UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarterly period ended June 30, 2021

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)

North Dakota				45-0311232
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
3100 10th Street SW	Post Office Box 1988	Minot	ND	58702-1988
(Address of principal executive offices)				(Zip code)

(701) 837-4738

(Registrant’s telephone number, including area code)

    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 the filing requirements for at least the past 90 days.

Yes ☑ No ☐

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth 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. 

Large Accelerated Filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller Reporting Company	☐	Emerging growth company	☐

    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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of Beneficial Interest, no par value	CSR	New York Stock Exchange
Series C Cumulative Redeemable Preferred Shares	CSR-PRC	New York Stock Exchange

    The number of common shares of beneficial interest outstanding as of July 26, 2021, was 14,044,860.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements - Second Quarter - 2021:	3
Condensed Consolidated Balance Sheets June 30, 2021 (unaudited) and December 31, 2020	3
Condensed Consolidated Statements of Operations (unaudited) For the Three and Six Months ended June 30, 2021 and 2020	4
Condensed Consolidated Statements of Comprehensive Income (unaudited) For the Three and Six Months ended June 30, 2021 and 2020	5
Condensed Consolidated Statements of Equity (unaudited) For the Three and Six Months ended June 30, 2021 and 2020	6
Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months ended June 30, 2021 and 2020	8
Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures	35
Part II. Other Information
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37
Signatures	38

2

PART I

Item 1. Financial Statements.

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	(in thousands, except per share data)
	June 30, 2021		December 31, 2020
ASSETS
Real estate investments
Property owned	$	1,838,837	$	1,812,557
Less accumulated depreciation	(407,400)		(399,249)
	1,431,437		1,413,308
Mortgage loans receivable at fair value	37,457		24,661
Total real estate investments	1,468,894		1,437,969
Cash and cash equivalents	5,194		392
Restricted cash	8,444		6,918
Other assets	17,218		18,904
TOTAL ASSETS	$	1,499,750	$	1,464,183
LIABILITIES, MEZZANINE EQUITY, AND EQUITY
LIABILITIES
Accounts payable and accrued expenses	$	52,413	$	55,609
Revolving lines of credit	87,000		152,871
Notes payable, net of unamortized loan costs of $714 and $754 respectively	319,286		269,246
Mortgages payable, net of unamortized loan costs of $1,220 and $1,371, respectively	287,143		297,074
TOTAL LIABILITIES	$	745,842	$	774,800
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at June 30, 2021 and December 31, 2020, aggregate liquidation preference of $16,560)	$	18,022	$	16,560
EQUITY
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,881 shares issued and outstanding at June 30, 2021 and December 31, 2020, aggregate liquidation preference of $97,036)	93,530		93,530
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 14,045 shares issued and outstanding at June 30, 2021 and 13,027 shares issued and outstanding at December 31, 2020)	1,033,940		968,263
Accumulated distributions in excess of net income	(433,310)		(427,681)
Accumulated other comprehensive income (loss)	(12,064)		(15,905)
Total shareholders’ equity	$	682,096	$	618,207
Noncontrolling interests – Operating Partnership (881 units at June 30, 2021 and 977 units at December 31, 2020)	53,133		53,930
Noncontrolling interests – consolidated real estate entities	657		686
Total equity	$	735,886	$	672,823
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY	$	1,499,750	$	1,464,183

See accompanying Notes to Condensed Consolidated Financial Statements.

3

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	(in thousands, except per share data)
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
REVENUE	$	46,656	$	43,910	$	93,304	$	88,316
EXPENSES
Property operating expenses, excluding real estate taxes	13,018		12,360		26,467		25,828
Real estate taxes	5,742		5,410		11,534		10,875
Property management expense	2,085		1,345		3,852		2,899
Casualty (gain) loss	(27)		913		74		1,240
Depreciation and amortization	19,308		18,156		39,300		36,316
General and administrative expenses	3,797		3,202		7,703		6,630
TOTAL EXPENSES	$	43,923	$	41,386	$	88,930	$	83,788
Operating income	2,733		2,524		4,374		4,528
Interest expense	(7,089)		(6,940)		(14,320)		(13,851)
Interest and other income (loss)	619		521		1,050		(2,256)
Income (loss) before gain (loss) on sale of real estate and other investments	(3,737)		(3,895)		(8,896)		(11,579)
Gain (loss) on sale of real estate and other investments	26,840		(190)		26,840		(190)
NET INCOME (LOSS)	$	23,103	$	(4,085)	$	17,944	$	(11,769)
Dividends to preferred unitholders	(160)		(160)		(320)		(320)
Net (income) loss attributable to noncontrolling interests – Operating Partnership	(1,386)		447		(917)		1,139
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(19)		(5)		(36)		140
Net income (loss) attributable to controlling interests	21,538		(3,803)		16,671		(10,810)
Dividends to preferred shareholders	(1,607)		(1,609)		(3,214)		(3,314)
Discount (premium) on redemption of preferred shares	—		25		—		298
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	19,931	$	(5,387)	$	13,457	$	(13,826)
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC	$	1.49	$	(0.44)	$	1.02	$	(1.13)
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED	$	1.48	$	(0.44)	$	1.02	$	(1.13)

