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2022-02-01

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

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

For the quarterly period ended June 30, 2022
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________
Commission File Number 001-35624
CENTERSPACE
(Exact name of registrant as specified in its charter)

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

(701) 837-4738
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yes | ☑ |  | No | ☐

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

Yes | ☑ |  | No | ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes | ☐ |  | No | ☑

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

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

The number of common shares of beneficial interest outstanding as of July 25, 2022, was 15,372,353.

Table of Contents
TABLE OF CONTENTS

| Page
Part I. Financial Information |
Item 1. Financial Statements - Second Quarter - 2022: | 3
Condensed Consolidated Balance Sheets June 30, 2022 (unaudited) and December 31, 2021 | 3
Condensed Consolidated Statements of Operations (unaudited) For the Three and Six Months ended June 3 0, 2022 and 2021 | 4
Condensed Consolidated Statements of Comprehensive Income (unaudited) For the Three and Si x Months ended June 3 0, 2022 and 2021 | 5
Condensed Consolidated Statements of Equity (unaudited) For the Three and Six Months ended June 3 0, 2022 and 2021 | 6
Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months ended June 3 0, 2022 and 2021 | 8
Notes to Condensed Consolidated Financial Statements (unaudited) | 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 33
Item 4. Controls and Procedures | 34
Part II. Other Information |
Item 1. Legal Proceedings | 35
Item 1A. Risk Factors | 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 35
Item 3. Defaults Upon Senior Securities | 35
Item 4. Mine Safety Disclosures | 35
Item 5. Other Information | 35
Item 6. Exhibits | 36
Signatures | 37

2

Table of Contents
PART I
Item 1. Financial Statements.
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

| (in thousands, except per share data)
| June 30, 2022 |  | December 31, 2021
ASSETS |  |  |
Real estate investments |  |  |
Property owned | $ | 2,401,427 |  |  | $ | 2,271,170 |
Less accumulated depreciation | (487,834) |  |  | (443,592) |
| 1,913,593 |  |  | 1,827,578 |
Mortgage loans receivable at fair value | — |  |  | 43,276 |
Total real estate investments | 1,913,593 |  |  | 1,870,854 |
Cash and cash equivalents | 13,156 |  |  | 31,267 |
Restricted cash | 1,914 |  |  | 7,358 |
Other assets | 18,950 |  |  | 30,582 |
TOTAL ASSETS | $ | 1,947,613 |  |  | $ | 1,940,061 |
LIABILITIES, MEZZANINE EQUITY, AND EQUITY |  |  |
LIABILITIES |  |  |
Accounts payable and accrued expenses | $ | 48,077 |  |  | $ | 62,403 |
Revolving lines of credit | 73,000 |  |  | 76,000 |
Notes payable, net of unamortized loan costs of $626 and $656, respectively | 299,374 |  |  | 299,344 |
Mortgages payable, net of unamortized loan costs of $3,632 and $3,187, respectively | 497,917 |  |  | 480,703 |
TOTAL LIABILITIES | $ | 918,368 |  |  | $ | 918,450 |
COMMITMENTS AND CONTINGENCIES (NOTE 10) |  |  |
SERIES D PREFERRED UNITS (Cumulative convertible preferred units, $100 par value, 166 units issued and outstanding at June 30, 2022 and December 31, 2021, aggregate liquidation preference of $16,560) | $ | 18,627 |  |  | $ | 25,331 |
EQUITY |  |  |
Series C Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, $25 per share liquidation preference, 3,881 shares issued and outstanding at June 30, 2022 and December 31, 2021, aggregate liquidation preference of $97,036) | 93,530 |  |  | 93,530 |
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 15,373 shares issued and outstanding at June 30, 2022 and 15,016 shares issued and outstanding at December 31, 2021) | 1,207,849 |  |  | 1,157,255 |
Accumulated distributions in excess of net income | (511,552) |  |  | (474,318) |
Accumulated other comprehensive income (loss) | (2,362) |  |  | (4,435) |
Total shareholders’ equity | $ | 787,465 |  |  | $ | 772,032 |
Noncontrolling interests – Operating Partnership and Series E preferred units | 222,528 |  |  | 223,600 |
Noncontrolling interests – consolidated real estate entities | 625 |  |  | 648 |
Total equity | $ | 1,010,618 |  |  | $ | 996,280 |
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY | $ | 1,947,613 |  |  | $ | 1,940,061 |

