Centerspace : Annual Report - 2023

LETTER FROM THE CEO

• I am proud of the results we achieved in 2023 and recognize that they were made possible through focused effort, com- mitment, and discipline across the organization. "

maturities until the middle of 2025. Our weighted average cost of debt is 3.54%; this is a very attractive position to be in as we look to take advantage of opportunities as the overall real estate market stabilizes.

I am proud of the results we achieved in 2023 and recognize that they were made possible through focused effort, commitment, and discipline across the organization. I am grateful to our entire team who works diligently to provide Better Every Days. We look forward to building upon these results in 2024; thank you for your investment in us.

Best,

Anne Olson

Trustee and CEO

THANKING LINDA HALL

This May, Linda Hall will retire from her position on the Centerspace Board of Trustees. Linda has served as a Trustee of the Company since September 21, 2011, and has 40 years of executive experience in the manufacturing and service sectors, including healthcare, venture capital financing, employee benefits, and teaching. During her tenure, Linda has been a key advocate for board refreshment and strong governance and served as the chair of the compensation committee. We appreciate her many contributions and wish her the best in her future endeavors.

CENTERSPACE'S COMMITMENT TO ESG

At Centerspace, we are committed to Better Every Days by providing a great home for our residents, team mem- bers, and investors. Our way forward to make each day brighter is understanding our impact as a company and how we can enhance the lives of those we touch. Our business is to build healthy, equitable, sustainable, and vibrant communities through actions that serve our residents and teams.

We look to the future and embrace change, knowing that the opportunities that arise as we grow together will help set the stage for long-term success in improving our social and environmental impacts and the policies that guide our business. Our commitment starts with the wellbeing of our residents, team members, and communities that we serve. We also strive to monitor our use of natural resources to enhance corporate stewardship, as we know continuous improvement is only possible when we back up our actions with robust and consistent measurements of progress. Finally, we aim to continue our long tradition of strong governance in our efforts to do the right thing, make positive contributions, and serve others with integrity.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

• ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2023

or

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________

Commission File Number 001-35624

CENTERSPACE

(Exact name of Registrant as specified in its charter)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing

Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐

The aggregate market value of the Registrant's outstanding common shares of beneficial interest held by non-affiliates of the Registrant as of June 30, 2023 was 913,064,559 based on the last reported sale price on the New York Stock Exchange on June 30, 2023. For purposes of this calculation, the Registrant has assumed that its trustees and executive officers are affiliates.

The number of common shares of beneficial interest outstanding as of February 13, 2024, was 14,908,674.

References in this Report to the "Company," "Centerspace," "we," "us," or "our" include consolidated subsidiaries, unless the context indicates otherwise.

Documents Incorporated by Reference: Portions of Centerspace's definitive Proxy Statement for its 2024 Annual Meeting of Shareholders will be incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof.

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Special Note Regarding Forward-Looking Statements

Certain statements included in this Report and the documents incorporated into this document by reference are "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements include statements about our plans and objectives, including our future financial condition, anticipated capital expenditures, anticipated distributions, and our belief that we have the liquidity and capital resources necessary to meet our known obligations and to make additional real estate acquisitions and capital improvements when appropriate to enhance long-term growth. Forward-looking statements are typically identified by the use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will," "assumes," "may," "projects," "outlook," "future," and variations of those words and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved. Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements. As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond our control and could differ materially from our actual results and performance.

The following factors, among others, including without limitation the risk factors set forth in Item 1A, Risk Factors, could cause our future results to differ materially from those expressed in the forward-looking statements:

• inflation and price volatility in the global economy;
• uncertain global macro-economic and political conditions;
• deteriorating economic conditions and rising unemployment rates, energy costs, and inflation, in the markets where we own apartment communities or in which we may invest in the future;
• rental conditions in our markets, including occupancy levels and rental rates, our potential inability to renew residents or obtain new residents upon expiration of existing leases, changes in tax and housing laws, including rent control laws, or other factors;
• timely access to material and labor required to renovate and maintain apartment communities;
• adverse changes in our markets, including future demand for apartment homes in those markets, barriers of entry into new markets, limitations on our ability to increase rental rates, our ability to identify and consummate attractive acquisitions and dispositions on favorable terms, our ability to reinvest sales proceeds successfully, and inability to accommodate any significant decline in market value of real estate serving as collateral for our debt and mortgage obligations;
• pandemics or epidemics, including the COVID-19 pandemic, and any effects on our employees, residents, and commercial tenants, third party vendors and suppliers, and apartment communities, as well as our cash flow, business, financial condition, and results of operations;
• the impact of the Russian invasion of Ukraine, including sanctions imposed on Russia by the U.S. and other countries, on inflation, trade, and general economic conditions;
• reliance on a single asset class (multifamily) and certain geographic areas (Midwest and Mountain West regions) of the U.S.;
• inability to expand our operations into new or existing markets successfully;
• failure of new acquisitions to achieve anticipated results or be efficiently integrated;
• inability to complete lease-up of our projects on schedule and on budget;
• inability to sell our non-core properties on terms that are acceptable;
• failure to reinvest proceeds from sales of properties into tax-deferred exchanges, which could necessitate special dividend and/or tax protection payments;
• inability to fund capital expenditures out of cash flow;
• inability to pay, or need to reduce, dividends on our common shares;
• inability to raise additional equity capital;
• financing risks, including our potential inability to meet existing covenants in our existing credit facilities or to obtain new debt or equity financing on favorable terms, or at all;
• level and volatility of interest or capitalization rates or capital market conditions;
• loss contingencies and the availability and cost of casualty insurance for losses;