See accompanying Notes to Condensed Consolidated Financial Statements.

4

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	(in thousands)
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	23,103	$	(4,085)	$	17,944	$	(11,769)
Other comprehensive income:
Unrealized gain (loss) from derivative instrument	(386)		(1,696)		1,625		(11,105)
(Gain) loss on derivative instrument reclassified into earnings	1,120		917		2,216		573
Total comprehensive income (loss)	$	23,837	$	(4,864)	$	21,785	$	(22,301)
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership	(1,430)		504		(1,169)		1,967
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities	(19)		(5)		(36)		140
Comprehensive income (loss) attributable to controlling interests	$	22,388	$	(4,365)	$	20,580	$	(20,194)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

	(in thousands, except per share data)
Six Months Ended June 30, 2020	PREFERRED SHARES		NUMBER OF COMMON SHARES	COMMON SHARES		ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		NONCONTROLLING INTERESTS		TOTAL EQUITY
Balance December 31, 2019	$	99,456	12,098	$	917,400	$	(390,196)	$	(7,607)	$	60,849	$	679,902
Net income (loss) attributable to controlling interests and noncontrolling interests						(10,810)				(1,279)		(12,089)
Change in fair value of derivatives								(10,532)				(10,532)
Distributions - common shares and units ($1.40 per share and unit)						(17,493)				(1,446)		(18,939)
Distributions – Series C preferred shares ($0.829250 per Series C share)						(3,314)						(3,314)
Share-based compensation, net of forfeitures			19	967								967
Sale of common shares, net			674	48,141								48,141
Redemption of units for common shares			36	118						(118)		—
Shares repurchased	(5,877)					298						(5,579)
Acquisition of noncontrolling interests - consolidated real estate entities				(7,584)						(4,637)		(12,221)
Other			—	(750)						(79)		(829)
Balance June 30, 2020	$	93,579	12,827	$	958,292	$	(421,515)	$	(18,139)	$	53,290	$	665,507
Six Months Ended June 30, 2021
Balance December 31, 2020	$	93,530	13,027	$	968,263	$	(427,681)	$	(15,905)	$	54,616	$	672,823
Net income (loss) attributable to controlling interests and noncontrolling interests						16,671				953		17,624
Change in fair value of derivatives								3,841				3,841
Distributions - common shares and units ($1.40 per share and unit)						(19,086)				(1,282)		(20,368)
Distributions – Series C preferred shares ($0.829250 per Series C share)						(3,214)						(3,214)
Share-based compensation, net of forfeitures			27	1,487								1,487
Sale of common shares, net			896	66,356								66,356
Redemption of units for common shares			95	418						(418)		—
Change in value of Series D preferred units				(1,462)								(1,462)
Other			—	(1,122)						(79)		(1,201)
Balance June 30, 2021	$	93,530	14,045	$	1,033,940	$	(433,310)	$	(12,064)	$	53,790	$	735,886

See accompanying Notes to Condensed Consolidated Financial Statements.

