Centerspace Stock

Good morning, ladies and gentlemen. Welcome to the Independence Realty Trust and Centerspace joint conference call to discuss the announced merger of the 2 companies. [Operator Instructions] As a reminder, this conference is being recorded.

Your host for today's call is Stephanie Krewson-Kelly, Senior Vice President of Investor Relations and Capital Markets at IRT. You may begin.

Good morning, and thank you for joining us on short notice. On the call today are Scott Schaeffer, Chairman and Chief Executive Officer of Independence Realty Trust; Anne Olson, President and Chief Executive Officer of Centerspace; Jim Sebra, President and CFO of Independence Realty Trust; and Jason Lynch, Senior Vice President of Investments at Independence Realty Trust.

Earlier this morning, IRT and Centerspace issued a joint press release announcing that the 2 companies have entered into a definitive merger agreement. That release and an investor presentation filed with the SEC are available in the Investors section of IRT's website, irtliving.com, and on Centerspace's website at centerspacehomes.com.

A replay of this call will be available on both websites shortly after we conclude.

Before we begin, I would like to remind everyone that statements made on this call may constitute forward-looking statements within the meaning of the federal securities laws and are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the current beliefs, expectations and assumptions of IRT's and Centerspace's management and are subject to business, economic, competitive risks and uncertainties, many of which are difficult to predict and outside of either company's control. Neither IRT nor Centerspace undertakes any obligation to update or supplement any forward-looking statements, except as required by law.

Today's discussion also includes non-GAAP financial measures, including FFO, Core FFO, EBITDA, adjusted EBITDA and net operating income. Definitions of these measures are included in the appendix to today's presentation and the press release, and reconciliations to the most directly comparable GAAP measures are available on each company's SEC filings.

With that, I will turn the call over to Scott Schaeffer.

Thank you, Stephanie, and good morning, everyone. This morning, Independence Realty Trust and Centerspace announced a definitive agreement to combine in an all-stock merger, creating a leading middle-market multifamily REIT with a total enterprise value of approximately $8.1 billion and more than 44,000 apartment homes across 17 states.

Before I discuss the strategic logic, let me say how pleased I am to be joined this morning by Anne Olson. Anne and her team have built an excellent portfolio at Centerspace. And just as importantly, they have built a culture and operating philosophy much like our own. The conversations that brought us here were direct and constructive, and they were grounded in a shared view of where value gets created in this business.

Let me frame why we are doing this and why now in 5 points. First, scale matters in multifamily, and it matters more every year. The combined company will own 163 communities and over 44,000 units in predominantly non-gateway markets across 17 states. Scale improves our access to the capital markets, and over time, our cost of capital. Just as importantly, it lets us spread our institutional operating platform across a much larger base of units. This is how a bigger company becomes a better company rather than simply a larger one.

Second, we achieved better growth without changing who we are. I want to be clear on this point because I expect it to be the first question we get. IRT is and will remain a Sunbelt-weighted company. The Sunbelt represents 58% of pro forma NOI and remains our largest exposure and our primary growth engine. Centerspace's portfolio increases IRT's concentrations in the Midwest and Mountain West regions to 27% and 15% of pro forma NOI, respectively. The Midwest and Mountain West markets have historically delivered NOI growth above the U.S. average with less volatility.

Over the period from 2017 through 2025, IRT and Centerspace together delivered weighted average same-store NOI growth of 5.7% a year, above both our non-gateway peers at 4.2% and gateway peers at 2.3%, and it did so with a narrower band of outcomes through the cycle. This is the case for a better risk-adjusted portfolio, a high-growth Sunbelt core paired with lower volatility Midwest and Mountain West markets. Roughly 80% of our pro forma NOI comes from markets that rank in the top quartile for projected population growth, and no single market accounts for more than 11% of our pro forma NOI.

Third, the supply picture is turning in our favor. Across the combined footprint, new deliveries are set to decline through 2029, while population growth continues to outpace the national average. In the Greater Denver MSA, CoStar projects rent growth turning positive this year. Deliveries in the Denver Front Range are expected to fall from 6.7% of inventory in 2024 to approximately 2.8% by 2027 against population growth that is projected to be twice the national average over the next 5 years.

Minneapolis has one of the lowest supply pipelines of any market we track with deliveries expected to fall from 3.8% in 2024 to 1.3% in 2027. Much like Denver, Minneapolis' population growth is expected to be almost twice the national average over the next 5 years. We are not underwriting recovery that has to be imagined. We are seeing it in the data today.

Fourth, we gain a bigger opportunity set for our proven platform. The near-term synergies from this merger are tangible. The reason this combination improves our long-term growth rate rather than just their size is because it provides a longer, broader runway for the 2 internal growth engines we have built, namely our value-add renovation program and our other income initiatives, including our community WiFi program that we began implementing this year. Both drivers are scalable, are funded with free cash flow and now have several thousand additional units to work with. Jim will take you through the economics shortly.

Fifth, we have done this before. In 2015, we acquired Trade Street Residential on a cash and stock transaction that added scale across our regional Sunbelt markets. Then, in 2021, we more than doubled the size of this company through the Steadfast Apartment REIT merger. We integrated into a single operating platform within months of closing, and we exceeded the synergy and accretion targets that we had set at announcement. This is the same management team running the same playbook, and this transaction is roughly 1/4 of our current size rather than doubling of it. Our track record of successfully integrating companies does not eliminate execution risk, but it does mean we know the cadence of how and what to do.

Upon closing, I will continue as Chairman and Chief Executive Officer, and Jim Sebra will serve as President and Chief Financial Officer. Our Board will expand to 11 directors, 9 from IRT and 2 from Centerspace. The combined company will retain the Independence Realty Trust name and will continue to trade on the New York Stock Exchange under the ticker IRT. We will have more to say on organizational structure as we work through the integration planning between now and closing.

And with that, I'll turn the call over to Anne.

Thank you, Scott, and good morning, everyone. Our Board and management team are pleased to be working with IRT on this transformative transaction that is in the best interest of all of our stakeholders. At Centerspace, we've worked to scale our business in strong growing markets while seeking enhancement to our balance sheet. This merger significantly advances that strategy. The company will now have scale and benefits that benefits the operating platform, and the cost of capital will further diversify the market exposure and will have an improved leverage profile.

I'm confident that IRT's commitment to residents and stakeholders reflects our own. I want to give a special thanks to the Centerspace team. I'm very proud of what our team has accomplished, and I'm confident that IRT's leadership will further our commitment to providing great homes for our residents, opportunities for our team members and returns for our shareholders.

With that, Jim is ready to walk through the financial impacts.

Thank you, Anne, and good morning, everyone. I'm going to go over the structure and consideration of this transaction, the earnings impact and synergies, the balance sheet, and lastly, the growth upside beyond the near-term synergies.

Centerspace will combine with IRT in a 100% stock-for-stock merger. Each Centerspace common share and limited operating partnership unit will convert into 3.8 shares or units of IRT, resulting in the issuance of approximately 67.6 million IRT shares and OP units. On a fully diluted basis, IRT shareholders will own approximately 78% of the combined company and Centerspace shareholders will own approximately 22%. The transaction is expected to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Pro forma, the combined company will have an equity market capitalization of approximately $5 billion and a total enterprise value of approximately $8.1 billion. On earnings and synergies, we expect the transaction to be approximately 5% accretive to 2027 Core FFO per share on a leverage-neutral basis.

Supporting our accretion is approximately $24 million of identified annualized synergies, roughly $19 million of that comes from corporate, general and administrative overlap. The remaining synergies come from property level and platform efficiencies, as we move on to a single operating system and near-term incremental revenue opportunities. The vast majority of these synergies will be achieved within the first 12 months of closing.

One data point that frames the efficiency gain. On a pro forma basis, G&A load as a percentage of assets falls to 37 basis points for the combined company. That is a 24% reduction versus IRT stand-alone and a 57% reduction versus Centerspace stand-alone. It places the combined company well below the REIT sector average of 61 basis points and in line with some of our larger multifamily peers.

When we merged Steadfast back in 2021 and Trade Street in 2015, we established synergy targets at announcement and ultimately exceeded them both of those transactions. We have used the same ground-up approach here. And as always, we will work to capture additional synergies and efficiencies beyond those announced as the integration process develops.

Regarding our balance sheet, we expect the combined company to maintain our current BBB investment-grade rating from both Fitch and S&P with a well-laddered maturity profile and minimal near-term maturities. In connection with closing, we plan to repay Centerspace's outstanding unsecured notes and to assume secured debt of approximately $500 million. The average interest rate on this debt is 3.5%. Centerspace does have 1 mortgage maturing on January 1, 2027, and we are not anticipating it will be assumed and instead expected to be repaid on or before closing. The average remaining term of the planned assumptions is 10 years. To delever the combined balance sheet and have the transaction be leverage neutral, we are planning to sell approximately $140 million of assets and have modeled the dispositions at a 5.75% economic cap rate.

IRT expects to maintain its quarterly dividend of $0.18 per share following closing. Centerspace will continue to pay its regularly quarterly dividends of $0.77 per share, except in the quarter which the closing occurs, in which Centerspace will declare and pay a stub cash dividend of $0.09 per share for the number of days elapsed in the quarter prior to closing.

Before handing the call back to Scott, let me discuss the growth upside beyond the immediate synergies. The $24 million of synergies is the near-term highly visible piece of the story. It is not the whole story. The reason we can say that this transaction improves our growth profile is what the larger platform does for 2 internal growth engines that we can fund out of free cash flow. First is the value-add. We have renovated approximately 12,500 units to date at IRT, generating a return on investment of 16%.

Coming into this transaction, our remaining identified pipeline within IRT is approximately 10,000 units. Centerspace brings approximately 3,200 more units, taking the combined runway to roughly 13,200 units. Those Centerspace assets are predominantly in undersupplied markets where rent growth is inflecting, which is precisely the environment in which renovation capital is most productive. This incremental volume adds additional years to the existing value-add runway at IRT.

The second is our community WiFi program. We launched our community WiFi program this year, covering approximately 18,000 apartment units, which are on track to generate approximately $11 million of incremental annualized revenue in 2027. This recurring high-margin other property revenue is also better for residents to manage bulk deliver Internet at a lower cost than they can buy individually.

Looking ahead to future WiFi rollout, the additional runway is now approximately 25,000 units, roughly 15,000 units from the legacy IRT portfolio and now approximately 10,000 units from Centerspace. Both the value-add and WiFi opportunity will build over the next few years, and we expect it to enhance our returns over the longer term. Both are high-return, low-risk sources of growth, and they are funded entirely out of retained cash flow. Both Boards have unanimously approved the transaction. We expect to close as early as the end of the fourth quarter of 2026, subject to shareholder approval, timing of some lender consents and other customary closing conditions.

With that, Scott, I'll hand it back to you.

Thank you, Jim. This merger significantly enhances our scale and diversification and delivers immediate earnings accretion on a leverage-neutral basis while preserving balance sheet strength. Since our IPO, IRT's total shareholder return has outperformed our non-gateway peers. We did not get here by growing for growth's sake. We got here by owning the right assets in the right submarkets and running them well. This transaction is consistent with our core strategy, and I believe it puts us in a stronger position to continue generating attractive risk-adjusted returns for our shareholders.

I want to thank Anne and the Centerspace team for their professionalism they have brought to this process, and I want to thank our team for their continued hard work and dedication to our residents and shareholders.

With that, operator, we are ready to take questions.

[Operator Instructions] Your first question comes from the line of Eric Wolfe with Citi.

It's Nick Joseph here with Eric. Scott, we talked about why scale matters. Do you have a sense for how much of the portfolio you could ultimately end up selling? I think you'll have 22% of your NOI across 15 markets and around 30 markets in total. So what do you think that looks like in 2 to 3 years? And you touched on this a bit, but why does it make sense to lower your Sunbelt market exposure at a time when these markets are starting to recover?

Nick, I think it's -- yes, you're right. Your voice is a little muffled, but if I can restate the question, you're basically asking us how much of the Centerspace portfolio do you think will sell over the next few years because, again, the view of the Sunbelt reinflecting versus the Midwest. Is that right?

Yes. Just how much total you may sell and then the strategic rationale of why lower the exposure to the Sunbelt right now as you're starting to see this inflect more positively.

Again, Nick, it's really hard to hear you. But ultimately, here's what I'll say. Scott had mentioned in his prepared remarks regarding the strategic rationale. And Scott, maybe you want to kind of chime in again on that. Obviously, the portfolio of Centerspace is located primarily in Minneapolis and Denver. Those markets, especially in Minneapolis, have been very kind of stable and low volatility in rent growth. And if you look at kind of the data sources, there's actually a fairly robust rent growth trajectory over the next few years, all at lower volatility. And as we also mentioned in my prepared remarks, just that incremental growth from both value-add and WiFi continues to provide that earnings growth trajectory down the future and only enhances the overall growth that's going to be flowing off the Sunbelt portfolio in the next few years.

But Scott, feel free to chime in.

No, I think you covered it, Jim.

This is Eric. Just a follow-up on Nick's question. I guess, how much of the -- are you assuming to sell to get to the 5% accretion estimate? I know you mentioned $140 million in your prepared remarks and then also in the presentation. But I guess if you end up selling more than that, and I think Centerspace was planning on selling more than that based on the sort of most recent presentations, I guess, could that eat into that 5% accretion estimate? Are you confident that you're only going to sell, say, around $140 million or something around there?

Yes. We're very confident that we'll only be -- we'll only sell the $140 million. Obviously, we've had a very robust and consistent capital recycling program at IRT for years, and we've always done it on an earnings neutral/earnings accretive situation. And if we do decide to sell other assets down the road, which currently are not planned for, we think it will only be beneficial to the combined portfolio down the road.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

Can you talk a little bit more about your experience with Steadfast and Trade Street? I think some of the incoming commentary from the Street is just concerns about integration risk and execution risk on this transaction. Maybe talk more about what does give you the confidence that this will -- you'll be able to stick the landing and things will go smoothly?

Sure. Thanks for the question. This is Scott Schaeffer. First of all, the Steadfast merger integration was with a much larger company that also had tremendous overlap of the portfolio geography. That caused a little bit of friction at times because we were working through which employees and which markets were going to continue with the combined portfolio. The situation here is much different. First of all, Centerspace is much smaller. It's about 1/4 of our size rather than more than doubling it. And the markets are completely independent other than some small overlap in Colorado. So the integration here will be more of back-office systems rather than people. And the integration of the people is where you end up having most friction.

Okay. And then, you'll have a lot of markets that are kind of 3%, 4% or less. I think it's almost like 2/3 of the portfolio spread pretty widely across the country. I mean, just in terms of like operations post transaction, how do you plan to manage that? Do you think you're going to want to beef up any of your markets to have more scale? Or are you happy with like this 3% to 4% in a lot of markets type portfolio? And just -- you said it's a people business, but that's a lot of people in a lot of places. Can you just talk more about that?