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• uninsured losses due to insurance deductibles, uninsured claims or casualties or losses in excess of applicable coverage;
• inability to continue to satisfy complex tax rules in order to maintain our status as a REIT for federal income tax purposes, inability of the Operating Partnership to satisfy the rules to maintain its status as a partnership for tax purposes, and the risk of changes in laws affecting REITs;
• inability to attract and retain qualified personnel;
• cyber liability or potential liability for breaches of our privacy or information security systems;
• recent developments in artificial intelligence, including software used to price rent in apartment communities;
• inability to address catastrophic weather, natural events, and climate change;
• inability to comply with laws and regulations, including those related to the environment, applicable to our business and any related investigations or litigation; and
• other risks identified in this Report, in our other SEC reports, or in other documents that we publicly disseminate.

Readers should carefully review our financial statements and the notes thereto, as well as the section entitled "Risk Factors" in Item 1A of this Report and the other documents we file from time to time with the Securities and Exchange Commission ("SEC").

In light of these uncertainties, the events anticipated by our forward-looking statements might not occur. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause our actual results to differ materially from those contemplated in any forward-looking statements included in this Report should not be construed as exhaustive.

PART I

Item 1. Business

OVERVIEW

Centerspace ("we," "us," "our," "Centerspace," or the "Company") is a real estate investment trust ("REIT") organized under the laws of North Dakota, that is focused on the ownership, management, acquisition, development, and redevelopment of apartment communities. Our current emphasis is on making operational enhancements that will improve our residents' experience, redeveloping some of our existing apartment communities to meet current market demands, and acquiring new apartment communities in large, attractive markets, including the Minneapolis/St. Paul and Denver metropolitan areas.

We focus on investing in markets characterized by stable and growing economic conditions, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for our apartment homes and retention of our residents. As of December 31, 2023, we owned interests in 72 apartment communities, containing 13,088 homes and having a total real estate investment amount, net of accumulated depreciation, of $1.9 billion. Our corporate headquarters is located in Minot, North Dakota. We also have a corporate office in Minneapolis, Minnesota.

Website and Available Information

Our internet address is www.centerspacehomes.com. We make available, free of charge, through the "SEC filings" tab under the Investors section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports, proxy statements for our Annual Meetings of Shareholders, and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are filed with or furnished to the SEC. These reports are also available at www.sec.gov. We also make press releases, investor presentations, and certain supplemental information available on our website. Current copies of our Code of Conduct; Code of Ethics for Senior Financial Officers; and Charters for the Audit, Compensation, and Nominating and Governance Committees of our Board of Trustees are also available on our website under the "Corporate Governance" tab under the Investors section of our website. Copies of these documents are also available free of charge to shareholders upon request addressed to the Secretary at Centerspace, P.O. Box 1988, Minot, North Dakota 58702-1988. Information on our website does not constitute part of this Report.

STRUCTURE

We were organized under the laws of North Dakota on July 31, 1970, and have operated as a REIT under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the "Code"), since our formation. On February 1, 1997, we were restructured as an Umbrella Partnership Real Estate Investment Trust ("UPREIT"), and we conduct our daily business operations primarily through our operating partnership, Centerspace, LP (the "Operating Partnership"). The sole general partner of Centerspace, LP

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is Centerspace, Inc., a North Dakota corporation and our wholly owned subsidiary. All of our assets and liabilities have been contributed to Centerspace, LP, through Centerspace, Inc., in exchange for the sole general partnership interest in Centerspace, LP. Centerspace, LP holds substantially all of the assets of the Company. Centerspace, LP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of limited partnership units ("Units"), which is one of the reasons the Company is structured in this manner. As of December 31, 2023, Centerspace, Inc. owned an 83.6% interest in Centerspace, LP. The remaining interest in Centerspace, LP is held by individual limited partners.

BUSINESS STRATEGIES

Our business is focused on our mission - to provide a great home - for our residents, our team members and our investors. We fulfill this mission by providing renters well-located options in various price ranges. While fulfilling our mission, we seek consistent earnings growth through exceptional operations, disciplined capital allocation, and market knowledge and efficiencies. Our operations and investment strategies are the foundation for fulfilling our mission and furthering our vision of being a premier provider of apartment homes in vibrant communities by focusing on integrity and serving others.

