Earnings call transcript Q4 2022

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Operator

Hello, everyone, and welcome to the Centerspace Fourth Quarter 2022 Earnings Call. My name is Daisy, and I'll be coordinating the call today. [Operator Instructions]

I would now like to hand the call over to your host, Joe McComish, VP of Finance to begin. Joe, please go ahead.

Joe McComish

the SEC December closed. yesterday for filed XXXX XX-K the with after Form year XX, ended was Centerspace's the market

subject Please our These about centerspacehomes.com our are current supplemental discussed filings risks to and and titled discussed note for statements release that that Risk on to We X-K. in these earnings not be and that any have will to refer any of with which statements Factors reconciliations outlook Additionally, posted include may statements. views in undue are and remarks been forward-looking statements guarantee you today's It's filings the information, to under the disclosure important management's place our business our cannot uncertainties materialize section our filed on and based and package to at other earnings are on today's assumptions. will call. on non-GAAP our Form cautioned and website forward-looking statements release other reliance SEC. forward-looking

turn it over the remarks. now Decker Mark prepared Company's for to I'll

Mark Decker

morning, Officer. Good With Officer, Anne Bhairav for Operating joining Chief our Joe. this morning Thanks, and is thank me Olson, our Patel, and Chief everyone, Financial you us.

given per our the and share FFO XXXX and all forces of people, large pressures to had integrations XXXX, yet, of the cost inflation, to the did ambitious and markets, in in reset for of our able XX%. grow we grow portfolio are systems capital. several employed of of continue was highly that by we were quality an core at Centerspace. labor And We meaningful communities, year communities large work, multiple from late

as and right our different listened to revenues though relates in market terms are on and many XXXX. internal Mountain five-year-old it with excited owner-operator. to we a challenges, Midwest leading consider and get in provided more I that's we're company and are to accretive really speak good consistency when confident growth since I to able the track earnings since grow fundamentals NOI exposure I we expense just strong peers. West private We're us find been and to calls ways the growth remains in I'm we've as opportunity our of that

Anne who I stop to to some want sure But I'm will depth our in operating you the teams continue each so have incredible thank show to say move to I dedication other. and commentary, residents our support on, to operations I'll before there. and

continue to we built our quiet advantage allocation the we portfolio, to our in active We Lyra, discount break all, In half got would capital as to public a and in units Denver, stocking value. a of And shares significant a little strategic our and some dislocation million. for property of newly We large capital deployed way. we purchasing $XX sheet. also about funded the balance intrinsic first had million. the year have markets didn't took of pursued Moving that a buy that to improve deployed been with half a back $XXX more to at own second in we portfolio

for million coming most expect investments some the and sales the will least-efficient have as equity to our mortgage a that we fixed of as with debt, those was contract under and years months, plan we've is from happen rate rate and $XX X,XXX over well X%. we homes as in Our fund just XX of at locked communities, today long-term capital-intensive what

you took where the more to and reflected This short-term in and did XXXX the variable thing interest We results. in can cost is proved delayed see expense in market some that our our results and QX, financing in for extent, be that's strong guidance us exposure. to but eating our operating to plan to settle, the long-term doing, right let do, rate so

may sales also per share core FFO Asset growth. hamper

a in to has However, that's trade-off seek. like and we our and quality earnings continue will analysis, our flow of and improved, cash

in say I'm in have long-term next XX to back to line financing that the pleased we days, have zero. expect, our and to nearly place

asset grow unsecured and said cash So gaining better an when untapped chances a and it's formidable efficiencies, and line, and communities abundant flow, with we'll portfolio maturities ability liquidity long scalable robust blended improve all experience with long-term and power have done, and system a while resident to of numerous and a base. to distribute with low rates, operational pricing team

outlook, Looking to of considering proposition portfolio continue communities strong to our of improve XXXX in markets. the some portfolio value residents least residents among to that our and excited Company that about we beyond. provides new economically in our believe our are and overall the opportunities our forward, to supply exposed public We're the and a strong the are

provide quick update. please a And with you that, operations Anne, would

Anne Olson

period compared income for year. year full XXXX. for say ended XXXX good to Revenue XXXX to the year, was with X% with highlight our Mark, the for and happy extremely year Mark, their and and the X.X% in that great quarter work. same-store XX% and you, to the at the hard compared a growth operating I'm net We Thank team like morning. grateful fourth in I'm in the same was growing our same-store our

over our a fourth rental increases rate is same-store During quarter, average prior achieved new this same-store of lease and the blended growth rates of X.X%. renewals X.X% increased quarter X.X% fourth the leases, basis, On on average

in increased experiencing a in new growth remain of rates X% and During XXXX, renewals we the in seasonality saw achieved are pricing. we an the portfolio to return overall, our significant lease earlier year same-store Renewals normal strong, given lease new average X.X%. increase while