Sure. We're happy with 3% to 4%. We -- as we talked about this, and we had in our prepared remarks that no market is more than 11%, which is good diversification. But even at 3% or 4%, there's enough concentration that we can keep good teams in place and manage the properties well. We are always looking to recycle when appropriate. So that's something that we've done in the past, and we will continue to look at that going forward. But at this point, we're happy with the markets, and we're happy with the communities. And we think that post integration, the accretion targets are well within reach.

Your next question comes from the line of John Pawlowski with Green Street.

Jim, are you able to put some brackets around the upfront transaction costs we should expect you guys to incur?

Yes. Right now, it's modeled to be about 3.5% of the transaction value, which is just over $2 billion.

Okay. And then just curious for high-level thoughts how you guys got comfortable with some of these, I guess, more secondary or tertiary markets in Montana, North Dakota, even some assets well outside of Denver. Are you concerned that these markets will just run at a little bit of lower long-term growth rate that's going to dilute the long-term organic growth profile of IRT's portfolio?

No. Actually, it's a great question because it was something that we looked at very, very, very early on in this process. And the way we got comfortable was is that all of these markets are very, very low supply. There's just nothing being built. There's nothing being added while there is some population growth, which is what's going to drive good stable occupancy and ultimately rent growth. So while they not -- they may not be as dynamic as some other markets in the country, there's low volatility and really no additions to supply. So these communities have performed well and will continue to perform well.

And Anne, please feel free to jump in, and you've managed these for years, so you may have some more color.

Yes, sure. I think some of these markets are small, North Dakota, Billings. But even we are public, you could look at the history there. In those markets, we have seen steady growth and particularly through these times where there have been significant supply influxes across the Sunbelt and in markets like Denver and even on the coast. Markets like North Dakota have been consistently growing 5% to 7%. So -- and we see that in the good times, but we also see that hold. So I do think that the combination of this portfolio, which will have the very strong growth narrative and fundamentals with the Sunbelt markets and Denver turning the corner, coupled with this really steady pace of these lower volatility and lower supply markets, it's a very strong combination and should produce very good results for the shareholders.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So when I started reading the press release, I saw synergies, and it started to read a little bit like a merger of equals. I know it's not. But Centerspace has been through its process and landed on asset sales in June, and now, we're here. I'm wondering if I were to write the proxy for you, did EQR, AvalonBay give you any cues into how to make this combination work? And how did it come to fruition after CSR went through its process? Now this merger happens. I'm just curious if the Chapter 2 of the conversation came with a few hints from EQR, AvalonBay?

Yes. Rich, this is Jim Sebra. Obviously, nice to meet you, and we appreciate your time. And certainly, Anne or Scott, feel free to chime in. But when it comes to like the background of the merger, we will be filing an S-4 proxy most likely later this month, and that will detail all those points that will provide a lot more color in terms of the background of the transaction and kind of where it came from.

Okay. Fair enough. And then on the asset sales, are there any exit markets, you might have said it, if I did -- if you did, I apologize. Are there any exit markets in that $140 million? And as a subset to that question, what do you mean by complementary markets when you say we're Sunbelt, they're Midwest, Mountain West? What defines complementary to you? Just the fact that you don't have overlap, is that what you mean by that?

Yes, generally. And that the Midwest is much more stable and less volatility, while the Sunbelt seems to be higher growth, but also a little more volatile. So that's why they're complementary. It brings growth with additional stability to the existing IRT portfolio.

Yes, the exit markets. We haven't announced anything specific on the actual assets to be sold, but we'll be working on that over the next few months as we kind of get ready for closing.

Your next question comes from the line of Ami Probandt with UBS.

Do you still expect to be paying a special dividend to distribute proceeds from the Centerspace strategic review?

Thanks, Ami. Great to chat with you. And Anne, feel free to kind of chime in. But I think what I would say is that the Centerspace process around kind of identifying REIT taxable income, estimating it for the year, looking at the impact of this transaction on it, all of that is still kind of ongoing. And we'll be revisiting that as we get ready for closing. We'll be able to kind of announce and share with shareholders on the third quarter call, the expectation.

But Anne, feel free to chime in.

No, I think that covers it, Ami. We had some expectations of the requirement and gave some estimates around that and held that cash on hand, but those estimates are still under review what would be required or may not be required. And this merger and the impact of that certainly may impact it. So as Jim said, we'll be reviewing that, and we'll obviously update as we have more information.

Got it. And maybe I'll ask Richard...

Ami, you cut out.

Ami has cut out. We will move up to the next question from the line of Alexander Goldfarb with Piper Sandler.

Two questions. The first one is, you guys give a lot of praise to the Midwest. And for those of us who have covered Centerspace for a while, it's been pretty clear that their markets were underappreciated. But you guys are hyping them in a way that's good to hear and yet you're still saying that your focus is going to be more Sunbelt, which has been prone to a lot of supply and a lot more volatility. Why wouldn't you look to increase some of the Midwest or certainly look at other Midwestern markets that have low supply, good economic growth, more stability? Why wouldn't increasing some of that? I'm not saying overweight it, but why not increasing it? Why wouldn't that be a good thing?

Well, we are increasing our Midwest exposure with this transaction. When you look at the results over an extended period of time, the Sunbelt has consistently outperformed, and we expect it to outperform again in the future, or going forward, I should say. We've come through a significant supply wave, and that has come to an end. And now the Sunbelt will be -- will have much better supply-demand dynamics, strong population job growth with limited additions to supply over the next 3 to 4 years. That's a great runway for above-market growth.

We're hyping the Midwest because the Midwest -- first of all, we already have an exposure to the Midwest. It has performed very, very well with low volatility, and we expect it to continue to perform well with low volatility, but it will not be as dynamic as the Sunbelt going forward in our view.

Okay. And then the second question is on the 5% earnings accretion to Core '27, you mentioned Centerspace, which has really low cost of debt, 3.6%. Is that 5% adjusted for GAAP mark-to-market of debt and everything else? Or is that sort of a cash 5%, whereas the GAAP number would be different?

Yes, that's a cash 5%. The GAAP number, again, because interest rates today are higher, would actually be a lower accretion. What we did with the Steadfast merger many years ago, it was actually the opposite, right, with the cash interest or the cash accretion was lower and the GAAP accretion was more. From an FFO and Core FFO perspective, we focus on the cash accretion.

But you think -- is it still accretive on a GAAP basis?

It is, yes.

Your next question comes from the line of Peter Abramowitz with Deutsche Bank.

Just in terms of the cost synergies that you've talked about, can you talk about the timing of when they're all expected to be in place?

Sure. So as I mentioned in my prepared remarks, obviously, there's some initial kind of G&A synergies that really should be in place pretty quickly after closing. Again, it's a lot of the back office overlap, et cetera. There is certainly the operating synergies. Some of those synergies come from things that should be very easy to achieve, like moving from one insurance policy to the other insurance policy, our procurement team and how we do buy stuff as well as obviously larger scale allows us to buy things even cheaper. There's some incremental revenue opportunities on like renters insurance and other things that takes a little bit of time just as the leases roll, but they are relatively small pieces of the overall synergy number.

Okay. I appreciate that. And then I know you included, I think, a footnote or something in the earnings release that there is some small opportunity for synergies on the revenue side. Could you talk about maybe some of the opportunities there, if there's upside down the road? And then also in terms of the value-add pipeline, are there any efficiencies in terms of the opportunity to enhance returns or anything like that?

Well, I think I'll take the second piece first, right? Certainly, on the value-add side, there's always opportunity to get better at what we do. And here at IRT, we -- and I believe Centerspace in the same way, we've always tried to do that. So sure. We'll always look at -- again, we're able to buy a set of appliances across 32,000 units or 34,000, and we'll be able to buy for 44,000 units. So we think that will certainly provide a little bit lower cost and enhanced returns.

I think on the other revenue side and the synergies, again, from the standpoint of that $5 million of operating synergies, the vast majority of those are primarily kind of on the expense side. There is a little bit of incremental revenue opportunities that we've modeled, things like I mentioned before, like renters insurance, et cetera. We think there is certainly some additional upside. We've talked a lot about kind of our data science efforts earlier this year and how that's kind of improving our renewal growth or renewal kind of increases. We think there's outside opportunity.

The Centerspace team has done a good job of managing the portfolio, and we're looking forward to just kind of bringing the best of both of our portfolios and processes together to really gain or capture as much of these synergies and efficiencies as we can.

Your next question comes from the line of Michael Gorman with U.S. Bancorp BTIG.

Jim, maybe just a quick cleanup question. I thought I heard you say in the prepared remarks that you're going to repay the unsecured notes for CSR upon closing. And so did I hear that correctly? And if so, I'm kind of curious about the thought process there given that it's a relatively low coupon -- relatively low coupon set of notes that are outstanding for 2030.

Yes. We expect -- again, because of the transaction occurring, we expect they will be, I won't say, put to us, but we expect that the transaction will require them to be paid off. That's why we model them. Certainly, if we're able to keep them outstanding such that we can lower our overall cost of debt, for sure, but we will still do it on a leverage-neutral basis.

Okay. That's helpful. And then maybe just looking at the synergies, if I'm doing my math right, if the synergy target is kind of 6.5%, 7% of 2026 consensus, so when you think about getting from there to the 5% accretion in 2027, is that primarily just going towards the timing of those synergies coming online in 2027? Or are there other headwinds there that may bring that back to 5%?

Yes, sure. No, great question. A couple of things. One, we've modeled it. If you look at 2026, obviously, Centerspace has had some assets outstanding that they've owned throughout the earlier part of the year that they sold, and obviously, is kind of increasing their, call it, earnings this year that won't be there next year. So you got to remove that.

Secondly, certainly, there's a timing element of the synergies on when they come in, in terms of 2027.

And then third, we've modeled that from an accretion perspective that the preferred shares are fully dilutive. So we took a worst-case scenario around them because those preferred shares can be put to us. It's very low-cost preferred, I think 3.8% or 3.9% cost. If they stay outstanding and they don't convert, then that will be more accretion from just a logical percentage perspective.

Your next question comes from the line of Wes Golladay with Baird.

Can you talk about how you got comfortable with picking up exposure to so many new markets? Were you looking at some of these markets already?

So yes, we have been looking at some of them. But again, through this process, we were able to just get comfortable with the actual makeup of the portfolio, the market dynamics and the good job that Centerspace has done over a number of years of managing them and generating NOI growth. So they are -- some of them are new markets for us. But in many instances, they're similar to markets we're already in, just in different parts of the country. There's good people in place on site. We expect to keep most, if not all of them. So we will just be moving forward, as Jim said, with the best of both companies' processes and strategies.

Okay. And maybe building upon that last point, you talked about keeping a lot of the people. So that doesn't seem to be an issue on the integration point. Can you maybe talk about how the operating platforms? Should they -- are they on similar platforms right now from the revenue management perspective?

So I mean they -- and certainly, Anne, you can certainly feel free to chime in. They run, call it, the operational platform relatively similar to us in terms of regional structures and district managers and a centralized support team on various kind of growth processes. They do run, obviously, a revenue algorithm that will come over to our revenue algorithm upon the integration process. But I would just say largely, the real benefit to moving forward with the synergies is to kind of, again, get the both -- get the best of both companies from the standpoint of the process and how we're structured.

We don't expect it to really have any significant differences from our structure today except that we'll be able to kind of bring a lot of the data science and analytic work that we've done to really help us into the platform and really provide, again, that incremental outsized growth that we're talking about.

And when I speak about employees or team members, I'm speaking about on-site people.

Your next question comes from the line of Jason Wayne with Barclays.

Just looking at the 6,000 units in the medium- to long-term CSR WiFi pipeline, can you just help quantify the earnings opportunity there and over what time frame those can be realized?

Yes. We know that there's -- of the 10,000 units today, there's plus or minus 3,000 to 4,000 that are available to kind of move into the WiFi program immediately because, again, the terms of the existing contracts with bulk Internet are either out of contract or coming to a very close period of time. The 6,000, I believe, will start in the next few years once they -- again, individual properties get to that window of time. Generally speaking, the Internet service providers won't really allow you to kind of amend the contract until they're within 2 years of the termination date. So we have to get to that period of time.

Now again, we will obviously work with all the providers and et cetera. But largely speaking, we expect the revenue benefits to be very similar to what we've modeled and have been performing at IRT, anywhere from, call it, $60 to $70 of incremental revenue per month per unit, and the cost to be somewhere in that kind of $25 to $35 per month.

Got it. And then just on the value-add. So you mentioned that it's historically generated 16% returns, but those vary a bit by market and by project. So on the 10,000 CSR units you identified for value-add, are there any meaningful differences from the IRT portfolio or anything different by market there?

A little hard to hear that, but I think your question was really any differences between the Centerspace kind of return versus ours?

On value-add...

In terms of value-add.

Yes. That's right.

Yes. No, I think generally speaking, again, the -- a lot of their renovation programs are very similar to ours in terms of what they do and the returns they get. There is the opportunity for us on a few of the ones that we've underwritten where the value-add lift from a cost perspective isn't as great as what we've historically seen, which might provide a little more return. But again, as we continue down the integration path, we'll be able to update the investors with all this information. Just as a clarity, though, is like the value-add and the WiFi is not in the 5% accretion. So that is upside growth on top of that baseline 5% accretion.

The final question comes from the line of Jamie Feldman with Wells Fargo.

Just a couple of cleanup questions. I guess going back to Alex's question on GAAP versus cash, can you -- what is the GAAP -- I assume that means FFO growth for GAAP, like what is the accretion expected on FFO or GAAP?

Well, again, the FFO, again, will be probably very similar to the GAAP number. I think it's -- I'll get back to you, but I believe it's about roughly 3% accretive on a GAAP basis.

3%, and that's with all the synergies you're talking about?

That's all the synergies, and just, again, basically market interest rates of all the debt that we're assuming.

Okay. And then the $140 million, are those transactions in process? Or are those earmarked for sale and going to be marketed soon? Are those transactions maybe CSR had in process? And then are they specific markets that you can talk about?

No, they're not in process. And again, as we provide -- as we kind of nail it down and begin to communicate, we'll have more information specifically on the third call around it, third quarter earnings call.

Okay. And then if I can just -- it sounds like I'm last, if I could just sneak in another. So just -- I think one of the first comments you made when the call started was just the relative growth rate kind of pre and post with or without the transaction. Can you just give some color on like the same-store NOI or even the blend outlook over the next 12 months for stand-alone IRT versus the combined entity so even if you want to go longer than 12 months?

Well, you were limited to 1 question and 1 follow-up, but you snuck a third one in. No, unfortunately, we can't speak to that. We're obviously in the process of doing our budgets for next year. CSR is beginning their budget process. They haven't given guidance. So no, we're not prepared to talk on that at the very moment.

Okay. And then, is $45 million a break fee from the document published this morning?

Yes. The break fee is $45 million for Centerspace and $60 million for IRT.