See accompanying Notes to Condensed Consolidated Financial Statements.
3

Table of Contents
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

| (in thousands, except per share data)
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
REVENUE | $ | 63,116 |  |  | $ | 46,656 |  |  | $ | 123,430 |  |  | $ | 93,304 |
EXPENSES |  |  |  |  |  |  |
Property operating expenses, excluding real estate taxes | 19,011 |  |  | 13,018 |  |  | 38,025 |  |  | 26,467 |
Real estate taxes | 7,205 |  |  | 5,742 |  |  | 14,064 |  |  | 11,534 |
Property management expense | 2,721 |  |  | 2,085 |  |  | 4,974 |  |  | 3,852 |
Casualty (gain) loss | 382 |  |  | (27) |  |  | 980 |  |  | 74 |
Depreciation and amortization | 24,768 |  |  | 19,308 |  |  | 55,769 |  |  | 39,300 |
General and administrative expenses | 5,221 |  |  | 3,797 |  |  | 9,721 |  |  | 7,703 |
TOTAL EXPENSES | $ | 59,308 |  |  | $ | 43,923 |  |  | $ | 123,533 |  |  | $ | 88,930 |
Gain (loss) on sale of real estate and other investments | 27 |  |  | 26,840 |  |  | 27 |  |  | 26,840 |
Operating income (loss) | 3,835 |  |  | 29,573 |  |  | (76) |  |  | 31,214 |
Interest expense | (7,561) |  |  | (7,089) |  |  | (15,276) |  |  | (14,320) |
Interest and other income (loss) | (17) |  |  | 619 |  |  | 1,046 |  |  | 1,050 |
NET INCOME (LOSS) | $ | (3,743) |  |  | $ | 23,103 |  |  | $ | (14,306) |  |  | $ | 17,944 |
Dividends to Series D preferred unitholders | (160) |  |  | (160) |  |  | (320) |  |  | (320) |
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | 950 |  |  | (1,386) |  |  | 3,107 |  |  | (917) |
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities | (38) |  |  | (19) |  |  | (61) |  |  | (36) |
Net income (loss) attributable to controlling interests | (2,991) |  |  | 21,538 |  |  | (11,580) |  |  | 16,671 |
Dividends to preferred shareholders | (1,607) |  |  | (1,607) |  |  | (3,214) |  |  | (3,214) |
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | (4,598) |  |  | $ | 19,931 |  |  | $ | (14,794) |  |  | $ | 13,457 |
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC | $ | (0.30) |  |  | $ | 1.49 |  |  | $ | (0.97) |  |  | $ | 1.02 |
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED | $ | (0.30) |  |  | $ | 1.48 |  |  | $ | (0.97) |  |  | $ | 1.02 |

See accompanying Notes to Condensed Consolidated Financial Statements.
4

Table of Contents
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

| (in thousands)
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income (loss) | $ | (3,743) |  |  | $ | 23,103 |  |  | $ | (14,306) |  |  | $ | 17,944 |
Other comprehensive income: |  |  |  |  |  |  |
Unrealized gain (loss) from derivative instrument | — |  |  | (386) |  |  | 1,581 |  |  | 1,625 |
(Gain) loss on derivative instrument reclassified into earnings | 188 |  |  | 1,120 |  |  | 492 |  |  | 2,216 |
Total comprehensive income (loss) | $ | (3,555) |  |  | $ | 23,837 |  |  | $ | (12,233) |  |  | $ | 21,785 |
Net comprehensive (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | 984 |  |  | (1,430) |  |  | 3,463 |  |  | (1,169) |
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities | (38) |  |  | (19) |  |  | (61) |  |  | (36) |
Comprehensive income (loss) attributable to controlling interests | $ | (2,609) |  |  | $ | 22,388 |  |  | $ | (8,831) |  |  | $ | 20,580 |