X.X% X.X%, our January, the positive new During prior lease. increased saw leases over our increases at renewal rents while

is average quarter basis to of during while and returned to is good XX financial trends residents of strong the in Our XX.X%. increased up the currently maintaining We fourth our feel weighted demand XX.X% about has and markets, points year-over-year. traffic pre-COVID collections the we our health occupancy

Expenses of the labor second inflationary contributed share overall and experiencing year, of over came XXXX a on our increase year-over-year. in and expense half the increases XXXX. it fair in basis, on XX% was materials, of controllable XX% of utility effects our On same-store while quickly are the total expense increase we

We our of as moderate. half in are and projecting second that were forward, utility expenses realized bulk relatively inflationary will remain growth look in we the increases XXXX, the will we of thus expense XXXX, flat and believe the

correlate costs. the believe an legal our mid-year We which rental evictions activity, return QX. in was note, in related and activity will in fees in similar driven with QX by often QX drive eviction to programs expenses that taper is to administrative attributable we the Of year. expiration of to assistance had and XX% high increase and Minnesota this and lifting of These

gain As that expense we start systems growth. and and XXXX, will efficiencies we're contain processes focused on

Bhairav it Now, discuss financial turn results and to over I'll to overall outlook. XXXX our

Bhairav Patel

Thanks, income. key strong XXXX per an good and $X.XX driver Anne, prior represents our for reported increase operating of share, of per morning, diluted the FFO quarter everyone. increase XX% FFO bringing December we night, XXst, core share, full same-store The diluted was the ending net $X.XX to year. over growth in which of the core Last year

momentum higher further expense although sustain and as a discuss established expenses we across strong outlook Anne the revenues XXXX. when I for operating impact during felt board As our same-store half on second foundation cover that the moderate. of to energy the of to I year, inflation in begins pressure will mentioned, prices financial the detail

to financial position. our Turning

strengthen further balance steps to our our take We continue to options. capital and broaden sheet

purchase average fourth share, per quarter, at portfolio. which significant of the the During we of XXX,XXX an value believe be price discount our to shares we repurchased to a $XX.XX

spread line extreme of during capacity loan remarks. with plan is year of prune we $XXX The with option. an of markets initial points as sheet a million which and spread points, our based provided his on Mark unsecured quarter, interest as an augmented to balance on XXX flexibility basis on our discussed the with roughly at ratio. portfolio, the XXX the one-year line The volatility capital term in SOFR fourth loan the embarked loan a facility The the is one term on during a a current leverage Also, plus credit. current bears period and extension we XXX term unsecured in on uncertainty loan closed basis to in of spread

December years XXst, XXXX, a with debt we of had a and rate of of As X.X interest $X billion of total average average maturity X.XX%. weighted weighted

we on to growth be supplemental. presented Now, coupled I X% same-store NOI top financial of the midpoint, X.X%, of our continued are The with at and by we earn-in of growth in value-add rate the components At in X% growth. XXXX, outlook Page growth is by driven blended key XXXX, expense for our driven growth S-XX line moderation will year-end, RUBS expect which a discuss the of collect in across revenue expansion what in spend projected approximately part of portfolio.

total such and relatively XXXX, of expenses and in XXXX, premiums insurance real expect two-thirds midpoint as grow in to by utilities as driven key growth XX.X% is in higher we X.X% rise. to estate taxes Almost flat continue by We during compared as the values and to of at drivers to expenses the higher R&M assessed remain anticipate XXXX. costs increase

expected of expenses We as expect strong offset to compared and planned XXXX flat operating interest share to dispositions to per roughly XXXX the the midpoint be is for at $X.XX core FFO impact at results. the higher

our XX% projected Approximately, rate was with significantly of December XXXX short-term in debt as to rates debt be total of XXXX. XXst, variable higher

yield $XX of XX X.XX% debt able we current brief slightly we a lock to at approximately However, of rate were fixed refinance X.X%. XX-year below rate when to maturity floating million debt time and secured during the window a our coupon years expect as a of rate that's dipped of

have locked We by points. basis as to have yields treasury in approximately pleased risen since savings those XX are