We have reached the end of the Q&A session. I will now turn the call back to IRT's Chairman and CEO, Scott Schaeffer, for closing remarks.

Well, thank you all for joining us this morning. We're excited about the future and look forward to working through the process and the integration. So I hope everyone has a good rest of the day. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Centerspace Q2 2026 Earnings Call. [Operator Instructions] Presentation will now begin.

Thank you, and good morning. Centerspace's Form 10-Q for the quarter ended June 30, 2026, was filed with the SEC yesterday after market close. Our earnings release and supplemental disclosure package are available on centerspacehomes.com and were filed on Form 8-K.

Today's remarks include forward-looking statements based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our risk factors and other SEC filings.

We cannot guarantee these statements will materialize, and you should not place undue reliance on them. Please refer to our earnings release for reconciliations of any non-GAAP measures discussed on today's call. Joining me today are Bhairav Patel, our Chief Financial Officer; and Grant Campbell, Senior Vice President of Investments and Capital Markets.

During our remarks, we will give a brief update related to our portfolio repositioning and operating trends, after which Grant will elaborate on the status of our dispositions and investment activities, and we'll close out with Bhairav providing context for the guidance updates we outlined in our release last evening.

In the last 14 months, we have sold or are under contract to sell 20 communities for approximately $530 million. These transactions have significantly improved the profile of our portfolio and balance sheet, increasing exposure to institutional markets, eliminating exposure to tertiary markets like St. Cloud, Rapid City and Bismarck and reducing leverage.

Executing the strategy is intentional. Our goal is a higher quality portfolio with stronger growth potential, lower net debt to EBITDA and greater financial flexibility. Operationally, the quarter was in line with our expectations. We have updated our same-store reporting to reflect the disposition activity, and now our same-store results are more weighted to Denver and Minneapolis.

This impacted our overall revenue, which was flat year-over-year, primarily due to concessions in the Denver market. However, disciplined expense management led to NOI growth of 30 basis points in the second quarter when compared to the second quarter of 2025.

Expenses declined 10 basis points year-over-year as our teams controlled costs across categories. Most of the savings came from lower R&M costs, including term expenses. Within the same-store, we had an excellent quarter for retention. Of residents with lease expirations, 61.3% of our residents renewed at renewal rate growth of 3.4%.

New lease rate growth was negative 60 basis points, which was an improvement of 190 basis points over the first quarter and resulted in blended lease growth of 1.8%. And the blended lease increases have held steady through July. While Denver remains softer as new supply continues to be absorbed, it is notable that our blended spreads for July were positive.

And overall, the softness in Denver is offset by strong results out of North Dakota, Nebraska and Minnesota. In particular, Minneapolis delivered blended rent growth of 3.4% with retention at 65%, evidence that the market has absorbed the elevated supply that had challenged many markets across the country.

We are capturing rent increases in markets where supply has been absorbed and new supply is muted. Outside of the Mountain West, all of our markets had blended lease growth in June in excess of 3%. While we believe we have stability in operations and an opportunity as deliveries diminish in the Mountain West into 2027, we also have a strong opportunity to capture value through our portfolio repositioning. Grant, can you discuss more specifics on our disposition and capital markets activities?

Thanks, Anne, and good morning, everyone. We continue making progress on our portfolio optimization and deleveraging plan announced in early June. On June 29, we sold Civic Lofts in Denver, Colorado for $30 million. This was a smaller community relative to our other Denver assets and no longer core to our long-term strategy in that market.

The transaction represented a mid-3% cap rate on T12 financials, including non-stabilized vacancy and concessions this particular urban Denver submarket is experiencing today. From a stabilized operations perspective, the transaction represents a low 5% cap rate. More broadly in Denver, first half of the year transaction volume is down 46% from the same time period in 2025 and 72% compared to 2024.

Despite lower transaction volumes, high conviction investors have recently been active on individual community acquisitions. We have seen recent acquisitions at significant discounts to replacement costs in urban submarkets with going in cap rates at mid-4% and below, along with select newer vintage suburban communities pricing at high 4% to low 5% in-place cap rates.

These investment decisions are informed by first half of 2026 absorption figures being the highest on record in Denver, market's continued high cost of homeownership and deceleration of the new construction pipeline.

Moving to other portfolio markets. On July 9, we closed the sale of 5 communities in Rapid City, South Dakota for $66 million. This sale exited us from the Rapid City market. In Bismarck, North Dakota, we remain in process on executing the sale of 6 communities for approximately $150 million with closing expected in August. This transaction will exit us from the Bismarck market.

Pricing on the Rapid City and Bismarck sales is a mid-6% cap rate, and we saw strong interest from potential buyers, including both regional and national platforms, highlighting the capital interest in secondary markets driven by healthy regional economies and measured new supply pipelines.

In total, our disposition activity in Denver, Rapid City and Bismarck includes 12 communities, 2 market exits and total sale price of approximately $245 million, all consistent with pro forma outcomes described in our early June portfolio optimization plan.

In addition to these initiatives, we also made the decision to sell 2 communities in Minneapolis. This was driven by strong asset pricing received given the strength of Minneapolis fundamentals, management of our portfolio concentrations and further advancement of balance sheet strategy.

On July 14, we closed the sale of Red 20 and Ironwood, 2 newer vintage communities totaling 312 homes were sold for $73.8 million. In aggregate, all 2026 disposition activity includes 14 communities, 1,810 apartment homes and total sale price of approximately $320 million. These sales improve our overall portfolio quality and operating efficiency, including average rent per community increasing 1.4% and average homes per community increasing from 201 to 222.

Our 2026 dispositions have allowed us to move forward with certainty and speed in executing deleveraging outcomes associated with our strategic review and manage related tax implications. All of our sales priced inside of the implied mid- to high 7% portfolio cap rate our stock currently trades at.

Given this valuation disconnect, we bought back shares in the quarter, repurchasing $2.5 million at an average price of $55.54 per share. While active with buybacks, we are also focused on our leverage profile, seeking to strike an appropriate balance between the 2, and this quarter's initiatives achieved this. I'll now turn it over to Bhairav to discuss our financial results, balance sheet and revised guidance.

Thanks, Grant, and hello, everyone. Last night, we reported second quarter Core FFO of $1.27 per diluted share, driven by a 30 basis point year-over-year increase in same-store NOI as revenues and expenses remained relatively flat. Our same-store results exclude NOI from the 14 communities sold or held for sale as of quarter end.

As a result, they are not comparable to first quarter same-store results or prior same-store guidance, both of which included those assets. Turning to full year 2026 expectations. The reconstitution of our same-store pool to exclude the 14 communities now results in expected same-store NOI growth ranging from flat to down 1% year-over-year.

At the midpoint, we expect revenue growth of 50 basis points and expense growth of 2%. Most of the change in same-store guidance reflects the updated same-store pool as Bismarck and Minneapolis had strong first halves and were expected to continue performing well. These communities will not meaningfully contribute to earnings in the second half of the year. And as a result, we are lowering our Core FFO midpoint to $4.63 per share.

We will use the proceeds to fully repay our line of credit and expect to have approximately $100 million of cash on hand, including $50 million to $60 million earmarked for a special distribution that may be required to maintain our REIT status. We continue to refine our taxable income projections and any required special distribution would likely occur in the fourth quarter.

Lastly, we expect full year net G&A and property management expenses of $28.3 million at the midpoint, excluding nonroutine severance and strategic review items. The reductions we implemented in connection with the dispositions reflect our ongoing effort to align our overhead structure with the evolution of our portfolio.

However, the reduction in overhead this year does not fully capture the total impact because several actions were implemented midyear. We expect our annualized run rate, which better captures the overall impact to be lower by approximately $2 million because of the realignment.

Moving to the balance sheet. We ended the quarter with more than $240 million of liquidity. Annualized net debt to EBITDA was 7.3x, down sharply from 8.2x in Q1. We had approximately $1 billion of debt outstanding with a weighted average rate of 3.6% and a weighted average maturity of 6.7 years.

Disposition activity after quarter end will further strengthen our position. Following the sales, we expect total debt to be below $850 million and assuming $50 million to $60 million in special distributions later this year, net debt to EBITDA should settle in the mid-6x range.

Together with approximately $450 million in total liquidity, this would put us in the strongest balance sheet position in our history. To conclude, I want to commend our team for maintaining operating discipline while making significant progress against our strategic plan in a challenging market. With a stronger balance sheet and a more focused portfolio, we are well positioned to deliver solid operating results in the second half of the year. With that, operator, please open the line for questions.

[Operator Instructions] Your first question is from Bradley Heffern of RBC Capital Markets.

You added the roughly $75 million to the disposition plan with the Minneapolis properties. I guess, first, can you just sort of talk through that decision? And then can you also talk about the use of those proceeds? Will that also be for deleveraging? Or might you allocate some of that to repurchases or something else?

Thanks for the question. I'm going to have Grant take that and talk a little bit about our decision to sell those additional 2 assets.

Yes. That decision really resulted from a couple of different things. One, strong pricing received as we work through our process. Two, as we sell out of some of these non-institutional secondary markets, we are mindful of portfolio concentrations and managing that. So this was an ability to not only achieve strong pricing, but also manage our portfolio concentrations as we think about the company moving forward.

And then I'll pass it over to Bhairav to talk about proceeds.

With respect to proceeds, part of those proceeds may be used to pay down debt. Part of those will be earmarked for our special distribution that we expect to happen in the fourth quarter of this year. And then there's going to be a small amount of cash on hand, which we may hold and use to kind of retire secured mortgages early next year.

Okay. Got it. And then, Bhairav, maybe sticking with you. Obviously, tons of moving pieces between the sales, timing, deleveraging, et cetera. Not really looking for '27 guidance, but I'm wondering if there's any color you can give us on just what the FFO run rate of the business looks like approximately after all of these transactions are completed.

Sure. So I'll start with the impact on the second half. Let's go through some of the big components. About $300 million in sales, Grant mentioned a cap rate of mid underwriting convention, so let's add 50 basis points from an NOI standpoint. So that approximates about $11.5 million for the second half, which is roughly in line with the reduction in NOI compared to our prior guidance.

Now that's offset with the use of proceeds that we talked about, which for the second half are about $6.5 million. So the net impact is $5 million. That's roughly $0.25. That's for the second half. Now for the full year, you have to annualize that, but we also have organic growth coming from the rest of the portfolio.

So going forward, that's how I would kind of think about the run rate guidance. Obviously, as we annualize what's going to happen in the second half, but there's growth coming from the rest of the portfolio in 2027 as well to offset that.

The next question is from James Feldman of Wells Fargo.

This is Connor on with Jamie. Blended lease spreads improved to 1.8% in 2Q and retention also increased to 61% from 60% last year. Can you walk through what you're seeing in July and whether that improvement is being driven more by new lease pricing, renewals or reduced concessions?

Yes, Connor, I'll start and then Bhairav can add a little bit more color about where we're at, particularly as we send out renewals. Into July, we saw that blended rate hold firm at 1.8%. We're seeing some strengthening in renewal pricing or in new lease pricing, particularly as Denver continues to work through.

But really, that strength on the renewal side, which we're expecting to come in, in the kind of mid-3s again. Bhairav, do you have any more color that you want to give on leasing?

No, I would just add that renewals remain strong. There's -- new lease trade-outs may fluctuate a little bit just because we typically hit our peak in June and July. But overall, as Anne mentioned, from a blended standpoint, we are seeing solid blended rate growth. I'll also add that for the second half, Denver has a better comp that may have an impact on new lease trade-outs because the concessions that we started offering started in the second half of last year. So we have a favorable comp going into the second half, which may affect new lease trade-outs.

That's helpful. And then on Minneapolis, it generated 2.5% NOI growth this quarter, remains the largest NOI contributor within the portfolio. I think last quarter, you described Minneapolis is moving beyond the supply inflection point here. Has anything changed in your outlook? And is this market performing better than you expected entering the year?

Yes. I would say it's performing right in line with our expectations, maybe slightly better as Denver has been slightly down from where we maybe expected, and those are offsetting each other. But definitely have seen really good growth in Minneapolis. We're seeing good new lease rents. We're seeing great retention. And I'd say we're probably now a year into past the inflection point where we really saw a pickup last summer around this time.

So feeling really great about Minneapolis. And the supply picture here remains really muted as to new deliveries. And so we think that demand will hold up, and we'll continue to see good results out of Minneapolis.

The next question is from Rich Anderson of Cantor Fitzgerald.

Okay. So you -- I think you just kind of went through an annualized full year headwind of $0.50. I think I got that right. And if you're -- and you said offset TBD on organic growth for the rest of the portfolio, all makes sense. So if you're -- if I was trying to do this math before my question came up, so I didn't get fully completed on it.

But if there's $120 million of same-store NOI, I think that it's, again, about right. So that's got to grow by a certain percentage to offset -- the basic -- the genesis of the question is, in what world could there be FFO growth next year is basically the question.

Grant, do you want to take Rich's math here?

No. I mean I think a component to consider there is we mentioned G&A savings on an annualized basis, that's about $2 million or $0.10 a share. So depending on where NOI goes next year, again, we expect Denver to recover in 2027. All of the other markets are doing really well and have passed the supply pressures.

So once Denver recovers, depending on organic rent growth, we can at least expect some offset coming from NOI and at least hold FFO steady going forward when you, kind of, combine the organic growth along with some of the savings on the G&A side.

Okay. Fair enough. You also mentioned the reason to sell Minneapolis was -- I think what you were implying when you were going through the strategic review, that kind of came out in the wash that there would be some strong pricing in certain assets.

Is there anything else that came out of that broader process that sort of you're working on as a potential change in the future like you had with the mini sales? Or is that it in terms of what you think might be different from where you're viewing dispositions today?

Yes, Rich, I think correct. As we work through the process, it was evident that these assets in Minneapolis, we had strong interest. I think a couple other notes that came out of the process. One, we had strong pricing in the secondary markets that was consistent all the way through the process. In terms of additional sales in Minneapolis at this time, we're not thinking about any additional sales in 2026, if that answers your question.

Yes. And last for me, you had a nice transaction in Salt Lake City. I'm wondering what your thoughts are in that market on a go-forward basis in terms of building scale.

Yes. Thanks, Rich. When we acquired the project in Salt Lake City, our goal was really to scale that market. And we are keeping tabs on, and I'll ask Grant to just give a little bit of an overview here in a second of how that market is trending.

But the cost of capital has really changed since we undertook that transaction and the overall market relative to our cost of capital. So the things that are out of our control that are driving our investment decisions remain -- keep us a little bit stymied from a new investment perspective.

So as we look to scale that market, we'd be looking for really discrete transactions where we could have sales that match fund that until a time when our cost of capital comes back in line to make that accretive. But Grant, maybe you can just give a couple of senses on how that market is trending and why we still like it.

Yes, we continue to be highly constructive on the Salt Lake market. We would like to grow our presence there. As Anne mentioned, we are evaluating the best use of a dollar, what is the best capital allocation decision. And right now, given our cost of capital, it is not new acquisitions in Salt Lake.