6

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

Three Months Ended June 30, 2020	PREFERRED SHARES		NUMBER OF COMMON SHARES	COMMON SHARES		ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		NONCONTROLLING INTERESTS		TOTAL EQUITY
Balance March 31, 2020	$	96,046	12,163	$	912,653	$	(407,150)	$	(17,360)	$	55,527	$	639,716
Net income (loss) attributable to controlling interests and noncontrolling interests						(3,803)				(442)		(4,245)
Change in fair value of derivatives								(779)				(779)
Distributions - common shares and units ($0.70 per share and unit)						(8,978)				(715)		(9,693)
Distributions – Series C preferred shares ($0.4146250 per Series C share)						(1,609)						(1,609)
Share-based compensation, net of forfeitures			18	502								502
Sale of common shares, net			624	44,789								44,789
Redemption of units for common shares			22	1,048						(1,048)		—
Shares repurchased	(2,467)					25						(2,442)
Other			—	(700)						(32)		(732)
Balance June 30, 2020	$	93,579	12,827	$	958,292	$	(421,515)	$	(18,139)	$	53,290	$	665,507
Three Months Ended June 30, 2021
Balance March 31, 2021	$	93,530	13,220	$	980,453	$	(443,409)	$	(12,798)	$	53,676	$	671,452
Net income (loss) attributable to controlling interests and noncontrolling interests						21,538				1,405		22,943
Change in fair value of derivatives								734				734
Distributions - common shares and units ($0.70 per share and unit)						(9,832)				(617)		(10,449)
Distributions – Series C preferred shares ($0.4146250 per Series C share)						(1,607)						(1,607)
Share-based compensation, net of forfeitures			24	678								678
Sale of common shares, net			732	54,574								54,574
Redemption of units for common shares			69	638						(638)		—
Change in value of Series D preferred units				(1,462)								(1,462)
Other			—	(941)						(36)		(977)
Balance June 30, 2021	$	93,530	14,045	$	1,033,940	$	(433,310)	$	(12,064)	$	53,790	$	735,886

7

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	(in thousands)
	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	17,944	$	(11,769)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, including amortization of capitalized loan costs	39,792		36,829
(Gain) loss on sale of real estate and other investments	(26,840)		190
Realized (gain) loss on marketable securities	—		3,378
Share-based compensation expense	1,487		967
Other, net	2,177		909
Changes in other assets and liabilities:
Other assets	(858)		(2,036)
Accounts payable and accrued expenses	(3,128)		(3,192)
Net cash provided by (used by) operating activities	$	30,574	$	25,276
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities	—		3,856
Proceeds from repayment of mortgage loans receivable	—		10,020
Increase in mortgages and notes receivable	(12,795)		(11,162)
Proceeds from sale of real estate and other investments	59,233		1,162
Payments for acquisitions of real estate investments	(77,997)		(22,770)
Payments for improvements of real estate investments	(8,993)		(12,428)
Other investing activities	(240)		633
Net cash provided by (used by) investing activities	$	(40,792)	$	(30,689)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable	(10,326)		(6,392)
Proceeds from revolving lines of credit	136,704		41,578
Principal payments on revolving lines of credit	(202,575)		(28,656)
Net proceeds from notes payable	49,940		—
Payments for acquisition of noncontrolling interests – consolidated real estate entities	—		(12,221)
Net proceeds from issuance of common shares	66,356		48,141
Repurchase of Series C preferred shares	—		(5,579)
Distributions paid to common shareholders	(18,373)		(16,984)
Distributions paid to preferred shareholders	(3,214)		(3,314)
Distributions paid to preferred unitholders	(320)		(320)
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership	(1,348)		(1,472)
Other financing activities	(298)		(236)
Net cash provided by (used by) financing activities	$	16,546	$	14,545
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	6,328		9,132
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD	7,310		46,117
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	13,638	$	55,249

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures	$	2,034	$	(458)
Operating partnership units converted to shares	418		118
Distributions declared but not paid to common shareholders	10,449		9,694
Retirement of shares withheld for taxes	905		—
Real estate assets acquired through exchange of note receivable	—		17,663
Note receivable exchanged through real estate acquisition	—		(17,663)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	13,541	$	13,120

8

CENTERSPACE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	(in thousands)
Balance sheet description	June 30, 2021		December 31, 2020		June 30, 2020
Cash and cash equivalents	$	5,194	$	392	$	52,714
Restricted cash	8,444		6,918		2,535
Total cash, cash equivalents and restricted cash	$	13,638	$	7,310	$	55,249

See accompanying Notes to Condensed Consolidated Financial Statements.

9

CENTERSPACE AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the six months ended June 30, 2021 and 2020

NOTE 1 • ORGANIZATION 

Centerspace, collectively with its consolidated subsidiaries (“Centerspace,” “the Company,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of June 30, 2021, Centerspace owned interests in 62 apartment communities consisting of 11,579 apartment homes.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 

BASIS OF PRESENTATION

Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP (f/k/a IRET Properties), a North Dakota limited partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities. The accompanying Condensed Consolidated Financial Statements include the Company’s accounts and the accounts of all its subsidiaries in which it maintains a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.