X,XXX remarks, our proceeds mentioned disposition $XXX assumes his assets XX approximately units. planned of guidance Lastly, the sale as to approximately million Mark million in or from $XXX of

with We expect to end assets line the plan dispositions first The million credit. completed loan from be the third pay the to balanced the by and close the of by approximately on be quarter down term a used of the proceeds quarter. outstanding to nine the $XXX will end balances of for

year the would sales, for debt of years our and to by X% a weighted as Pro and total interest year-end our -- and increased been decline of by a X.X%, X.X refinancing the rate would have post asset our maturity half the to rate exposure balance average would paydown. over weighted average have approximately variable forma

strengthening Additionally, decline our sheet. X.X further capacity our be would by restored, balance fully our about leverage would and times

one conclude, the of history To company. our their making at like team XXXX for of in in the entire contribution the I years thank Centerspace would to strongest

Centerspace to ahead, ability While heights. to team's in our we strategy are propel our newer confident there challenges are and execute operating extremely

turn up with will open for And operator questions. it to to that, I the it over

Operator

question is Instructions] ahead, you. Thank please Heffern [Operator Our Markets. your from first open. from Brad line go RBC today Brad, Capital comes

Brad Heffern

Yeah, Good you. morning, everyone. thank

you walk and On the the cap through exactly guide? dispositions, what was assets where expect, can impact the dilutive you are, those on rate the

Mark Decker

is The that are start I'll Lincoln, Sure. area. Minneapolis, one with in Omaha, three one This Cloud, Nebraska, Good yeah, Greater Twin I Mark. morning, are that. -- in St. -- Cities in in are it's two are five in three Brad. assets and think in

think Cloud. I four St. in it's

was that the So first.

So What probably what question, the And think part that's $X.XX. impact? the they. was dilutive I to other the are where sorry? of was $X.XX

Brad Heffern

Just cap rate.

Mark Decker

AFFO, forward on think actually a to Yeah, basis. a It's low-six’s or below rate. be a basis. the contribution probably trailing net line, cap an I slick. it's on than higher But going accretive on Oh, that

Brad Heffern

Okay, utilities, responsible you're on expenses that that be all progress for and give will the update that having making to residents on expectation own your contributing utility and utility can flat year-over-year? an you got then I And is guess the it. be their front, the at

Mark Decker

that? Anne, you take to do want

Anne Olson

Brad. morning, good Yeah,

on So a year, utilities going a rolling about the RUBS, little all we get lease key and through May roll. the and over to a so and first, June, with respect gas to out bit year, how project into in started that the we're takes it

The halfway than the that are some to our contributes the fact because and expiration comes think where that remain will based the on flat that. we to hit That lower to some the projections on so and are comparison of months our relatively back us on So growth, because into they increased we less look much. year costs little expectation line. a really lease revenue is that revenue utility going, last we utilities a hard of

hits isn't that in do really revenue. recovery -- to and But we the impacted So number expect we line down year-over-year increases moderate the expense brings the then by that significantly. the

Brad Heffern

more Okay, guess, as full sensitive for of it? or know make I you people price be own to will from sort become got and sensitivity it. And that seeing are you you you that of they around potentially are their uplift utilities sort responsible seeing are an I that? that expected recapturing there you offset offset. still a some rate

Anne Olson

Yeah, we've very had little pushback.

In pretty account sure full that have fact, team regularly that I the into the utilities. at happening. isn't you their renters take they looking rent, to with check make When chunk

on haven't we So in and it where right a now the rental really given lease from still good fact, season much renewal had where both in are rate our all. feel new pushback at about it's And growth is, overall we

Brad Heffern

you. Okay, thank

Mark Decker

Thanks, Brad

Operator

Thank you.

from John, BMO Our Capital line Markets. open, ahead. please is next from question John go your today comes Kim

John Kim

morning. Good you. Thank

you a most your higher timing to that you when focus between rental weeks break noticeably is blended growth that report. few peers. lease growth But the guess, have on X.X% given rate your data, I expect? guidance growth that's revenue I you rate and assumption. in same-store down than the you renewal wanted Can Your additional of of market

Bhairav Patel

Sure, the rate portfolio capture which I spend blended of X% growth, will half from the go John. growth. The With the lease as spend of remainder projected to market in respect the roll. second value-add put through rent comes about is the XXXX, to enable say, value-add into to plus some X.X% premium us the of we Bhairav. some This projected we've XXXX, in is would

John Kim

Okay.

between lease I mentioned. Anne going new that's to renewal you had continue in delta and year? throughout think had think significant the that a January You Do

Anne Olson

I do.

going off. it's to that think burn while I to a take that

to and renewal several year lease months Our had new time and our new growing lease our rates, than takes there. were last significantly rates up are just it really still higher rates we catch where

we rates to seen come see little bit the year -- that as season. down. bolstered months, projecting going couple to we moderate continues, up down are that lag X.X% as up just that should the prime to we accelerate lease in leasing new a a then those of We lease but have be so by I new think They rates what we're X.X% see see

