenue at talk what quarter. it the outpaced is other revenue growth? you Can Looking growth supplement, looks this growth driving

Mark Decker

want Anne, do you that? take to

Anne Olson

Yes.

is lag ratio Some in utility of the collecting billing. that the

the built last the tenants. quarter, When experienced rising out. from we is then gets there -- So billbacks those expenses it

So and route. other the I revenue collection . the the is a there on growth driver think big in

Wes Golladay

Okay.

if a guess I good looks utilities purposes, maybe as modeling So rate are as like this long for run high? gas

Anne Olson

Bhairav, do that? you think about what .

Bhairav Patel

missed Wes, that. I Sorry, the repeat can second you part?

Wes Golladay

at revenue at the look where the as like being true-up we utility looking a current we revenues, expenses it other high. just When Yes. are multi-quarter forward long good for other going the quarter. as rate are a run

Bhairav Patel

Yes.

Anne So the is to what revenue the addition quarter. side, collection from were one thing on in said a standpoint, we over this XXX%

some well. as of driving the that's really differential So

run a pretty this revenues of quarter. what will for collected gives good adjusting sense after like. the XXX.X% you rate of We look that, So about it

forward, So something on XX.X%-ish. would a normalized we closer basis anticipate to going like

the well. difference to as So of adding that's some

Wes Golladay

the And year for rates can year? to occupancy revenue Okay. management balance you then and give later color year. little of the in the half you push can the of the about back just build talk there? strategy the Are us maybe a But looking bit you for more

Anne Olson

Yes.

I try the into really occupancy fourth going think do to quarter. build we

lower have lease We expirations.

the second between end end quarter end the the so quarter. XX or to quarter increase -- feel occupancy. -- of And basis the third we We sequential first about went of points of in good goal our up

occupancy. to lease balance versus There's we to the building rate to want continue We that of keep loss that. always pushing a to -- and capture being able

increases. to do that we we can occupancy that can continue grow and hope the So to really . continue capture great

Operator

this conference There for like are call at hand no time. closing the remarks. I'd over questions to more management team to registered the

Mark Decker

and everyone your to Centerspace in Thanks, we everyone. summer, thank enjoy continued Super. Thanks. rest the Candace. of your want just for Well, interest

Centerspace (CSR) 2 Aug 222022 Q2 Earnings call transcript