The Condensed Consolidated Financial Statements also reflect the Operating Partnership’s ownership of certain joint venture entities in which the Operating Partnership has a general partner or controlling interest. These entities are consolidated into the Company’s operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Centerspace’s interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial position, results of operations, and cash flows for the interim periods, have been included.

The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim Condensed Consolidated Financial Statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 22, 2021.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

10

RECENT ACCOUNTING PRONOUNCEMENTS

The following table provides a brief description of recent accounting standards updates (“ASUs”).

Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting	This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.	This ASU is optional and may be elected over time.	Centerspace adopted the guidance in June 2021 on a prospective basis. This adoption did not have a material impact on the Condensed Consolidated Financial Statements.
ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity	This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements.	This ASU is effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted.	Centerspace is currently evaluating the ASU and the impact it may have on Condensed Consolidated Financial Statements.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

As of June 30, 2021 and December 31, 2020, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.

LEASES

As a lessor, Centerspace primarily leases multifamily apartment homes which qualify as operating leases with terms that are generally one year or less. Rental revenues are recognized in accordance with ASC 842, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 98.1% of total revenues and includes gross market rent less adjustments for concessions, vacancy loss, and bad debt. Other property revenues represent the remaining 1.9% of total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.

Some of the Company’s apartment communities have commercial spaces available for lease. Lease terms for these spaces typically range from three to fifteen years. The leases for commercial spaces generally include options to extend the lease for additional terms.

Beginning in April 2020, the Company abated rent, common area maintenance, and real estate taxes for commercial tenants that experienced government-mandated interruptions or closures of their businesses related to the COVID-19 pandemic. The Company elected to account for these accommodations as though enforceable rights and obligations existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020. The accommodations were recognized as variable lease payments. During the three months ended June 30, 2021, the Company did not recognize a reduction in revenue due to the abatement of amounts due from commercial tenants, compared to a reduction of $402,000 in the same period of the prior year. During the six months ended June 30, 2021 and 2020, the Company recognized reductions of $47,000 and $402,000, respectively, due to the abatement of amounts due from commercial tenants.

Many of the leases contain non-lease components for utility reimbursement from residents and common area maintenance from commercial tenants. Centerspace has elected the practical expedient to combine lease and non-lease components for all asset classes. The combined components are included in lease income and are accounted for under ASC 842.

The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of June 30, 2021, was as follows:

11

	(in thousands)
2021 (remainder)	$	1,185
2022	2,339
2023	2,336
2024	2,323
2025	2,291
Thereafter	2,488
Total scheduled lease income - commercial operating leases	$	12,962

REVENUES

Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the company expects to be entitled for those goods and services.

Revenue streams that are included in revenues from contracts with customers include:

•Other property revenue: Centerspace recognizes revenue for rental related income not included as a component of a lease, such as application fees, as earned.

•Gains or losses on sales of real estate: A gain or loss is recognized when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.

The following table presents the disaggregation of revenue streams for the three and six months ended June 30, 2021 and 2020:

		(in thousands)
		Three Months Ended June 30,				Six Months Ended June 30,
Revenue Stream	Applicable Standard	2021		2020		2021		2020
Fixed lease income - operating leases	Leases	$	43,659	$	41,910	$	87,499	$	83,843
Variable lease income - operating leases	Leases	2,103		1,302		4,072		3,082
Other property revenue	Revenue from contracts with customers	894		698		1,733		1,391
Total revenue		$	46,656	$	43,910	$	93,304	$	88,316

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates long-lived assets, including investments in real estate, for impairment indicators at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns. If indicators exist, the company compares the expected future undiscounted cash flows for the property against the carrying amount of that property. If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount. If the anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, the evaluation of impairment charges may be different and such differences could be material to the consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results. Reducing planned property holding periods may increase the likelihood of recording impairment losses.

During the three and six months ended June 30, 2021 and 2020, the company recorded no impairment charges.

MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE

In March 2020, in connection with the acquisition of Ironwood, an apartment community in New Hope, Minnesota, the Company acquired a tax increment financing note receivable (“TIF”) with a principal balance of $6.6 million at June 30, 2021 and December 31, 2020, which appears within other assets in the Condensed Consolidated Balance Sheets. The note bears an interest rate of 4.5% with payments due in February and August of each year.