John Kim

bad well year? the your bad assumptions what XXXX? in debt what disclosed your far XXXX in If occupancy say you can Have debt you're also, is? not, as that And you expecting as as for as

Bhairav Patel

With incorporate Yeah, I so occupancy, for right bad of points to for points to about about that basis around debt XXXX. debt of in XX XXXX, respect XX XXXX, XX%. you're think we respect basis our debt. bad bad stay With projections expect mark, we had about to

go we is there season. some But XX% to maintain leasing through we obviously, mark. as volatility going through expect to around peak occupancy we XXXX, go As be the overall,

John Kim

you level you know where your about with is from question days? is me. or XX, of do resize your and that there above satisfied you below Okay. is today these dividend the a attractive feel can your given I maybe our Last On debt it numbers, are proceeds, How levels consensus it? possibility But ratio use payout that. cost of some dividend is

Mark Decker

to capital very So value-add like presumably, you're number, all that's get to high payout a including -- number. that capitals

John Kim

Correct.

Mark Decker

you get number, to do John? How that

John Kim

enhancing typically Revenue that. CapEx, we do

Mark Decker

Got view. it. mean, I the our capital so is discretionary revenue-enhancing Yeah, obviously, in

continue to of and XX% closer the to work to been goal ratio to our down we So that payout payout level. our something high-XXs, in in kind it's peg ideally the would XXs, that minimum

flow increasing well and one it hand, So and other all getting what grow also is I a our part on don't we're hand, of little think our mean, we're -- bit, getting shareholders. levels compensated about cash structure on to to for the I while at continuing the

Board I'm a on risk. at Board. my the in the mind, it's dividend is And call. So no

at have I leverage think base on looked we sort that versus have them about unencumbered unsecured our of XX% XX assets debt. if our you

it. got security, lots we've So and my view, look financial at I how of that's in

pretty similar a the of Board think view. I has point

John Kim

appreciate it. Thank Okay, I you.

Mark Decker

Thanks, John.

Operator

you. Thank

Goldfarb line ahead, is Alexander, question next Piper Alexander from please from go Sandler. Our your comes open.

Alexander Goldfarb

there. morning good Hey, out

-- first obviously you sales, that is $X.XX side, on or Is the to think of from that so asset down impact the question, inclusive debt dilution the with dilutive down, the debt just is to you So mentioned less? in Mark, pay pay I much asset the response $X.XX. the

Bhairav Patel

Yeah, so Bhairav. this is

Alexander Goldfarb

Hey, Bhairav.

Bhairav Patel

the of pay That impact $X.XX number those is down. perspective of inclusive we debt the from respect to a XXXX, assets. With core some for growth FFO had program

the the then with pay of that's So kind consider when net and number of down, the impact was that you that down referencing Mark it

Alexander Goldfarb

Okay.

down? of to pay So debt inclusive associated the $X.XX is $X.XX the

Bhairav Patel

That's correct.

Alexander Goldfarb

started year, the assets? in to Okay. assets have RUBS, exposed to basically unable on Then there you'll last middle are a you'll RUBS you that which Is utilities in those next portfolio portfolio mentioned implement fully this year Anne, is, entire you're to that still implement. the you the still about case, or question takes in the of -- be

Anne Olson

is this the portfolio. No, entire

Alexander Goldfarb

Okay.

So no sort will you of free-floating, -- will? there'll be are assets if be that that

Anne Olson

of there a where we one-off we ability regulation maybe -- in no would few is our operate unique situations, there have that that limit but to kind it. do any There don't geography is

and doing So we're makes extent can we to it it. the sense,

Alexander Goldfarb

the Okay. And just then question. final

to Nareit you it FFO, FFO. a lot looking a seems your to of guys items running out the in at put be You be put recurring of core business. just But that core seem part out FFO,

just sort year? So items of to as not they FFO, curious, to don't seem one-off happen Nareit like these every merge especially just why seem

Mark Decker

under fair consideration I [indiscernible] take it comment. mean, We'll

Alexander Goldfarb

Okay. Thank you, Mark.

Mark Decker

Thanks, Alex.

Operator

Thank you.

Janney. your Stevenson go please open. ahead, is from from next Rob, question line is Our Rob

Rob Stevenson

you developer to opportunities merchant a positioning step Mark, any any you Good Are as coming guys stress Lots in in acquisition that to capital morning, you acquisition attractive seeing into, of today? how would about redeploy seeing source. that pipeline sector capital Are the looking what's talk guys characterize like the yet? guys. of and today?