We -- our investment that we made there is hitting its marks from a pro forma underwriting perspective. We're very encouraged by that. There has been a little bit of an uptick in marketed offerings here, in particular, the past 3 to 6 months. We've seen a few more broadly marketed opportunities.

We continue to talk to all of our market relationships. We continue to do all the work there. So we're staying close to the market. And when we're in -- if and when we're in a position where that is our best capital allocation decision, we feel confident that we can continue our evolution there.

The next question is from Ami Probandt of UBS.

I'm just wondering how much of an impact did the asset sales have on same-store revenue? So would you likely have maintained the same-store rev guide if you hadn't sold some of your stronger performing assets?

Yes. So from a same-store perspective, recomposition of the pool has a significant impact on our guidance. So and that will be the main contributor to it. For reference, while NOI for the same-store pool is down 1.3% year-over-year, the 14 communities that are now excluded, they were collectively up 7.5%.

On the revenue side, the performance is similar as well with Bismarck topping the portfolio and same-store revenue growth and the Minneapolis communities that were included in the dispositions were also solid contributors. So yes, I mean, a majority of the change in the same-store guidance would be because of the dispositions.

Okay. Got it. That's helpful. And then I was hoping that you could dig in a little bit more in Denver. How is your portfolio performing versus the MSA as a whole? Do you have pricing power in any of the submarkets and is the decline in same-store revenue in Denver that you've been seeing still mostly a supply issue? Or is there anything to note on the demand side?

Yes. Ami, I'll start there, and then Bhairav can give a little bit of detail. But we continue to really like our Denver portfolio from a position standpoint. We don't have -- we're pretty equally weighted urban and suburban, and we're really along the I-25 corridor. So while we have had a lot of supply impacts for our properties, maybe not as much we're not in the really heavy supply impacted areas. And that has helped us trend really well in Denver.

When we look at the underlying fundamentals in the market, -- we're not yet seeing anything beyond supply that we think is driving it. So we're seeing really good retention. We're seeing great wage growth in our applicant pool. We're not seeing any trends relative to doubling up.

The cost of homes is still very, very high in Denver. Now job growth has slowed in Denver. We've all watched that kind of as we watch all the markets across the U.S. But the first half absorption of 2026 was the strongest on record for Denver. So we really do think it's the supply and demand story. And Bhairav, maybe you can just give a little bit of detail about how we're performing relative to the market on our Denver-specific stats.

Sure. I'll just add a couple of stats there. So blends for the second quarter in Denver were down 2.6%, but that was an improvement over the first quarter where the blends were down 4.8%. Concessions did tick up a little bit at about 4 weeks, but that's in line with the market. The increase kind of makes sense given the increase in expirations in the peak leasing season.

And we should have a much better comp for the second half. In fact, we're already seeing it in our July blends for Denver, which are actually positive at about 1% and it's led by renewals where we'd see the first impact of concessions rolling off.

And then despite the supply pressure, we feel good about our positioning in the market. If you kind of think about the overall market vacancy, that's about 10%. Our portfolio average is half of that. So overall, we feel like we're very well positioned in the market and in a great place to take advantage of a potential recovery in 2027.

There are no further questions at this time. I will now turn the call back to Anne Olson, President and CEO, for closing remarks.

Thank you all for joining us today, and a special thanks to our team who has done a tremendous job throughout the quarter, specifically as we've undertaken a lot of transactional activity, and we're looking forward to a great second half of the year. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Centerspace Q1 2026 Earnings Call. [Operator Instructions]

I will now hand the call over to Josh Klaetsch, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Centerspace's Form 10-Q for the quarter ended March 31, 2026, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K.

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

I'll now turn it over to Centerspace's President and CEO, Anne Olson, for the company's prepared remarks.

Thank you, Josh, and good morning, everyone. I'm here with our SVP of Investments and Capital Markets, Grant Campbell; and our CFO, Bhairav Patel. I'll start by addressing the strategic review which we initiated in 2025. This process is ongoing, and we appreciate the feedback we have received from our stakeholders.

The Board and its advisers continue to make progress, and we expect to provide shareholders with a more substantive update on the status of the review process before or in connection with our second quarter earnings release. There can be no assurance as to the timing or outcome of our process and no assurance that the review process will result in a transaction or other strategic change or outcome. We do not intend to provide further details in connection with discussion of our first quarter earnings results today. Thank you for your understanding as we keep our comments focused on our results and our outlook.

Our revenues for Q1 were in line with our expectations, supported by stable demand and continued execution by our leasing teams. First quarter results reflect the negative impact of recent changes to Colorado regulations, timing of certain expenses and costs related to our strategic review. These were anticipated, and our expectations for full year core FFO and its drivers remain substantially unchanged. We are reiterating our previously released earnings guidance, and Bhairav will discuss this momentarily.

Operationally, we are starting to see the expected seasonal pickup in leasing. While blended leasing spreads in the quarter were up 40 basis points over prior leases, each month demonstrated improvement, increasing from negative 90 basis points in January to positive 140 basis points in March. We've seen this trend continue into April with preliminary blended spreads of 1.8%. The Q1 blend was composed of a 2.1% decrease in new lease rents, combined with a 3.1% increase on renewals, while in April, new lease spreads broke into positive territory and renewal spreads increased to 3.3%. Retention of 54.1% in our same-store portfolio was a 2 percentage point improvement from the same quarter last year, and our resident base remains healthy, with rent-to-income levels at 21.2% and bad debt within our historical range.

Our Midwest markets continue to see rent growth outpacing national averages, and our largest market of Minneapolis saw blended spreads of 1.3% in Q1. Notably, Minneapolis has shown the best acceleration into April with blended spreads of 3.8% and new lease spreads of 4.3% in the month. In Denver, Q1 blended rates were down 5.1%, and reimbursement revenues are exhibiting the impact of regulatory changes in the market.

Concessions are prevalent in the market, and we experienced our highest usage of concessions to date in Q1. That said, we have reason for optimism. Q1 absorption levels were at their highest level since the pandemic rebound in 2021, and retention in our Denver communities was 51.9%, an improvement over Q1 2025. This data, together with the significant drop-off of new construction starts, sets us up for a better leasing profile as the year progresses, with improvement in both concessions and leasing spreads expected as we enter peak leasing season.

Expenses in the quarter were higher than our historic trend or 2026 projected run rate. Much of this was related to timing, which Bhairav will elaborate on. Our team excels in expense management, as evidenced by our same-store expense growth of only 1.6% over 2024 and 2025, and we expect that discipline to show again in 2026 as the impacts of onetime expenses normalize.

I would be remiss not to recognize our team. Their commitment and execution sets us apart, and we're proud that their efforts have been recognized through several awards, most recently being named a USA Today Top Workplace. I'm very grateful for our amazing team members.

With that, I'll turn it over to Grant.

Thanks, Anne, and good morning, everyone. Nationwide transaction activity continued showing signs of improvement, including a 13% total volume increase in 2025 compared to 2024. At the same time, investors are becoming increasingly selective with their investment decisions. There is a wide variation across individual markets as it pertains to investor conviction and actions. Within our geographic footprint, this dynamic exists.

In Minneapolis, 2025 was a record year for transactions at $2.5 billion in total volume. This is driven by supply peaking in 2023, and at the peak, new deliveries representing only 6% of then existing stock, comparing favorably to the profile of high supply markets. Coupling this with stable and persistent renter demand, investors have been drawn to the market, and we expect this to continue throughout 2026, in part due to next 12-month deliveries representing 1.6% of existing inventory and the full construction pipeline at 2.1% of inventory.

In our other Midwest markets, we continue seeing strong interest from private capital investors. These markets are anchored by health care, education and government and have muted supply profiles, including next 12-month deliveries ranging from 0% in our North Dakota and Rochester, Minnesota markets to 2.4% of existing inventory in Omaha. While the labor market has slowed nationally, we are seeing healthier relative performance in these locations, including in Grand Forks, North Dakota, where the U.S. Space Force is expanding its presence and a new $450 million food processing facility is underway, along with Rochester, Minnesota, which saw strong job growth in 2025, driven by health care and education.

Shifting to Denver. Transaction volume was down 41% in 2025 compared to 2024, and this has carried into 2026 thus far. The market continues working through the influx of deliveries from the past 24 months, flat job growth in 2025 and the recent legislative changes affecting property level other income. This has generally put Denver's transaction market in a wait-and-see environment.

Premium assets and locations are still commanding strong pricing, including a few recent trades at sub 5% in-place cap rates, though the divide between premium profile and the rest of the market has widened. We believe this theme will continue until growth indicators translate into hard data, providing investors more conviction in underwriting strengthening fundamentals. Strong Q1 absorption numbers are one building block.

Taken together, we think this environment reinforces our historical focus on disciplined capital allocation. We expect household formation in our portfolio to outpace national averages by 50 basis points through the end of next year and employment growth to similarly outpace the U.S. We believe this positioning will allow us to navigate the current environment while creating value over time.

I'll now turn it over to Bhairav to discuss our financial results and guidance.

Thanks, Grant, and hello, everyone. Last night, we reported first quarter core FFO of $1.12 per diluted share, driven by a 1.1% year-over-year decrease in Q1 same-store NOI. Revenues from same-store communities were flat compared to the same quarter in 2025, with a 1.7% increase to average monthly rental rate in the portfolio offset by a 40 basis point decrease to occupancy and the impact of lower RUBS revenue in our Colorado communities.

On the same-store expense side, Q1 numbers were up 1.7% year-over-year, with controllable expenses up 3.5% and noncontrollables down 1.1%. Our G&A expenses increased by $1.3 million over the same quarter last year, with strategic review costs as the main driver of that increase.

Turning to full year 2026 expectations. Our guidance is consistent with what we outlined in February with core FFO at $4.93, same-store NOI growth of 75 basis points, same-store revenue growth of 88 basis points and same-store expense growth of 1.5%, each at the midpoint of their guided range. Casualty recoveries in Q1 led us to increase our NAREIT FFO expectations for the year by $0.03 at the midpoint to $4.78 per share.

Revenue growth assumes blended gross leasing spreads of approximately 2%, with occupancy in the mid-95% range and retention of about 52%. We continue to expect blended spreads will again be highest in our Midwest communities. That strength will bolster our Denver portfolio, where we expect spreads to be down for the year, though improving as the year progresses. As we have previously stated, regulatory changes are expected to temper revenue growth in our Colorado portfolio, with RUBS expected to be down nearly $1 million, which was already incorporated into our initial guidance.

As Anne alluded to earlier, expenses in the first quarter were slightly higher than our expectations. However, part of that increase was driven by timing differences, especially on the noncontrollable side. We recorded approximately $400,000 in real estate tax true-ups during the quarter. True-ups are not uncommon during the first quarter, and we expect these to be offset when we resolve open appeals in the second half of this year. Our nonreimbursable losses during the quarter were also slightly higher than anticipated. This line item tends to be volatile, and our first quarter experience has not altered our expectations for the full year.

Controllable expenses were impacted by a low team member open position count and the timing of R&M projects. We expect offsets to both will favorably impact the cost of these for the remainder of the year. Lastly, while G&A during the quarter was higher than the projected run rate for the rest of the year, we now expect full year G&A to be lower than our initial projection. As a result, we still expect to deliver financial performance within the initial guidance ranges we discussed at the beginning of the year.

To further aid in modeling, I wanted to highlight our expectations for certain line items and related timing. Costs related to our strategic review are expected to be $1 million to $1.5 million for the year, with those costs expected to occur primarily in the first half of the year. This expense appears in both our G&A costs and has an add-back from FFO to core FFO. Amortization of assumed debt is expected to be $1.3 million for the year, with $490,000 expected in Q2 before quarterly amortization decreases to $215,000 per quarter in Q3 and Q4. Our guidance does not include any acquisitions or dispositions.

Turning to our balance sheet. Q1 annualized debt-to-EBITDA was impacted by the higher G&A and taxes in the quarter, leading it to be atypically high. This is not indicative of any meaningful change to our leverage profile, and we expect this number to return to our historical mid-7x range as the year progresses and expenses normalize. Our debt schedule features both a compelling rate and a long tenure with a weighted average rate of 3.6% and weighted average maturity of 6.7 years, while our liquidity remains strong with $267 million of cash and line of credit availability compared to $98 million of debt maturing through 2027.

To conclude, this quarter demonstrated the stability and consistency of our portfolio, with our results demonstrating our commitments to both operational excellence and financial discipline and positioning us well for the rest of 2026. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Brad Heffern of RBC.

On Minneapolis, it sounds like you're seeing a strong inflection in spreads there. Do you view that market as being sort of back to normal at this point after we've passed all the supply? And then do you expect to see it overshoot to the upside to some extent?

Yes. I think you're exactly right, how we feel about it. We are certainly past the inflection point where the demand has stayed steady and the supply has been significantly absorbed and the new supply pipeline, as Grant discussed, is tapering to just over 2%. And so we're seeing really good rent increases there, and we think that, that will continue. We have no indicators that demand is softening here in Minneapolis. And the economy -- the regional economy here is healthy. So we do expect some outperformance from Minneapolis this year, particularly relative to our other markets.

Okay. Got it. And then, Bhairav, on the guidance, 1Q was at the bottom end of the revenue growth guidance range. The expenses in 1Q were close to the top end of the range. Obviously, you didn't change the guidance, but I'm curious if you can just walk through the path to both of those getting to their midpoints? Or do you expect that NOI maybe won't get to the midpoint, just based on where we are so far?

Yes, let's go through the components. So revenue was still in line with our expectations. It was flat for the quarter, but we expected it. The increase in scheduled rent was offset by the loss of RUBS revenue in Colorado, and there was amortization and concessions that started in the second half of last year. But overall, revenue came in, in line with expectations, and April is shaping up also in line with expectations. We do expect that remains on track.

On controllables, R&M was slightly higher in the first quarter. Some of that was timing, which will correct itself. And the remainder, we expect to offset with savings elsewhere. And we are fully staffed now, so we expect to be able to drive efficiencies as we enter leasing season by better managing overtime spend and third-party vendors. So we do expect that we'll kind of remain on track on controllables as well.

With respect to noncontrollables, there were some tax true-ups in the first quarter. It's not unusual for us to see tax true-ups in the first quarter. We do expect some fuel savings to materialize in the second half of the year, so that should offset it. And also, as I said in my prepared remarks, there were some nonreimbursable losses, which again tend to be volatile. So we saw higher losses in the first quarter, which is not really indicative of the run rate going forward. So that should normalize as well.

Lastly, there's G&A. That was also higher than the run rate. It was driven by some payroll tax accruals that are typically higher in the first quarter when we grant the equity awards. That should also normalize as we go through the rest of the year, and we actually did identify some additional savings. So overall, then you kind of combine all of these components, we expect to remain in line with the midpoint of our NOI as well as core FFO.

Your next question comes from Ami Probandt of UBS.