12

In December 2019, Centerspace originated a $29.9 million construction loan and a $15.3 million mezzanine loan for the development of a multifamily community located in Minneapolis, Minnesota. In conjunction with the loans, the Company received a guaranty for the substantial completion of the project improvements from an investment grade guarantor. The construction and mezzanine loans bear and accrue interest at 4.5% and 11.5%, respectively. As of June 30, 2021, the Company had fully funded the $29.9 million construction loan and $7.1 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets. As of June 30, 2021, the construction loan had accrued $560,000 of interest which is added to the $29.9 million original principal balance. As of December 31, 2020, the Company had funded $24.7 million of the construction loan. The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides Centerspace with an option to purchase the development. The loans represent an investment in an unconsolidated variable interest entity (“VIE”). The Company is not the primary beneficiary of the VIE as it does not have the power to direct the activities which most significantly impact the entity’s economic performance nor does it have significant influence over the entity.

VARIABLE INTEREST ENTITIES

Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are VIEs, as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on the balance sheet because the Company has a controlling financial interest in the VIEs and has both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.

MARKETABLE SECURITIES

Marketable securities consisted of equity securities. Equity securities are reported at fair value based on quoted market prices (Level 1 inputs). Any unrealized gains or losses are included in interest and other income on the consolidated statements of operations. As of June 30, 2021 and December 31, 2020 the Company had no marketable securities. During the six months ended June 30, 2020, the Company had a realized loss of $3.4 million arising from the disposal of such securities which appears in interest and other income (loss) in the Condensed Consolidated Statements of Operations.

NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period. Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan and Series D Convertible Preferred Units (“Series D preferred units”), which could have a dilutive effect on the earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D preferred units (refer to Note 4 for further discussion of the Series D preferred units). Other than the issuance of RSUs, ISOs, and Series D preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”). Upon the exercise of Exchange Rights, and in Centerspace’s sole discretion, it may issue common shares in exchange for Units on a one-for-one basis.

Performance-based RSUs of 31,030 and 27,964 for the three and six months ended June 30, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2020, Series D preferred units of 228,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the three and six months ended June 30, 2020, time-based RSUs of 13,000 and 15,000, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the three and six months ended June 30, 2021, weighted average stock options of 43,629 were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of common shares for the periods ended and, therefore were anti-dilutive. For the three and six months ended June 30, 2020, weighted average stock options of 63,527 and 31,764, respectively, were excluded from the calculation of diluted earnings per share.

13

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020:  

	(in thousands, except per share data)
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
NUMERATOR
Net income (loss) attributable to controlling interests	$	21,538	$	(3,803)	$	16,671	$	(10,810)
Dividends to preferred shareholders	(1,607)		(1,609)		(3,214)		(3,314)
Redemption of preferred shares	—		25		—		298
Numerator for basic earnings (loss) per share – net income available to common shareholders	19,931		(5,387)		13,457		(13,826)
Noncontrolling interests – Operating Partnership	1,386		(447)		917		(1,139)
Dividends to preferred unitholders	160		160		320		320
Numerator for diluted earnings (loss) per share	$	21,477	$	(5,674)	$	14,694	$	(14,645)
DENOMINATOR
Denominator for basic earnings per share weighted average shares	13,353		12,280		13,216		12,192
Effect of redeemable operating partnership units	916		1,037		939		1,047
Effect of Series D preferred units	228		—		228		—
Effect of dilutive restricted stock units and stock options	17		—		18		—
Denominator for diluted earnings per share	14,514		13,317		14,401		13,239
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC	$	1.49	$	(0.44)	$	1.02	$	(1.13)
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED	$	1.48	$	(0.44)	$	1.02	$	(1.13)

NOTE 4 • EQUITY AND MEZZANINE EQUITY

Operating Partnership Units. The Operating Partnership had 881,000 and 977,000 outstanding Units at June 30, 2021 and December 31, 2020, respectively.

Exchange Rights. Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three and six months ended June 30, 2021 and 2020 as detailed in the table below.

	(in thousands)
Three Months Ended June 30,	Number of Units	Net Book Basis
2021	69	$	639
2020	22	$	1,048
Six Months Ended June 30,
2021	95	$	418
2020	36	$	118

Common Shares and Equity Awards. Common shares outstanding on June 30, 2021 and December 31, 2020, totaled 14.0 million and 13.0 million, respectively. There were 23,385 and 26,186 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2021, respectively, with a total grant-date fair value of $750,000 and $914,000, respectively. During the three and six months ended June 30, 2020, the Company issued 19,508 and 20,701 shares, respectively, upon the vesting of equity awards under the 2015 Incentive Plan, with a total grant-date fair value of $956,000 and $1.0 million, respectively. These shares vest based on performance and service criteria.