See accompanying Notes to Condensed Consolidated Financial Statements.
5

Table of Contents
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

| (in thousands, except per share data)
Six Months Ended June 30, 2021 | PREFERRED SHARES | NUMBER OF COMMON SHARES |  | COMMON SHARES |  | ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME |  | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |  | NONCONTROLLING INTERESTS |  | TOTAL EQUITY
Balance December 31, 2020 | $ | 93,530 |  | 13,027 |  |  | $ | 968,263 |  |  | $ | (427,681) |  |  | $ | (15,905) |  |  | $ | 54,616 |  |  | $ | 672,823 |
Net income (loss) attributable to controlling interests and noncontrolling interests |  |  |  |  |  | 16,671 |  |  |  |  | 953 |  |  | 17,624 |
Change in fair value of derivatives |  |  |  |  |  |  |  | 3,841 |  |  |  |  | 3,841 |
Distributions - common shares and units ($1.40 per share and unit) |  |  |  |  |  | (19,086) |  |  |  |  | (1,282) |  |  | (20,368) |
Distributions – Series C preferred shares ($0.828125 per Series C share) |  |  |  |  |  | (3,214) |  |  |  |  |  |  | (3,214) |
Share-based compensation, net of forfeitures |  | 27 |  |  | 1,487 |  |  |  |  |  |  |  |  | 1,487 |
Sale of common shares, net |  | 896 |  |  | 66,356 |  |  |  |  |  |  |  |  | 66,356 |
Redemption of units for common shares |  | 95 |  |  | 418 |  |  |  |  |  |  | (418) |  |  | — |
Change in redemption value of Series D preferred units |  |  |  | (1,462) |  |  |  |  |  |  |  |  | (1,462) |
Other |  | — |  |  | (1,122) |  |  |  |  |  |  | (79) |  |  | (1,201) |
Balance June 30, 2021 | $ | 93,530 |  | 14,045 |  |  | $ | 1,033,940 |  |  | $ | (433,310) |  |  | $ | (12,064) |  |  | $ | 53,790 |  |  | $ | 735,886 |
Six Months Ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Balance December 31, 2021 | $ | 93,530 |  | 15,016 |  |  | $ | 1,157,255 |  |  | $ | (474,318) |  |  | $ | (4,435) |  |  | $ | 224,248 |  |  | $ | 996,280 |
Net income (loss) attributable to controlling interests and noncontrolling interests |  |  |  |  |  | (11,580) |  |  |  |  | (3,046) |  |  | (14,626) |
Change in fair value of derivatives |  |  |  |  |  |  |  | 2,073 |  |  |  |  | 2,073 |
Distributions - common shares and units ($1.45 per share and unit) |  |  |  |  |  | (22,440) |  |  |  |  | (1,454) |  |  | (23,894) |
Distributions – Series C preferred shares ($0.828125 per Series C share) |  |  |  |  |  | (3,214) |  |  |  |  |  |  | (3,214) |
Distributions - Series E preferred units ($1.93750 per unit) |  |  |  |  |  |  |  |  |  | (3,515) |  |  | (3,515) |
Share-based compensation, net of forfeitures |  | 25 |  |  | 1,199 |  |  |  |  |  |  |  |  | 1,199 |
Sale of common shares, net |  | 321 |  |  | 31,569 |  |  |  |  |  |  |  |  | 31,569 |
Issuance of units |  |  |  | 13,023 |  |  |  |  |  |  | 9,859 |  |  | 22,882 |
Redemption of units for common shares |  | 11 |  |  | (375) |  |  |  |  |  |  | 375 |  |  | — |
Redemption of units for cash |  |  |  |  |  |  |  |  |  | (3,230) |  |  | (3,230) |
Change in redemption value of Series D preferred units |  |  |  | 6,704 |  |  |  |  |  |  |  |  | 6,704 |
Shares withheld for taxes |  |  |  | (1,273) |  |  |  |  |  |  |  |  | (1,273) |
Other |  | — |  |  | (253) |  |  |  |  |  |  | (84) |  |  | (337) |
Balance June 30, 2022 | $ | 93,530 |  | 15,373 |  |  | $ | 1,207,849 |  |  | $ | (511,552) |  |  | $ | (2,362) |  |  | $ | 223,153 |  |  | $ | 1,010,618 |