Just to dive in a little bit more on the markets. The other Mountain West markets are a relatively small part of the portfolio, but growth in the quarter was pretty soft. So I was wondering if you could talk through what's going on there?

Yes, sure. So the other Mountain West consists of Rapid City and Billings. And those markets, if you recall, are acting a little bit more like a Denver. So they had enormous rent growth in '21, '22 into '23, but then they did get some supply. And so being smaller markets, they have been impacted a little bit by supply. That is tapering off. And as Grant noted, we see very little supply coming there. But that market really has had some equalization going on there as they work through that supply.

And then also a little bit softer job picture there. Immediately post COVID, they had a pretty big influx of people working remotely, particularly in places like Rapid City. And so we've seen that pull back a little bit. The market is still strong, but we're not seeing the growth that we had been there. We've had a little bit of a pullback in those markets.

Got it. That makes sense. And then just on retention, this has been really strong, remains ahead of historical. I was just wondering if you think that retention might come down at all and to what extent it might come down as you change over to pushing a little bit more on rate as we move into the peak leasing season?

Yes, this is a great question. I think the market has changed the last couple of years across the industry, we've really seen higher retention. So you're hearing that from all the multifamily peers. You're hearing that on the private side.

Whether or not that there's some fundamental shift there, I think people are starting to lean into that, right? The renters are staying renters longer. The average age of a renter is increasing. And so I think there's a higher percentage of renters in the market, which is helping retention.

Now as we look into this year, the one thing that we're really looking at is with a lot of absorption coming and a lot of absorption happening, there's actually going to be fewer choices for people to move to. And one of the things we noted is while retention was really strong in Q1, it actually jumped up pretty significantly in April. So I guess I'm -- my early leaning is that this is a little bit of a fundamental shift in the industry away from that 50% general retention rate into something a little bit higher.

[Operator Instructions] Your next question comes from the line of Jeffrey Carr of Cantor Fitzgerald.

Just wanted to ask about with the review ongoing and no acquisitions or dispositions in guidance, how are you thinking about capital allocation priorities for the rest of the year? And specifically maybe around the revolver balance and value-add spend? And how much does the review kind of influence those decisions, if at all?

Yes, this is a great question. I think capital allocation is job #1 of an executive team, and particularly when you have hard assets. And we -- while we maintained our guidance on value-add for the year and we do think that, that's an important part of our program here and our operating platform, really, most of the value-add that we're spending is are things that were started or identified last year. So as we think about capital allocation priorities going forward, we're very focused on managing the line of credit debt and keeping our balance sheet strong and flexible.

Your next question comes from the line of Mason Guell of Baird.

Has there been any change to the outlook for any of your markets this year? And are any doing better or maybe worse than expected?

Well, as Bhairav said, we really expect revenue is coming in line with expectations, and that's unchanged for the year. I think maybe the components are moving a little bit. We'd like to see Denver picking up a little bit faster, but -- and they had awesome absorption in Q1, as we discussed in the prepared remarks. And if that continues, we're going to be right in line there.

Minneapolis is a little bit better than we expected, but these are all very slight offsets. And overall, I think revenue is coming in right where we thought, and we expect that to continue for the year.

Great. And then could you provide some color on the real estate investment impairment line item on your income statement?

Yes, we can go through the impairment. So overall, from a GAAP standpoint, you typically book impairment when your -- on real assets when your cash flows are going to be less than your book value. Now from real assets, you don't typically tend to see it because they have long holding periods. So you usually see impairments when we have assets that are held for sale.

But with the ongoing strategic review, the considerations change a little bit, and we have to kind of tweak the holding period for certain assets, which resulted in the impairment that we booked in the first quarter. It was truly driven by a change in the potential holding period in light of all the other activity that's being reviewed at the strategic level. So that's really what drove the impairment. It was on one asset and was driven by property-specific factors.

Your next question comes from the line of Michael Gorman of BTIG.

Maybe just a quick one for me on a more strategic level as you're thinking about the portfolio and you're thinking about the business. Obviously, Denver, I think, has been a challenge, and that's not unique to you at all. There was an article in The Wall Street Journal over the weekend talking about the regulatory environment for business in general in the state of Colorado and some increasing concerns about the regulatory burden among the tech ecosystem.

And I'm just wondering, have you started to see any of those concerns? Have you started to think about those concerns and what that means for the job market in those kind of core metro areas in Colorado? Or is this just a little bit too far out on the horizon?

Michael, this isn't too far out on the horizon, and it is something that we're thinking about. As we consider -- you may recall when we -- before we bought in Salt Lake City, one of the things that we really look at with respect to markets is the business climate, right, the friendliness, the tax regime, the regulatory environment.

In Colorado, you can even see -- and we discussed in our prepared remarks -- you can start seeing the results of some of the regulatory actions that they have taken with respect to real estate, the RUBS, the collection, our ability to get reimbursement for RUBS and utility costs. So we're already starting to see that there. And I do think that some of the other regulatory actions that they're considering or considering taking are impacting their job growth. As Grant noted, it's been flat there after a few years of really, really strong growth.

So is this part of the natural kind of maturing of Denver, which went from 1 million people to close to 4 million people in a relatively short span of time? A lot of jobs came there. Did the infrastructure not keep up? Do they feel pressure to put these regulations in place? Will that abate over time? I think that remains to be seen. We're really happy with the portfolio we have there. We're very happy with the basis we have in it, having started to acquire that portfolio back in 2017.

And we're optimistic because it's still a place that has a lot of cultural gravitas. People are still wanting to live there for access to the outdoor amenities and things that other cities can't offer. And on a relative basis to places like California, it is still very affordable. So -- but definitely something that we're watching, something we're already starting to feel the impacts of and really keeping a close eye on.

That's really helpful color. And maybe just a follow-up. I just wanted to make sure I had it clear. It sounds like, to your point, job growth is a little bit slower in Denver, but it sounds like absorption is running at pretty high levels. So I'm just wondering, kind of what could be driving that mismatch and how durable that can -- that absorption level do you think can be with the current level of job growth?

Yes. Mike, correct. Q1 absorption numbers were very strong, peak data, looking back to the pandemic period. So we continue to see strong inflows of resident and renter demand in the market. I think a big driver there is the high cost of homeownership in that market.

And although job growth has been flat in 2025, as we talked about, we do continue to still see folks from out of state relocating to the market, maybe not at the same clip that they were from '21 to '23. We actually looked within our portfolio, '21 to '23, about 1/3 of our applicants within our same-store portfolio were from out of state. And in '24 and '25, that was 25%. So a reduction, but still a meaningful inflow of folks coming from out of state, and it is very expensive to own a home in that market.

Your next question comes from the line of Ami Probandt of UBS.

Maybe a follow-up to Mike's question that was just asked. There's maybe some bias for some coastal -- at least coastal people about what your Midwest markets might look like. And so I'm just kind of curious, what's the hiring outlook for recent college grads across your market? Do college grads, are they attractive to these markets? Or do they tend to go to some of the bigger Sunbelt markets or coastal markets and then move into the Midwest as they get a little bit older and want to start a family?

Yes. Ami, this is a good question. And there -- as you probably know, there has been some recent publication highlighting where the hot markets for new college grads are. Very few of them are in the Midwest, but we still do see really strong companies in our markets and across the Midwest.

And so Minneapolis, we have Target, 3M, huge health care in UnitedHealthcare and all the subsidiaries, Cargill, which is one of the largest private companies in the world. And then on the North Dakota side, Grant mentioned, we're starting to see some growth there. And Grant, maybe you can just comment a little bit on what we're seeing in some of those markets with respect to job growth that would attract some of those new college grads?

Yes. I think to Anne's comments on Minneapolis, 17 Fortune 500 companies, Cargill, largest private company that there is. We see a lot of folks that -- maybe Chicago used to be the place, if they were Midwest-centric, it was Chicago, or we're going coastal. We see more and more of those folks coming to the Twin Cities. A strong underlying higher education system in the Twin Cities also serves as a feeder for a lot of those organizations and companies in our backyard.

In the case of our other Midwest markets that you alluded to, Rochester, the Mayo Clinic is undertaking a very significant expansion phase that is drawing a lot of folks. So that market driven by health care and education, we're seeing it play out on the ground. In our prepared remarks, we alluded to North Dakota, where we're seeing some pretty significant investment, both from folks in state as well as other folks, in this case, a European company desiring to put their first U.S. plant in that market. So I think these things, although maybe they don't register at the same level as some of the coastal updates that we hear about, the wheel is turning in these markets.

And Ami, just one more thought on that is when I look at recent data and recent news articles about it, it does -- there is a big highlight there, which is the new college grads aren't just looking for coastal markets and jobs. They're also balancing that with overall affordability, and that's where the Midwest can be a real draw. And over the past few years, we've seen markets like -- not just Minneapolis, but Milwaukee, Columbus, Kansas City really get an outsized share of those grads given the affordability of living there.

There are are no further questions at this time.

Great. Well, thank you all for joining us today. We look forward to meeting with many of you at the upcoming BMO and NAREIT conferences, and we wish you all a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone, and thank you for joining the Centerspace Q4 2025 Earnings Call. My name is Gabriel, and I will be coordinating your call today. [Operator Instructions].

I will now hand over to your host, Josh Klaetsch. Please go ahead.

Thank you, and good morning, everyone. Centerspace's Form 10-K for the year ended December 31, 2025, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions.

These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statements will materialize, and you're cautioned not to place undue reliance on these forward-looking statements.

Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.

I'll now turn it over to Centerspace's President and CEO, Anne Olson for the company's prepared remarks.

Thank you, Josh, and good morning, everyone. I'm here with our SVP of Investments and Capital Markets, Grant Campbell; and our CFO, Bhairav Patel. We're coming today live from our annual leadership conference, where our operating team is together to celebrate our 2025 wins and prepare to meet our 2026 goals.

I'll start by addressing our strategic review. In November, we shared that our Board of Trustees is overseeing a formal evaluation of strategic alternatives to maximize shareholder value. This process was initiated from a position of strength, having transformed Centerspace into a pure-play multifamily REIT while improving profitability, operating scale and our balance sheet.

Our strategic review underscores our commitment to acting in the best interest of our shareholders, and this evaluation remains ongoing. As we said when we announced this evaluation, there can be no assurance that this process will result in Centerspace pursuing a transaction or any other strategic outcome, and we do not intend to provide further details on the process in connection with the discussion of our fourth quarter earnings results today.

We sincerely appreciate the thoughtful conversations we've had with shareholders thus far, and thank you for your understanding today as we keep our comments focused on our results and outlook. Centerspace's fourth quarter capped a year of progress for the company and demonstrated the health and resilience of our markets.

Importantly, our results for the year showed that our portfolio and approach yields results with our same-store NOI growth of 3.5% outpacing peers on the back of steady occupancy and expense discipline. Rent growth was strong, reflecting the durability of our resident base and our exceptional focus on resident experience and optimization of revenue.

Operationally, our portfolio benefits from Midwest exposure. Blended leasing spreads in the quarter were up 10 basis points. While new lease spreads were down 4.8%, renewal spreads show their highest growth of the year at 3.9% and retention of 55.2% moved the blended rate into positive territory. Retention for the full year was 58.2%, demonstrating relative affordability for our residents.

Favorable absorption in Minneapolis, our largest market, led to positive blended increases of 1.1%, while in our other markets, North Dakota once again led the portfolio with blended increases of 4.5% in the quarter.

In Denver, supply continues to put downward pressure on rents with Q4 blended rent trade-outs down 4.3%. Absorption in the market has continued at rates above historical norms with 2025 the second highest year of absorption in the post-pandemic era.

Additionally, new construction starts in the market have plummeted, tapering deliveries, and we expect Denver fundamentals to normalize as we progress through 2026 and into 2027.

Before I turn it over to Grant to comment on the state of the transaction market and review our 2025 transactions, I'd like to offer a special thanks to many of you for your well wishes for Minneapolis and our communities there and also to thank our Minneapolis team and all of our teams for their dedicated service to their communities and community members. Grant?

Thanks, Anne, and good morning, everyone. In 2025, Centerspace executed a strategic transaction program that continued reshaping our portfolio while maintaining balance sheet strength. We executed $493 million of transaction activity, which included entering the Salt Lake City market, expanding our presence in Fort Collins, exiting the St. Cloud, Minnesota market and pruning our holdings in the city of Minneapolis.

Over time, we have undertaken initiatives to improve our portfolio, and these 2025 transactions continue that, resulting in further diversification of our cash flow and improvements to our portfolio's average monthly rent per home, homes per community, age and operating margin.

Alongside these property transactions, Centerspace demonstrated disciplined balance sheet and shareholder capital management. The company expanded its unsecured credit facility by $150 million, and we assumed $76 million of attractively priced long-term debt in conjunction with our Fort Collins acquisition, enhancing our liquidity and improving our debt profile.

At the same time, we repurchased 3.5 million of common shares, reinforcing our belief in the value of our stock and willingness to explore multiple avenues to unlock value.

Looking ahead to 2026, we expect momentum in many of our markets, driven by measured supply profiles, resident financial strength and strong local economies.

In Minneapolis, on-the-ground fundamentals are positioned well, compared favorably to most markets in the country, and we anticipate this year to be a year of stability and growth.

In Denver, solid absorption is outweighed by the volume of new deliveries from late 2024 through 2025. These supply dynamics, coupled with slow job growth and recent regulatory changes, has generally put Denver's transaction market in a wait-and-see environment.

Premium assets and locations are still commanding strong pricing, including recent trades at sub-5% in-place cap rates, though the divide between premium profile and the rest of the market has widened. We believe this theme will continue until growth indicators translate into hard data, providing investors more conviction in underwriting strengthening fundamentals.

I'll now turn it over to Bhairav to discuss our financial results and guidance.

Thanks, Grant, and hello, everyone. Last night, we reported fourth quarter core FFO of $1.25 per diluted share, driven by a 4.8% year-over-year increase in Q4 same-store NOI.

Revenues from same-store communities increased by 1% compared to the same quarter in 2024, driven by a 1.5% increase in average monthly revenue per occupied home, which offset a 40 basis point decline in occupancy.

On the same-store expense side, Q4 numbers were down 5.1% year-over-year with favorability in both controllable and noncontrollable expenses. On the controllable side, decreases in repairs and maintenance as well as administrative and marketing costs were both drivers of the improvement. For noncontrollable expenses, favorable tax assessments drove much of the improvement.

Turning to 2026. We introduced our expectations for the year in last night's press release. We expect core FFO per diluted share to remain stable year-over-year with an expectation of full year core FFO per share of $4.93 at the midpoint. Guidance assumes that at their midpoint, same-store NOI increases by 75 basis points, same-store revenues increased 88 basis points and same-store expenses increased 150 basis points.

Revenue growth assumes blended leasing spreads of approximately 2% with occupancy in the mid-95% range and retention of about 52%. We expect blended spreads will again be highest in our North Dakota communities, followed by Minneapolis and Omaha. That strength will bolster our Denver portfolio, where we expect spreads to be down for the year, though improving as the year progresses.