Equity Distribution Agreement. Centerspace has an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which it may offer and sell common shares having an aggregate sales price of up to $150.0 million, in amounts and at times as determined by management. The proceeds from the sale of common shares under the 2019 ATM Program are intended to be used for general purposes, which may include the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. The table below provides details on the sale of common shares during the three and six months ended June 30, 2021 and 2020. As of June 30, 2021, common shares having an aggregate offering price of up to $99,000 remained available under the 2019 ATM Program.

14

	(in thousands, except per share amounts)
Three Months Ended June 30,	Number of Common Shares	Total Consideration(1)		Average Net Price Per Share
2021	731	$	54,636	$	74.64
2020	624	$	44,848	$	71.84
Six Months Ended June 30,
2021	896	$	66,495	$	74.19
2020	674	$	48,250	$	71.56

(1)Total consideration is net of $528,000 and $709,000 in commissions during the three and six months ended June 30, 2021, respectively, and issuance costs. Total consideration for the three and six months ended June 30, 2020 is net of $683,000 and $735,000 in commissions, respectively, and issuance costs.

Series C Preferred Shares. Series C preferred shares outstanding were 3.9 million shares at June 30, 2021 and December 31, 2020. The Series C preferred shares are nonvoting and redeemable for cash at $25.00 per share at Centerspace’s option after October 2, 2022. Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees). Distributions accrue at an annual rate of $1.65625 per share, which is equal to 6.625% of the $25.00 per share liquidation preference ($97.0 million liquidation preference in the aggregate).

Series D Preferred Units (Mezzanine Equity). On February 26, 2019, Centerspace issued 165,600 newly created Series D preferred units at an issuance price of $100 per preferred unit as partial consideration for the acquisition of SouthFork Townhomes. The Series D preferred unit holders receive a preferred distribution at the rate of 3.862% per year. The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issuance price. Each Series D preferred unit is convertible, at the holder's option, into 1.37931 Units, representing a conversion exchange rate of $72.50 per unit. Changes in the redemption value are charged to common shares on the Condensed Consolidated Balance Sheets from period to period. The holders of the Series D preferred units do not have any voting rights. Distributions to Series D unitholders are presented in the Condensed Consolidated Statements of Equity within net income (loss) attributable to controlling interests and noncontrolling interests.

NOTE 5 • DEBT

As of June 30, 2021, 44 apartment communities were not encumbered by mortgages, with 29 of those properties providing credit support for the unsecured borrowings. The Company’s primary unsecured credit facility (“unsecured credit facility”) is a revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent. The line of credit has total commitments and borrowing capacity of $250.0 million, based on the value of properties contained in the unencumbered asset pool (“UAP”). As of June 30, 2021, the additional borrowing availability was $163.0 million beyond the $87.0 million drawn, including the balance on the operating line of credit (discussed below). The unsecured credit facility matures on August 31, 2022, with one twelve-month option to extend the maturity date at the Company’s election.

Under the unsecured credit facility, the Company also has unsecured term loans of $70.0 million and $75.0 million, included within notes payable on the Condensed Consolidated Balance Sheets, which mature on January 15, 2024 and on August 31, 2025, respectively.

The interest rates on the line of credit and term loans are based, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 35-85 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 135-190 basis points based on the consolidated leverage ratio, as defined under the Second Amended and Restated Credit Agreement. The unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations. The Company believes that it is in compliance with all such financial covenants and limitations as of June 30, 2021.

In January, Centerspace amended and expanded its private shelf agreement to increase the aggregate amount available for issuance of unsecured senior promissory notes (“unsecured senior notes”) to $225.0 million. Under this agreement, the Company issued $75.0 million of Series A notes due September 13, 2029 bearing interest at a rate of 3.84% annually, $50.0 million of Series B notes due September 30, 2028 bearing interest at a rate of 3.69% annually, and $50.0 million of Series C notes due June 6, 2030 bearing interest at a rate of 2.70% annually. Under the private shelf agreement, there is $50.0 million remaining available.

As of June 30, 2021, Centerspace owned 18 apartment communities that served as collateral for mortgage loans. All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations. As of June 30, 2021, the Company believes that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

15

Centerspace also has a $6.0 million operating line of credit. This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances. This operating line matures on August 31, 2021, with pricing based on a market spread plus the one-month LIBOR index rate.

The following table summarizes indebtedness:

	(in thousands)
	June 30, 2021		December 31, 2020		Weighted Average Maturity in Years at June 30, 2021
Lines of credit	$	87,000	$	152,871	1.17
Term loans (1)	145,000		145,000