Operations Strategy

We manage our apartment communities with a focus on providing an exceptional resident experience and maximizing our property financial results. Our initiatives to optimize our operations include:

• Providing an exceptional customer experience to enhance resident satisfaction and retention;
• Attracting, developing, and retaining diverse talent to enable a culture of engagement;
• Scaling our business to enhance efficiencies;
• Leveraging technology and systems; and
• Advancing an organizational commitment to Environmental, Social, and Governance ("ESG") initiatives.

Investment Strategy

Our business objective under our current strategic plan is to employ an investment strategy that encompasses:

• Seeking opportunities to increase distributable cash flow;
• Managing our balance sheet to maintain flexibility and enhance growth opportunities; and
• Investing in high-quality and efficient rental communities.

FINANCING AND DISTRIBUTIONS

To fund our investment and capital activities, we rely on a combination of issuance of common shares, preferred shares, Units in exchange for property, and borrowed funds. We regularly issue dividends to our shareholders. Each of these is described below.

At-the-Market Offering Program

We have an equity distribution agreement in connection with an at-the-market offering program (the "2021 ATM Program"). Under the 2021 ATM Program, we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times determined by management. Under the 2021 ATM Program, we may enter into separate forward sale agreements. The proceeds from the sale of common shares under the 2021 ATM Program may be used for general corporate purposes, including the funding of future acquisitions, construction and mezzanine loans, community renovations, and the servicing of indebtedness. During the year ended December 31, 2023, we did not issue any common shares under the 2021 ATM Program. As of December 31, 2023, we had common shares having an aggregate offering price of up to $126.6 million remaining available under the 2021 ATM Program.

Issuance of Senior Securities

On October 2, 2017, we issued 4.1 million shares of 6.625% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest (the "Series C preferred shares"). As of December 31, 2023, 3.9 million shares remained outstanding. Depending on future interest rates and market conditions, we may issue additional preferred shares or other senior securities which would have a dividend and liquidation preference over our common shares. The Series C preferred shares are redeemable, at our option.

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Bank Financing and Other Debt

As of December 31, 2023, we owned 46 apartment communities that were not encumbered by mortgages and which were available to provide credit support for our unsecured borrowings. Our primary unsecured credit facility (the "Unsecured Credit Facility") is a revolving, multi-bank line of credit, with Bank of Montreal serving as administrative agent. Our line of credit has total commitments and borrowing capacity of up to $250.0 million, based on the value of unencumbered properties. As of December 31, 2023, the additional borrowing availability was $220.0 million beyond the $30.0 million drawn, priced at an interest rate of 7.82%. This credit facility matures in September 2025, with an option to extend maturity for up to two additional six-month periods, and has an accordion option to increase borrowing capacity up to $400.0 million.

On May 31, 2023, this Unsecured Credit Facility was amended to replace the London Interbank Offered Rate ("LIBOR") with the Secured Overnight Financing Rate ("SOFR") as the benchmark alternative reference rate under the Unsecured Credit Facility. The interest rates on the line of credit are based on the consolidated leverage ratio, at the Company's option, on either the lender's base rate plus a margin, ranging from 25-80 basis points, or daily or term SOFR, plus a margin that ranges from 125-180 basis points with the consolidated leverage ratio described under the Third Amended and Restated Credit Agreement, as amended. Prior to the amendment, interest rates on the line of credit were also based on the consolidated leverage ratio, applying the same margin ranges to LIBOR.

We also have a $6.0 million operating line of credit with Wells Fargo Bank, N.A., which is designed to enhance treasury management activities and more effectively manage cash balances. This operating line matures on September 30, 2024, with pricing based on SOFR.

We have a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, "PGIM") under which we have issued $200.0 million in unsecured senior promissory notes ("unsecured senior notes"). We also have a separate note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was issued under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements as of December 31, 2023.

In November 2022, we entered into a $100.0 million term loan agreement ("Term Loan") with PNC Bank, National Association serving as administrative agent. The interest rate on the Term Loan was based on SOFR, plus a margin that ranged from 120 to 175 basis points based on our consolidated leverage ratio. The Term Loan had a 364-day term with an option for an additional 364-day term. As of December 31, 2023, the Term Loan was paid in full. As of December 31, 2022, the Term Loan had a balance of $100.0 million.

We have a $198.9 million Fannie Mae Credit Facility Agreement ("FMCF"). The FMCF is currently secured by mortgages on 12 apartment communities. The notes are interest-only, with varying maturity dates of 7, 10, and 12 years, at a blended weighted average, fixed interest rate of 2.78%. As of December 31, 2023 and 2022, the FMCF had a balance of $198.9 million.

As of December 31, 2023, we owned 14 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgages payable were non-recourse to us other than for standard carve-out obligations. Interest rates on mortgage loans range from 3.45% to 5.04%, and the mortgage loans have varying maturity dates from May 1, 2025, through May 1, 2035.

As of December 31, 2023, our ratio of total indebtedness to total gross real estate investments was 38.0%.

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