Regulatory changes are expected to temper revenue growth in our Colorado portfolio with expense recoveries expected to be down nearly $1 million. Within expenses, controllables are expected to increase by 1%, while noncontrollables increased by 2%, both at their midpoints.

I also want to highlight our expectation for the amortization of assumed debt, which we expect to be $1.5 million for the year. This amount will be higher in the first half of the year and then trail off in the second half upon the maturity of one of our mortgages in June.

On CapEx, we expect value-add expenditures of $2.5 million to $12.5 million with recurring CapEx per home of $1,300 at the midpoint. Our guidance does not include any acquisitions or dispositions.

Turning to our balance sheet. Following the Minneapolis disposition we completed in November, our leverage profile improved in the quarter to 7.5x net debt to EBITDA. We have a well-laddered debt maturity schedule with a weighted average rate of 3.6% and weighted average maturity of 6.9 years. Our liquidity remains strong with nearly $268 million of cash and line of credit availability compared to $99.2 million of debt maturing over the next 2 years.

To conclude, this was a successful year for Centerspace with our results demonstrating our commitments to both operational excellence and financial discipline and positioning us well for 2026.

Operator, please open the line for questions.

[Operator Instructions]. Our first question is from Jamie Feldman from Wells Fargo.

This is Connor on with Jamie. Can you talk us through some of your assumptions within the 2026 revenue guide? It'd be helpful to understand your blended lease rate growth outlook and how that breaks out between new and renewals and any contribution from other income.

Sure. Yes. So let's start with the building blocks for 2026. We had an earn-in of about 80 basis points at the end of the year. So that will be the first piece that goes into revenue. We expect blended rent growth to be in the mid-1% range, resulting in about half of that showing up in revenue for 2026. And that will be offset by about a 40 basis points year-over-year decline in RUBS or about $1 million due to the change in regulations in Colorado.

And then our base case occupancy is a little bit lower than it was in 2025. So that contributes about 30 basis points. So that gives you about 90 basis points of year-over-year revenue growth.

From a market perspective, we expect our Midwest markets to deliver growth that is in line with what we saw in 2025 with Denver obviously remaining pressured as the absorption of units delivered in 2024 and 2025 continues. We expect renewals to once again lead the way with renewal trade-outs in the high 2% range.

And we do expect new lease trade-outs to come better than 2025 in most of the Midwest markets, markets like North Dakota, Omaha and other Mountain West are not really expected to be any supply and the demand there remains robust. Even in markets like Rochester that saw some pressure in the second half of the year, we seem to be coming out on the other side, and we expect a strong showing in 2026 from that market.

Minneapolis has shown like pretty solid absorption in 2025 and is expected to improve in 2026, given that the deliveries will go down significantly. So that's really what's underpinning our revenue guidance.

And maybe if we could talk a little bit more about what you're seeing in Denver. How do you see that market playing out in 2026? And any thoughts on when we could see an inflection, particularly in new lease rate growth?

Yes. So I'll start off and maybe Anne can chime in. But with respect to our base case, we expect some concessionary pressure to continue. In the first half of 2026, we are seeing on average about 2 to 4 weeks of concessions on a per move-in basis, which we do expect will continue at least for the first half of the year, and that's really going to pressure year-over-year revenue growth.

Another note on concessions is any concessions we gave out in the second half also get amortized over the lease term. So we'll see some of that pressure in 2026 as well. But overall, we do expect things to improve as we go through the year and work through some of the supply there. The deliveries are supposed to be the lowest since we've -- in the last few years, but I'll hand it off to Grant to comment a little bit on that in detail.

Yes. Thanks, Bhairav. Regarding supply dynamics, about 16,000 units were delivered in 2025, an additional 9,000 units will be coming online or delivered in '26. So some continued lease-up activity that, that market will need to work through.

When you look at forecasted supply pipeline, new construction starts, 2027 data really falling off in terms of new deliveries. So we do think that will provide tailwinds to the market.

When you look at foot traffic in downtown Denver based on a couple of different measurements, we are seeing increases at year-end 2025 foot traffic levels that are comparable to 2019 data. So that gives us some positivity that things are turning. There's also been some significant investments in bond funding without a property tax increase that has been passed for a whole host of projects across the city, parks, bike lanes, expansions to libraries, et cetera. So we do feel like the wheel is incrementally turning and looking to '27 for true tailwinds.

Our next question is from Brad Heffern from RBC Capital Markets.

No we're not supposed to ask about the strategic review. This is kind of strategic review adjacent. I'm wondering, is the underlying plan for the company sort of continuing in the background? Obviously, the past few years, you've sold out of tertiary markets to build Denver and Salt Lake. Is that continuing on in the background while you're looking at the broader strategic plan? Or is kind of the strategy of the company just on hold until this is completed?

Yes. We feel great about what we executed on strategically in 2025. We highlighted some of those in our prepared remarks. So we feel great about that. The part of the strategic review really is reviewing what we want to do with every dollar of capital. And so a little early in the year to tell and it's still ongoing with that. So no further comments on what that might mean for us as we move through 2026.

Okay. And then do you have any like January or quarter-to-date leasing stats that you can give?

Yes. I can give you some details. Overall, blends were flat to slightly negative. This is not uncommon for this time of the year. Renewals remained pretty strong in the mid-3% range. So that's a positive. And we clawed back some occupancy. So there's weakness on the new lease trade-out side, which we expect, led by Denver.

Really small sample size in January. We have very few leases expiring this month.

Yes. Okay. Okay. Got it. And then just one clarification. I feel like in the prepared remarks, you said that blends for '26 were 2%. But then, Bhairav, I think you said 1.5% later on. Maybe I heard it wrong, but just want to clarify what that number is?

Yes, I would say mid-1% range in our base case. In certain markets, it can be in the 2s. But overall, for the portfolio, we expect it to be in the mid-1% range.

Our next question is from Alexander Goldfarb from Piper Sandler.

Anne, always good to hear North Dakota leading. We like that. Two questions here. First, I guess, going to the strategic review. Are you allowed or can you buy back stock while that process is going on? You highlighted the stock buybacks that you had performed. But are you able to go into the market or you have to complete the process before you can resume buying back stock?

Yes. At this point, we need to complete the process, just given the rules about what kind of information that the company has available. We do have a current authorization for buyback. At where we're trading today, I think that isn't the most attractive use of our capital. Our 2025 buybacks were executed more in the $54 range.

Okay. And second question is rent control regulations, legal costs, it's been a big growing topic. You outlined Denver, the situation of the contrast between St. Paul and Mini has been well documented. As you're assessing other markets, how has the experience in those 2 markets affected?

Are you seeing other markets slowly roll out, whether it's overt rent control or utility restrictions or other restrictions that mean markets that formally were on your radar or existing markets where you were looking to expand, you want to dial back given the local politics or those 2 markets that I cited are really the standouts and the other markets that you either are currently in or thinking about expanding to really don't have that political risk?

Yes, this is a great question, certainly a hot topic. I would say across the nation, we're seeing either municipalities or states really start looking at everything, fee income, regulatory requirements, not just straight rent control.

So while we're happy with the markets that we're in, we have great operations and good operating scale in both Denver and Minneapolis so that we can really absorb and do a great job of handling those regulatory changes. I would say when we're looking at new markets, business friendliness is one of our key categories that we're looking forward at. And that includes things like do they have a heavy regulatory environment? What's the taxation, both property taxes and income taxes. How are they attracting new businesses, subsidies, things like that.

So when we're thinking about new markets, it's definitely, I'd say, one of the key categories that we're considering, but we're happy with the status in our current markets. We haven't seen any movement in markets like -- or in states like Nebraska, North Dakota, South Dakota, Montana to enhance any of their regulatory requirements. And we have seen some pullback on the federal level, particularly around environmental regulation.

Our next question is from Ami Probandt from UBS.

So far, tax refunds are trending much higher this year. So understanding that the post-COVID period is different from what we're currently having, I'm wondering if there are any parallels that you can draw to 2026 in terms of tax refunds compared to 2021 and 2022 when refunds were also elevated. Do you think that this could lead to an increase in demand or pricing power? Or is it sort of a onetime boost that doesn't really have a big impact?

The taxation is more about the valuation cycle coming into 2021 -- and there's a lag between when taxes go up. Sorry.

I was going to say in terms of individual tax refunds, not the property...

Yes. This is -- that's an interesting question. I don't know that we're -- we think that it's going to impact demand. It's going to be more of a onetime item. And our bad debt looks great, and we feel good about the resident health.

So we hope when we see those tax refunds that maybe we'll see a little bit more consumer demand or better consumer credit overall. I think we're going to see that disposable income on the consumer spending side, not necessarily creating any demand on the multifamily side.

Got it. And my second question...

Usually, we're talking about property tax....

Yes. So second question, it's been a while since growth in monthly revenue per unit has been below growth in monthly rent per unit. So in the fourth quarter, rent growth was ahead of revenue growth. Did the changes in Colorado rebilling impact that? What other dynamics could be driving that shift?

Yes. In the fourth quarter, we saw some occupancy pressures. That's contributing to it a little bit, Ami. The Colorado regulations really kicked off in Jan. So we expect the impact from that to be in 2026, not really in 2025. But we did see some occupancy pressure in a couple of our markets. I mentioned Rochester as one, but I think we've turned the corner there, and we are -- we've kind of regained some of the occupancy back in Jan. So that's really what was driving the difference there.

[Operator Instructions]. Our next question is from Mason Guell from Baird.

It looks like your retention rate was down both sequentially and year-over-year, and you're forecasting it to be lower in 2026. Is this due to focusing more on rates instead of occupancy? Or what is driving the lower retention rate?

Yes. We've seen it come down a little bit. Overall, from a base case perspective for 2026, we're just being measured in what we expect from a retention standpoint. We expected the same level for 2025. We outperformed a little bit. We saw a little bit of a downtick in Q4. So we're just kind of building in a little bit of, I would say, we're just being measured about retention being a little conservative to start of the year because we want to see what happens in the first couple of quarters before we adjust our assumptions there.

Great. And then your outlook for value add, it seems like it's a wider range than you previously had in your outlook and the midpoint is expected to be lower than 2025. I guess why the wider range and what's driving the lower expected value add?

Sure, yes. So from a value-add perspective, we're kind of holding back projects for a couple of reasons. I mean, one, just being extremely selective in the projects we greenlight due to the higher cost of capital and execution risk. We want to see some improvement in the marketplace before we do that.

And secondly, we're holding back approvals due to the ongoing process of evaluating strategic alternatives. We would hate to begin a project that we cannot complete as a result of any decision that comes out of that review. So that's really driving the range there.

On the low end, we have about $2.5 million, which is really completion of projects we've started in prior years. So at the very least, we will be starting to put capital out later this year than we typically do. That would drive the range lower. That's what you're seeing in that range.

[Operator Instructions]. We have a follow-up question from Ami Probandt from UBS.

So a quick one on the consumer. You mentioned no changes in bad debt. But for some of the markets where you've had consistent CPI plus renewal growth. Is there any concern about affordability?

We're seeing great affordability. I think our rent to income has held steady, if not lowered slightly over the course of the year. Really, that's been driven by incomes increasing faster than we're seeing rent increases. So even in those markets like North Dakota, where we're getting really great renewal spreads and seeing positive new leasing, the incomes there are growing faster than the rent amount. So we've seen really strong income growth, wage growth across our markets.

Our next question is a follow-up question from Alexander Goldfarb from Piper Sandler.

Just quickly, a number of your markets, you guys always talk about the lack of labor, tight markets, heavy -- tough getting people to work on site. And yet I saw that your on-site comp was basically flat for the year. In fact, it was a little down in the fourth quarter. But I'm just curious what's going on there, just given, again, you guys have spoken about the tight labor markets in a number of the places that you operate.

I think just like we've seen, Alex, in our company, most of our vendors have also experienced less turnover. And so across our markets, there -- it is very strong employment -- very low unemployment. There's opposite of that. And -- but what we've seen is a lot less turnover, more steadiness in that employment.

And so in the past, when we've had vendors and they lose someone, it's very hard for them to replace it, but people are staying in the jobs longer. We saw that in our company as well. Tenure is up and turnover is lower. So I think that really helped us in 2025, and we saw that trend throughout the year.

Yes. And specifically in Q4, Alex, there was a health reserve adjustment that came through in the last quarter when we kind of adjust our health reserves based on the projections for actual expenses. So that also contributed to that comparison on a year-over-year basis.

Okay. And you expect that the low turnover and to continue in '26?

We are expecting low turnover for us, and I think that we've seen that extrapolated out with our vendors, just more consistency in who's coming on site and their ability to service our needs from a vendor perspective.

Our next question is a follow-up question from Brad Heffern from RBC Capital Markets.

On Minneapolis, you mentioned in the comments, of course, been the headlines, a lot of turmoil unrest over the past few months. Did leasing activity look any different as a result? I know it's not a heavy leasing time of year, but I'm curious if you saw an impact? And then do you -- are you expecting like any sort of longer-term impact? Or did your forecast for Minneapolis for this year change versus maybe what it would have been a few months ago?

Yes. We -- not that we've seen any real change. I think in late 2025, we kind of assessed the state of the immigration enforcement actions. What we saw in January was -- had started a few months before. So we have seen very little activity at our communities. We do monitor. We have a system where that's reported. And it's really limited to just a couple of communities where we've seen some interruption and that interruption would be from leasing all the way to resident skips. But so far, it's been really a minimal impact.

And I think the key thing, as you noted, is that there's very low turnover lease expirations in January and not a lot of people looking in January anyway. So hard to tell if there's any real impact. We would see that more once we have leasing season underway.

One of the things that you may have seen about Minnesota is that for the first time, we turned the corner where we actually had good migration into the state. I think we finally cracked that U-Haul list #14 of people moving here. And so that really did offset this year. Our population growth was offset by kind of the net of lack of immigrant migration in.

So we think demand is going to hold up in Minneapolis. And as Grant and Bhairav have noted, very little supply there and good projected growth across the board. So not much impact that we can see right now. And we're monitoring closely things like whether or not there'll be any moratoriums or on evictions or things like that. I think it's settled down, and it's a little bit of a wait and see on that front.

We currently have no further questions. So I will hand back to Anne for closing remarks.

Thank you. Well, thanks, everyone, for joining us today, and thank you again to our team for our tireless pursuit of better every day. We're going to have a great time at our leadership conference here in Vegas, and we look forward to talking with you all very soon. Have a great day.

This concludes today's Centerspace Q4 2025 Earnings Call. Thank you for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the Centerspace Q3 2025 Earnings Call. My name is Ezra, and I will be your coordinator today. [Operator Instructions]

I will now hand over the call to Jose Klaetsch from Centerspace to begin.

Good morning, everyone. Centerspace Form 10-Q for the quarter ended September 30, 2025, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions.

These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.

Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.