Mark Decker

I well, developers than there be merchant by I Rob. the do who say, taking would profits, probably morning, up end less thematically, but good they give I we will end seeing opportunities. the profits expecting. and think, Yeah, year, the think ghosts of Thanks. are were up

discussions So we're those. in on some of

-- discussions But to few volume come. that always say, which a OP have. unit have yet would hasn't really we We I type going, has

last certainly I but billion quarter, there be were would $XX most good years think over the of down something the which fourth of like from activity. it's read done a pretty I quarter in quarters, couple

been other calls around at in I the were the like commented people certainly some talk was, side, the folks as some of think The treasuries moving still are NAHC, to half to the that of year. definitely of cold-water back on and buy there's has throws are, when a disconnect, kind extent. they looking From the on

we mid-XXs vibrant year secured to to unsecured has six expect unless structure and be mid-Xs expect for would it stock there it quarter. participant some I sort probably debt very would of we a activity. debt be probably to the the with I towards So more say, there the in in half think of today our not second comes We're and debt a it. probably -- in

Rob Stevenson

the little it point here that what at ago? bit have a And you're to you you're year in the terms year in Are Is for new today, How those next this less your light characterize dollar would cautious? as this projects internally? and you -- revenue-enhancing given then on or seeing a sitting what rate? been how markets the today would Okay. amounts willing more starting hurdle of that and and aggressiveness your it green same you gauge would is you CapEx more outlook year

Mark Decker

do foot over our Rob, which put no, was a fun, in product I free a lot, we this rents, at free money rents year capital get think have this on range and foot resident. $X.XX -- a look is, if if pretty it and a in basis But and we $X.XX changed whole with a between of there and mean, nice the those the next of it like stuff. the couple good rents it I view lot or is where is I you where enhances is, and hasn't range, the more the people returns for there ago money. get yeah, still we renewal of mean, portfolio think years really are for our case, new to it end a to gap the a product

case, business much I to to funding because there continue we're if investments. of certainly sort or are would costs, you say, costs will, more we when higher. So a case, make putting to on pressure be continues are business going start-up the those the

So think say, us that implies and little -- more we just that's I'd a gives don't bit doesn't disciplined it discipline, before true. but it I weren't

Rob Stevenson

that this utilities one gas? last to talked guys value then and at sort gas. the is the And how And me, guys any dollar about to tied Are natural you big Okay. of point? you the natural hedging of

Mark Decker

Bhairav. Yeah,

Bhairav Patel

as of Yeah, mentioned, from out, item. the rolled most able standpoint, revenue Anne we a with be are hedging would to being capture think, we program no, that I back the RUBS line through

once our exposure be in for that basis of to forward So I going it's going prices. overall again, reduce the believe the gas expense, the dramatically rollout, lot from utilities the with a prices standpoint. implemented. exposure net fully utility XX% total lower to would the a accounts on But it's about fluctuation

Rob Stevenson

Okay.

$X out, talking you natural from if much prices gas a per of is not that that out fully you're year like saw there's or this once the to be So delta basically $X going to that BTUs XXXX? average XXXX to million to six-something last about between,

Bhairav Patel

of for about just would providing XX% correct. approximately Because to XX% and exposure. we That's cover common say would deductions, area collections the I -- after

Rob Stevenson

natural to And Okay. utility in terms water de is other minimis same that of gas? or costs compared and

Bhairav Patel

Yeah.

sewer, of lot a of capture that. mean, we water terms back In I and

that's into the numbers. already factored overall, So

on exposure was the So the side. gas

Rob Stevenson

time. Appreciate the guys. thanks Okay,

Mark Decker

Thanks, Rob.

Operator

Golladay question open. Our Instructions] your is Wes, line Thank you. go Baird. please ahead, is next from Wes from [Operator

Wes Golladay

Hey, good morning, everyone. one. just I quick have a

a this a point? for just known loss, guide or event casualty placeholder the is that that general is For at the

Bhairav Patel

That's you talking guide? about -- are the -- that's XXXX just mean, I

Wes Golladay

net think $X this million impact. -- yeah, million just Yeah, $X I

Bhairav Patel

in Yeah, time. point at an this estimate so that's

Wes Golladay

Okay. Thanks, everyone.

Mark Decker

Wes. Thanks,

Operator

you. Thank

have We further no questions.

closing I'd to back So team any the like for hand to remarks.

Mark Decker

Daisy. interest, thanks, to we We look everyone. appreciate forward quarter. and very Well, Thanks you seeing next much, your continued

Operator

you, joining call. everyone, Thank for today's

You disconnect a lovely day. lines, and your may now have

Centerspace (CSR) 22 Feb 232022 Q4 Earnings call transcript