I'll now turn it over to Centerspace's President and CEO, Anne Olson, for the company's prepared remarks.

Thank you for joining us today. I'm here with our SVP of Investments and Capital Markets, Grant Campbell, who will provide some comments on the transaction market and our CFO, Bhairav Patel, who will discuss our guidance and balance sheet.

Centerspace's third quarter and year-to-date results are a testament to the health of our smaller regional markets, our operating platform, which helped us drive exceptional expense control and the strength of our team, which has remained focused, even in light of the significant sale and acquisition activity that we have undertaken.

For the third quarter, we reported 4.5% year-over-year growth in NOI within our same-store portfolio. This is being driven by solid increases in revenue, coupled with excellent execution on expenses. That said, due to timing adjustments related to our planned strategic transactions and associated G&A costs, we are lowering the midpoint of our core FFO guidance by $0.02 to $4.92.

Rob will further discuss the impact of our capital recycling activities when he speaks to our outlook. In June, we announced strategic initiatives that included acquisitions in both Colorado and Utah, and dispositions that reduced our portfolio concentration in Minnesota. We expect to close on the sale of 7 communities in the Minneapolis area yet this month, at which time we will have recycled approximately $212 million of capital and increase the quality and efficiency of our portfolio.

While our current cost of capital has impeded our ability to execute on external growth opportunities, we are committed to enhancing our market position and value for our shareholders. We have many levers we can use to do that, and we will remain disciplined and flexible.

Operationally, our portfolio continues to benefit from the stability of our Midwest markets. Like in 2024, these rates peaked in mid Q2 and remained positive for us, up 1.3% on a blended basis in the quarter and 1.6% year-to-date. Retention has exceeded our initial expectations hitting 60% in both of our peak leasing quarters.

In our largest market of Minneapolis, results benefited from the dual tailwinds of improved occupancy and increasing rental rates where we saw improvement in both new and renewal leases in the quarter, leading to blended increases of 2.1%.

In our other markets, North Dakota continues to be a standout with portfolio-leading blended increases of 5.2% in the quarter. Our Denver portfolio has been challenged by supply pressures and Q3 blended lease rates were down 3.5%. Digging more into Denver, we believe our experience there is truly the result of supply based on absorption data, 2025 has been Denver's second best year ever.

In our portfolio, we are seeing higher quoting of leads with our Q3 lead the lease of 275 basis points year-over-year and higher tenant incomes, which are up 7% versus last year as well as a 70 basis point improvement in our occupancy over Q2.

Some of that occupancy was driven by our decision to offer concessions in this market. We anticipate Denver will return to a more normal environment as we move through 2026, and we remain optimistic.

I'll ask Grant to comment on the state of the transaction market.

Thanks, Anne, and good morning, everyone. On a macro level, while we do not expect transaction volumes to return to 2021 and 2022 levels in the near term, this year has produced more transaction activity compared to the last 2 years.

We are seeing investors display conviction in placing capital, and this dynamic should drive value for our shareholders. Our recent transaction initiatives position the portfolio well for continued long-term growth. In May, we closed the acquisition of Sugar mount in Salt Lake City. And in July, we expanded our Fort Collins presence with the acquisition of Railway Flats in Loveland, Colorado, both of which were discussed in detail on last quarter's call.

In the case of Railway Flash, Fort Collins has been a target geography for us as evidenced by 2 of our recent investments occurring there. This market has displayed outperformance in annual rent growth, absorption and vacancy when compared to Metro Denver.

Within our portfolio, for Collins retention is 800 basis points ahead of Denver in the quarter and Fort Collins occupancy is our strongest year-over-year increase across our portfolio markets. To fund these acquisitions, we completed the sale of our St. Cloud, Minnesota portfolio in September for $124 million, exiting us from that market. Investor reception was strong with buyer interest ranging from individual community offers to portfolio offers.

This portfolio transaction of lower growth prospect communities priced at a mid-6% cap rate well inside of the mid-7% implied portfolio cap rate our stock trades at today. In addition, this week, we anticipate closing the sale of 7 communities in Minneapolis for $88.1 million. These 7 assets are smaller communities, totaling 679 homes. This transaction will price at a high 5% cap rate, again, well inside the implied portfolio cap rate we trade at today.

Upon completion of this sale, our remaining Minneapolis portfolio will be higher quality, increasingly suburban with 87% of NOI located in suburban submarkets and operationally more efficient with NOI margin for the Minneapolis portfolio increasing approximately 90 basis points as a result of the impending 7 community sale.

Recent comparable trades support low 5% to 5.75% cap rates for our remaining Minneapolis portfolio. Lastly, on the capital allocation front, we repurchased 63,000 shares in the quarter at an average price of $54.86 per share, driven by the current disconnect between public and private market valuation.

I'll now turn it over to Bhairav to discuss our financial results and guidance.

Thanks, Grant, and hello, everyone. Last night, we reported third quarter core FFO of $1.19 per diluted share driven by a 4.5% year-over-year increase in same-store NOI. This NOI growth was driven by a 2.4% increase in same-store revenues with revenue growth composed of a 20 basis point increase in occupancy and a 2.2% increase in average monthly revenue per occupied home.

On the same-store expense side, Q3 numbers were down 80 basis points year-over-year with controllable expenses up 3.4% and noncontrollables down 7.6% due to favorability in both property taxes and insurance.

Specifically on property taxes, we trued up our accrual based on recently received assessments of value for Colorado which were much lower than initially anticipated.

Turning to guidance. We now anticipate full year core FFO per diluted share of $4.88 to $4.96 per share with expectations for 2025 same-store NOI growth of 3% to 3.5%.

Within NOI, we expect same-store revenues to grow by 2% to 2.5% for the year. This reduction is driven mainly by the impact of concessionary activity in Denver. As a reminder, concessions are amortized over the lease term, and as such, a portion of the noncash amortization will be realized in the fourth quarter and in 2026.

Positive results and expenses are more than offsetting this with same-store expenses not expected to only increase by 75 basis points. Core FFO guidance is lower at the midpoint by $0.02 per share due to higher expectations for G&A and interest expense, offset by higher NOI with the timing of our dispositions putting a significant role in those differences.

On our balance sheet, our recent acquisition of Railway flats, which included the assumption of $76 million of long-dated low-rate debt at 3.26%, as well as the completed same cloud and planned Minneapolis dispositions has improved our debt profile. As these transactions conclude, we expect our net debt to EBITDA to move into a low 7x level by year-end with a pro forma debt profile with an average rate of 3.6% and average time to maturity of 7.2 years.

To conclude, this was a good quarter for Centerspace with our results demonstrating our commitments to both operational excellence and financial discipline and setting us up for the fourth quarter and into 2026.

The Operator, please open the line for questions.

[Operator Instructions]

Our first question comes from Brad Heffern with RBC Capital Markets.

On the repurchase, obviously, a very attractive use of capital right now, just given where the stock is trading, but it does compete against your goals of reducing leverage and increasing the float. So I'm just wondering how you think about the balance.

Yes. And thanks for the question. That's something we think about every day when we have the opportunity to buy back. And I think as you'll see in this quarter, it was a very small use of proceeds, just a few million dollars. Really, we outperformed on the St. Cloud sales from where we thought that, that would trade having gross purchase price of $124 million.

And so when we look at the allocation of capital there, we took some of those excess proceeds. We agree that this is a good use of capital and really sends another signal about where we think the value of the company is. And and our conviction about what we think it's worth.

Okay. Got it. And then for Minneapolis, you gave some numbers in the prepared comments seems like the market is showing some pretty strong signs of recovery. Can you just talk about your expectations going forward? Is that sort of a return to normalcy over the next couple of years? Or would you expect to see a period of above-average performance as sort of a catch-up?

I think we're seeing right now a return to normalcy in Minneapolis. And as we look towards next year, we are expecting that it's going to outperform its historical -- it hit its peak deliveries. We've had excellent absorption. And if we look at third-party data, CoStar, RealPage, Other, Minneapolis is really to be in that kind of top 5 of U.S. markets for rent growth headed into 2026.

So we are expecting a little bit of outperformance there next year. We're optimistic that we're going to be able to capture that strong rent growth and pulled our expenses in line to drive good NOI out of Minneapolis..

Our next question comes from John Kim with BMO Capital Markets.

This is Robin Haneland sitting in for John. It sounds like FEMSA revenue was mostly cap driven by Denver weakness. Could you maybe update us on what you're expecting for the earn-in for '26?

Yes, sure. From an earn-in perspective, we're sitting just a share above at the moment. And as you said, Robin, it captures some of the weakness in Denver, where we're seeing some heavy concessions. So at the moment, about 1%, maybe slightly above.

Got it. And then specifically on Denver, could you just elaborate on the concession levels and how long you expect them to persist?

Yes, certainly. So I'd say concession levels in Denver within our portfolio range from no concessions at a couple of our properties, where we have still seen strong occupancy and good absorption demand there. To 6 weeks free, maybe some waiving of application fees. On the market as a whole, it varies pretty widely. We're seeing up to 2 months free, 8 weeks free, 10 in some pretty isolated instances. But I'd say with respect to our portfolio's concession relative to the market, we're either at or a little bit under what market concessions are.

So the portfolio is taking a little bit of doing quite a little bit of recycling for callings Loveland seems to be targeted markets today. Can you just maybe give us how new leads performed in those 2 markets and how they differ from Denver fundamentals?

Yes. So we are looking at 4 columns, as you said, that is a target market for us. And what we're thinking about there is really just trying to get a little bit of scale in that market. We now have 2 assets in the Fort Collins area. And I'd say when we look at outperformance there relative to the Denver submarket, great commented a little on that, and I'm going to have him just take that and give you some stats on what the difference is there between Fort Collins and Denver.

Yes. I think that outperformance is a result of the supply dynamic deliveries peaked there in 2024 really concentrated in the second and third quarter. In terms of the total number of units delivered at the peak, it was measured at about 7% to 8% of total inventory.

So a more overall more muted supply profile. And then when you look at really any time period kind of over the last 3 years, you'll see rent growth that has outpaced Denver to the tune of about 450 basis points. And then also absorption or demand as a percent of inventory has been pretty robust as well, outperforming to the tune of 600 to 700 basis points compared to Denver over that same time period.

And lastly for me, how are you thinking about recycling the $88 million of sales expected across repurchases, acquisitions and debt.

Yes. Sorry, Robin, was that question about recycling with respect to the sales that are pending here in Minneapolis.

Yes.

Yes. So that we have already acquired that has already -- those proceeds have already been spoken for. And so that is part of the acquisitions that we did in Salt Lake City and Fort Collins. So these proceeds will be used solely to pay down the debt that we incurred to -- when we undertook those transactions.

Our next question comes from Jamie Feldman with Wells Fargo.

Great. So can you talk about your blended lease growth expectations for the fourth quarter? Where are you sending out new and renewal leases and then also just as we think about we're in the slowest time of the year, what do you think January, February could look like before we get back to spring leasing season?

Yes. So for the fourth quarter, renewals are out for the rest of the year. October renewals still in the high 2% to low 3% range. So that's pretty strong. But the new lease trade-outs remain negative. So there's no real material change in trend relative to Q3 that we've seen so far. But from an occupancy standpoint, it remains stable and the exposure is trending in the right direction.

Overall, for the portfolio, we're showing exposure in the low 5% range because it's a good place to be. As we think about Jan and Feb, it's hard to say. We still need to make it through the next couple of months from a concession standpoint in Denver. And if we see some reversal in concessions and stabilization in occupancy, which we are seeing, that will give us a better indication of where next year may start.

Okay. And then can you talk on the expense side, can you talk about the drivers of the higher G&A expense for the year and then also, just as we think about modeling '26, any specific line items that you think could be materially savings year-over-year or growth year-over-year? I know you mentioned the Colorado taxes? Just any onetime items we should be thinking about that could help or hurt?

Yes. So I'll take the G&A question first. There were some additional fees and legal expenses that we incurred in the quarter plus some true-ups, which had an impact on the Q3 numbers. More importantly, none of these are run rate items. So from a run rate perspective, our run rate remains in the $28 million range, in line with what we have previously disclosed.

With respect to Q3, there was a true-up in taxes, specifically in Colorado, which drove the reduction in expense there. We still expect some true-ups in Q4 in other jurisdictions. But overall, that should just bring taxes in about range growth year-over-year, which is pretty normalized. When we think about 2026, there aren't really particularly onetime items that come to mind. One of the expense items that in recent years has driven some volatility in insurance, we should be renewing it in the next couple of weeks.

And at this point, we don't really anticipate a big increase, which is a good outcome just given the 12% reduction we experienced last year. That has typically driven some volatility in year-over-year expense growth over the past couple of years, but that is expected to be a nonfactor when it comes to 2026. So there's no real particular items that come to mind with these updates to taxes. It just seems like taxes would be in a normalized year-over-year pattern.

Okay. And since you mentioned insurance, are you able to ballpark or just give us a range on how they may look across the industry next year? I know you probably don't want to talk about your specifically at?

Yes. No, I mean I think a lot of it depends on when your renewal cycle falls. I mean we are in the process of having those discussions. And -- over the past couple of months, we've had several discussions with the hope that it remains in the low single digits, and that's where it's trending. It might be a little bit favorable, but too early to tell even though it's just a couple of weeks away. But I think overall, it's a huge factor. The renewal cycle with us being at the fag end of the at the year, there might be some activity that drives losses, which we haven't really seen this year.

So we're expecting a favorable outcome this year, which, as I said, is a good follow-up to last year's 12% reduction.

Our next question comes from Connor Mitchell with Piper Sandler.

And you mentioned -- you had some okay commentary on Denver and the supply drag and then grant on some of your kind of focus on the Boulder and Fort Collins and how that's kind of comparing in better rent growth to Denver. I guess just kind of drilling down on both of those.

Can you guys maybe just give us an idea of when you really see Denver, like turning the corner for supply, whether it's earlier in the year or later in the year, it seems like there's kind of more of a drag than we had expected earlier this year into '26. And then the demand around that as well, it sounds like the the income is still growing for Denver and the Colorado market, but maybe any other influences or factors that are really giving you guys some good conviction on Denver and then also the comparison to how you guys want to keep scaling up in Boulder and how you kind of compare those 2 markets within the same state.

Yes. Connor, on the supply front in Denver, obviously, it experienced its peak delivery levels later in the cycle relative to many institutional markets. We look ahead, we really think demand will start to outpace supply in the back half of 2026, and that will certainly carry forward into 2027.

So late '26 into is when we expect demand to start to exceed supply. From a scaling perspective, obviously, Boulder Fort Collins, that is a smaller geographic market relative to the size of Denver. We really like our position in that market with 3 assets now totaling about 980 homes. We do think there could be additional opportunity there, but we're going to be selective and we're going to be targeted in our approach. As it relates to that market. We do have desires to scale other regions within the portfolio, including Salt Lake City, which is a new market for us.

So for Collins, certainly happy with the performance. We'll continue to look at opportunities there, but we'll be targeted in that approach. And then supply in Fort Collins, as I touched on earlier, certainly a more muted supply profile, peak in second and third quarter of 2024. That continued demand and absorption that I alluded to earlier is really creating a strong backdrop for fundamentals right now.

Okay. And then maybe just following that line of thinking as well. You guys entered Salt Lake and you're scaling up in Fort Collins, Boulder and Loveland. And then I know that you guys have mentioned just sinking of other markets for new entries as well. Maybe if you could just stack rank that as those 3 options for the capital recycling program and then thinking of expanding presence in the current market, what's that you're expanding it for College Boulder and then or even entering a new market that's been discussed.

Our priority in that ranking, if you will, would be Salt Lake City. We do desire to scale that market. That is important to us, and we're highly focused on that. So that would be at the top of the list with the caveat that it has to be the right opportunity. We're not going to buy a product there just to fill out the pie chart, if you will, it has to make sense, be the right opportunity, and we're going to continue to seek those.

In terms of new markets, we're always thinking about markets internally. We're always having those discussions we'll continue to do that and more to come from our perspective there.

Okay. I appreciate that. And then maybe just turning to the expense side. I think you guys are pretty well set up on Rob. You've gone through that the past couple of years. And then just kind of following the line of question earlier. Is there anything else that needs to be done in setting up rubs or any other expenses as we kind of head into winter? Or should we be thinking about with the winter months coming up.

Yes. I think we are really well set up. As you said, we had deployed rugs across the portfolio that's fully deployed -- all of our assets are on rubs to the extent they can. One thing to be thinking about, which isn't unique to us, but as an industry is that there has been some legislation in Colorado that will limit our ability to pass on RUB that will take effect January 1. And so that will have some negative impact, and we are working right now on what the steps we're going to take so that we can make sure that those are built directly to tenants rather than through rub. So there may be some disruption there. I think that will be market-wide in Denver as we look towards 2026.

Next question comes from Robert Stevenson from Janney.

You guys lowered the value-add expenditure guidance by $2 million at the midpoint -- was that due to the Minnesota sales? Or did you pull back on redevelopment within the core portfolio?

Rob. No, I think that was more timing driven than anything else. It wasn't really truly driven by the Minneapolis portfolio because we haven't really earmarked much capital to be deployed at those assets, knowing that we were going to dispose them. So it was -- it's more timing driven than anything else that's thematic.

Okay. How aggressive are you in starting new projects today given the status of your various markets operationally?.

I'd say right now, we're very focused on things that can enhance the portfolio overall. So broad-based ways to save water, electricity, value-add enhancements that can drive operating expense reductions, such as our smart rent implementation, where we installed leak detectors and keyless entries. But we're really trying to be mindful of our cost of capital that is driving up the return that we need to see on investments.

And then also with the softer market, we really wanted to have conviction around getting the premiums that we need in order to get to the hurdles that we want to see given our cost of capital and the return expected. So we pulled back a little bit on things like unit renovations and common area renovations, but we are still looking at broader portfolio-wide initiatives that can drive in particular operating expense reduction.

Okay. And then last one for me. Bhairav, when does the $93 million of secured debt mature in 2026? Is that early in the year, late in the year?

I think it's in the first half, some in the first quarter and some in the second quarter. So it's all done in the first half or by June.

Okay. And what is your best option for debt today to refinance? And where is that pricing?

Yes. I mean what's maturing is secured debt, that's available in the low 5% range can be driven a little bit lower based on leverage. So that's an option. The other option we have is following the pay down in the line of credit. Once we close the dispositions, we'll have a lot of capacity on the line of credit. One of the reasons we expanded the line of credit was to give us flexibility just given the disconnect between short-term rates and long-term rates. So that's another source of potential funding that allows us to keep the spread low and also pick up maybe a few basis points on the spread between short-term rates and long-term rates.

Overall, the availability of debt capital.It's a pretty favorable environment from a debt capital standpoint for the sector. So there's multiple sources of debt, including bank debt if needed. So we have a range of options that we can utilize to refinance the upcoming maturities.

Okay. Appreciate the time this morning.

Our next question comes from Ami Probandt with UBS.

The revenue growth leaders have been Omaha and North Dakota. And while those remained strong in the quarter, the same-store revenue growth is decelerating. So I'm wondering if there's anything to point to there that's leading to a bit lower growth.

Yes, Amy, it's really Denver. It's really the offset from Denver having still decelerating a little bit. and having negative new lease growth. So as strong as North Dakota and Omaha, they're smaller portions of our portfolio and really that deceleration overall in projected revenue growth for the year is because of Denver.

Okay. And is there anything to call out for Omaha or North Dakota specifically that they're also decelerating?

No, I think just see seasonality. We're getting into the winter months. We have fewer expirations. There is less demand as we move through the quarter. And we did see that peak leasing has really moved from what was the end of June, July historically into May. So that seasonality comes down a little bit faster during the year.

We see really strong renewals in both of those regions. So that is great to see and will help keep that revenue boosted.

Got it. And then I guess on that note, are you doing any lease expiration management to try to shift more of your leases towards more of that May peak leasing season, especially as opposed to the winter where there's not a ton of demand in those upper Midwest markets?

Yes, always. So we are constantly watching that lease expiration profile. It's a very large part of our revenue management as we look to see what the most attractive lease term for us is as well as where we can drive pricing those lease terms. So we have been consciously working on maintaining that -- you may recall, Amy, several years ago, we kind of completely redid the lease expiration profile after not having managed it to match the demand cycle, and that's been a constant focus for us these past few years.

Got it. And then last 1 for me. You've seen a pretty consistent trend of same-store revenue per home growth being above same-store rent growth. Is that mainly driven by -- or is there something else that's causing that spread to remain elevated? And do you think it's sustainable?

Yes. It is mostly driven by Rob. We also have things like pet rents -- and that is sustainable. That has grown over time, where we see more and more people having that ancillary items on their lease? And then Bhairav, do you want to comment on that as well?

Yes. And when you kind of think about it specifically on a quarter-to-quarter basis, there can be some timing volatility. But overall, as Anne mentioned, it's really some of the other line items from a revenue standpoint.

Our next question comes from Rich Anderson with Cantor Fitzgerald.

Just a couple of really quick modeling questions first. So NAREIT FFO went up $0.02. Core FFO went down $0.02. Can you just -- what's the $0.04 swing factor in the normalized lines?

Yes. I mean I can look into it further. But overall, from a core FFO standpoint, the key driver is really the G&A spike that we saw in Q3 that kind of stays with us in Q4. So that's really what's driving the core FFO and I can look into it further and tell you what the difference is between the two.

Okay. And then in terms of expense growth, you talked a lot about tax true-ups and whatnot. But if I'm doing this right, the 4Q number is sort of very impressive from a year-over-year basis, something like 4% reduction in same-store expenses. Is that in the ballpark that what you're seeing? Or are we doing something wrong here?

Yes. So that's in the ballpark. One of the reasons is it's a favorable comp for us this quarter because we had some R&M expenses last year. that were pushed into Q4 and some -- so that was really driving the R&M expense higher last year. So it is a favorable comp. There is some benefit from the valuations that we received in Colorado, plus we expect some additional benefit in some of the other jurisdictions.

So when you kind of put it all together, -- that is what's creating that year-over-year number that you're seeing is in the ballpark that we have as well.

Okay. Great. All right. Now some real questions. So you've had some success in St. Cloud, as you mentioned, and you did better than you thought. -- still the negative spread between sales and purchases some 150, 200 basis points. Now as you look ahead into 2026 you're not going to give me guidance, I don't think, but do you think that, that spread will hold as you continue to pursue this trade strategy? Or is there something about the environment or where you might sell and where you might buy where that spread between buys and sells might change in one direction or another?

Yes, I'll start, and then I'll ask Grant to comment on where you think cap rates are and going into 2026 for the markets that we're targeting. I don't think there's going to be a big change. We haven't seen much volatility in cap rates overall, either in the regional markets where we may look to sell or the markets that we're buying in. With respect to the current portfolio and where we might target sales, where we may see some difference is if we do have the experience, particularly in Minneapolis, that we're projecting into 2026 where they're well into the recovery demand and absorption has been really strong, and we're expecting strong rent growth.

We could see the cap rates on the sales on any sales in Minneapolis and even places like North Dakota, where we have had a really good experience, and they've now had several years of very strong growth. We could see those come in a little bit. And then Grant, what do you think about any movements on target market cap rates?

Yes. Target market cap rates have been pretty constant here recently, well-located core communities in Denver, pricing in the high 4s, Salt Lake City, mid- to high 4s. Core communities in Minneapolis pricing in the low 5s. And then when you slide into the Class B space, well located, Minneapolis or Denver B is generally, call it, 5.5 to 5 in 3 quarters. We don't see -- as we sit today, any significant change to that profile. I think one theme that we have seen as we've explored sales in markets like St. Cloud or talk to others is there really is a deep bid right now for the secondary and tertiary market products.

So there's a lot of capital desiring to be in those locations. They can obtain financing that is attractive to them. So we've really seen a strong bid and strong pricing in those markets. That's something we are monitoring as we think about our future actions where were those cap rates settle.

We're clearly focused on what's that differential and what does it do to our earnings and the immediate future of our earnings. But we're really trying to balance that with what is the best growth profile for the company longer term and what provides us with the liquidity we need that's demanded by public market investors and where we can take the company from a growth perspective over a longer period of time.

Great. Okay. And then on Denver, you mentioned maybe fortunate to start to turn in 2027. It is a big market for you, of course. Have you given any thought to moving around within Denver? Or do you think that the exposure to Denver will change as your -- as the world around it changes? And the reason I ask is you could probably get some decent cap rates there if you were to sell some assets and reduce your exposure to Denver, I don't know that, that's your plan.

But I'm just wondering if you're having any change of thought about your exposure to Denver and if there might be any transaction activity buys or cells, maybe you get in front of what will be a recovery eventually. I'm just curing if you have any change of heart around Denver and your process in the transaction market.

We like our position in Denver. We like how our portfolio lays out geographically as well as the different product type offerings that we have within our portfolio. So I would say no concrete plans to significantly change that composition via transactions. With that said, we always pick up the phone if people reach out and have an idea or a thought and we'll continue to do that. So if somebody reaches out regarding one of our Denver communities, we will listen to them. But overall, we like our position.

I think more so the exposure level that Denver provides within our portfolio will change as the world around it, as you alluded to, pages here over the course of 2026 and 2027.

Great. And last for me, leverage ticks down to low 7s after you're done with everything that's on the plate right now. Do you foresee a 6 handle at some point in your future in 2026? Or should we be assuming kind of a 7-ish type of leverage number for you guys -- for the foreseeable future?

Yes. I mean the 6 comes through some natural deleveraging as earnings grow. Obviously, as you know, there's some portfolio repositioning that we've been doing. So things may be volatile for a while, as you saw this year. But from our perspective, the focus always remains on managing it at -- in the low 7s at the moment and then learning a tick down with some natural deleveraging to earnings.

Our next question comes from Mason Guell with Baird.

Which of your smaller markets do you expect to outperform next year? And then when do you expect your larger markets to take lead in the portfolio over your smaller markets?

Yes. I think we really have a lot of confidence that North Dakota is going to continue to perform. It's been outperforming our other markets. We see that continuing into 2026. I think Minneapolis is going to be close on its tail next year with some really good tailwinds we have here, particularly with respect to how much demand we've seen in this market.

And then I think it's 2027, as Graham kind of alluded to before, we're really seeing the dearth of new supply coming online that can impact growth rates overall. So next year, I keep a close eye on North Dakota again. And then into 2027, we might see Denver and Minneapolis really start to outpace that.

Great. And can you talk about what drove the [indiscernible] guidance?

I'm sorry, Mason. Can you repeat that question?

Yes. Just could you talk about what drove the lower disposition proceeds guidance?

Yes. Mason, from overall, the disposition proceeds when you compare it for all the assets were in line. We outperformed in St. Cloud a little bit. Minneapolis came in a little bit below what we had initially expected. That is mostly driven by the fact that the portfolio in Minneapolis is a little disparate. It's a collection of different kind of assets. And we were prioritizing execution there. through the sale to a single bidder, which helps us from a 1031 standpoint, which was an integral part of this overall recycling. -- transaction.

So a bunch of different factors led us to prioritize execution we're just optimizing the proceeds given everything that was incorporated within the transaction.

[Operator Instructions]

Our next question comes from Buck Horne with Raymond James.

Just a couple of quick ones for me. it sounds like you're doing a great job on resident retention in this environment and managing through the supply and sounds like there's not a lot of movement from existing tenants. I'm just wondering though, to what extent -- I mean, there's been a lot of talk about the weakening of the job market, particularly for young adults, recent college graduates just kind of financial pressures that are building on kind of the younger cohort.

Are you seeing any signs of that in your recent new lease traffic? Or any thought -- is there any degradation in the renter tenant profiles? Or what are you kind of seeing in terms of front door leasing demand?

Yes. This is a great question. We haven't seen anything now. It's a little hard to bifurcate. So a couple of things that we have seen. -- that we mentioned. -- incomes continue to rise. So -- and rent-to-income ratios are staying pretty steady. I think we're at 22%. So the -- our bad debt has held really low, which is great. So we feel great about the health of the renter. Retention is higher, as you mentioned, the average age of our resident has ticked up. And also the average amount of time that their tenure with us overall is ticking up.

So it's hard to say if you look at that age is going up. Is that an indication that we're not seeing as many younger renters coming to the market? Maybe it could also just be a factor of the not as many people able to buy homes at the same age as they historically have. But we're not seeing any degradation in traffic overall other than just in Denver, the market the traffic has been a little softer in the market.

But it has no indication that we're -- there hasn't been a big spike in age of resonance showing that we are getting that younger, younger renters still in -- we haven't seen a change in the average residents per household either. So there's really no evidence that people are starting to double up. If anything, buck, it may bode well for us if they're moving home for their parents, that will create future demand for us.

Right.Right. No, I appreciate the color there. That's very helpful. And just last one, following up the value-add CapEx shift. I mean, would that -- it sounds like the hurdle rate is getting a little higher, would you consider diverting some of those previously budgeted proceeds to share repurchases in the year-end?

Yes. I think when I -- the levers that we have to pull would be not only share repurchases, but debt reduction. So we're looking at every option. It's too small amount to really allocate in a meaningful way to new acquisitions, but definitely look at debt reduction and share repurchases as alternative uses of that capital.

Thank you very much. We currently have no further questions, so I'll hand back over to Anne for any closing remarks.

Yes. Thanks, everyone, for joining us today. We'd be remiss if we didn't acknowledge again our team who did such a great job this quarter and we are going to continue into 2026. Given the environment, we think we're putting up great results for our shareholders, and we're going to keep that at the forefront of everything we do. Have a great day.

Thank you very much, Anne thank you, everyone, for joining. That concludes today's call. You may now disconnect your lines.