See accompanying Notes to Condensed Consolidated Financial Statements.
6

Table of Contents
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

| (in thousands, except per share data)
Three Months Ended June 30, 2021 | PREFERRED SHARES | NUMBER OF COMMON SHARES |  | COMMON SHARES |  | ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME |  | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |  | NONCONTROLLING INTERESTS |  | TOTAL EQUITY
Balance March 31, 2021 | $ | 93,530 |  | 13,220 |  |  | $ | 980,453 |  |  | $ | (443,409) |  |  | $ | (12,798) |  |  | $ | 53,676 |  |  | $ | 671,452 |
Net income (loss) attributable to controlling interests and noncontrolling interests |  |  |  |  |  | 21,538 |  |  |  |  | 1,405 |  |  | 22,943 |
Change in fair value of derivatives |  |  |  |  |  |  |  | 734 |  |  |  |  | 734 |
Distributions - common shares and units ($0.70 per share and unit) |  |  |  |  |  | (9,832) |  |  |  |  | (617) |  |  | (10,449) |
Distributions – Series C preferred shares ($0.4140625 per Series C share) |  |  |  |  |  | (1,607) |  |  |  |  |  |  | (1,607) |
Share-based compensation, net of forfeitures |  | 24 |  |  | 678 |  |  |  |  |  |  |  |  | 678 |
Sale of common shares, net |  | 732 |  |  | 54,574 |  |  |  |  |  |  |  |  | 54,574 |
Redemption of units for common shares |  | 69 |  |  | 638 |  |  |  |  |  |  | (638) |  |  | — |
Change in redemption value of Series D preferred units |  |  |  | (1,462) |  |  |  |  |  |  |  |  | (1,462) |
Other |  | — |  |  | (941) |  |  |  |  |  |  | (36) |  |  | (977) |
Balance June 30, 2021 | $ | 93,530 |  | 14,045 |  |  | $ | 1,033,940 |  |  | $ | (433,310) |  |  | $ | (12,064) |  |  | $ | 53,790 |  |  | $ | 735,886 |
Three Months Ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Balance March 31, 2022 | $ | 93,530 |  | 15,366 |  |  | $ | 1,203,685 |  |  | $ | (495,732) |  |  | $ | (2,550) |  |  | $ | 226,973 |  |  | $ | 1,025,906 |
Net income (loss) attributable to controlling interests and noncontrolling interests |  |  |  |  |  | (2,991) |  |  |  |  | (912) |  |  | (3,903) |
Change in fair value of derivatives |  |  |  |  |  |  |  | 188 |  |  |  |  | 188 |
Distributions - common shares and units ($0.73 per share and unit) |  |  |  |  |  | (11,222) |  |  |  |  | (726) |  |  | (11,948) |
Distributions – Series C preferred shares ($0.4140625 per Series C share) |  |  |  |  |  | (1,607) |  |  |  |  |  |  | (1,607) |
Distributions - Series E preferred units ($0.96875 per unit) |  |  |  |  |  |  |  |  |  | (1,758) |  |  | (1,758) |
Share-based compensation, net of forfeitures |  | 6 |  |  | 480 |  |  |  |  |  |  |  |  | 480 |
Redemption of units for common shares |  | 1 |  |  | 13 |  |  |  |  |  |  | (13) |  |  | — |
Redemption of units for cash |  |  |  |  |  |  |  |  |  | (327) |  |  | (327) |
Change in redemption value of Series D preferred units |  |  |  | 3,785 |  |  |  |  |  |  |  |  | 3,785 |
Other |  | — |  |  | (114) |  |  |  |  |  |  | (84) |  |  | (198) |
Balance June 30, 2022 | $ | 93,530 |  | 15,373 |  |  | $ | 1,207,849 |  |  | $ | (511,552) |  |  | $ | (2,362) |  |  | $ | 223,153 |  |  | $ | 1,010,618 |

7

Table of Contents
CENTERSPACE AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

| (in thousands)
| Six Months Ended June 30,
| 2022 |  | 2021
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income (loss) | $ | (14,306) |  |  | $ | 17,944 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |
Depreciation and amortization, including amortization of capitalized loan costs | 56,124 |  |  | 39,792 |
(Gain) loss on sale of real estate and other investments | — |  |  | (26,840) |
Share-based compensation expense | 1,199 |  |  | 1,487 |
(Gain) loss on interest rate swap termination, amortization, and mark-to-market | (425) |  |  | — |
Other, net | 1,975 |  |  | 2,177 |
Changes in other assets and liabilities: |  |  |
Other assets | 3,131 |  |  | (858) |
Accounts payable and accrued expenses | (13,207) |  |  | (3,128) |
Net cash provided by (used by) operating activities | $ | 34,491 |  |  | $ | 30,574 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |
Increase in mortgages and notes receivable | — |  |  | (12,795) |
Proceeds from sale of real estate and other investments | — |  |  | 59,233 |
Payments for acquisitions of real estate investments | (9,546) |  |  | (77,997) |
Payments for improvements of real estate investments | (13,945) |  |  | (8,993) |
Other investing activities | (56) |  |  | (240) |
Net cash provided by (used by) investing activities | $ | (23,547) |  |  | $ | (40,792) |
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Principal payments on mortgages payable | (25,911) |  |  | (10,326) |
Proceeds from revolving lines of credit | 45,000 |  |  | 136,704 |
Principal payments on revolving lines of credit | (48,000) |  |  | (202,575) |
Net proceeds from notes payable | — |  |  | 49,940 |
Payment for termination of interest rate swap | (3,209) |  |  | — |
Net proceeds from issuance of common shares | 31,569 |  |  | 66,356 |
Redemption of partnership units | (3,205) |  |  | — |
Distributions paid to common shareholders | (22,030) |  |  | (18,373) |
Distributions paid to preferred shareholders | (3,214) |  |  | (3,214) |
Distributions paid to preferred unitholders | (320) |  |  | (320) |
Distributions paid to noncontrolling interests – Operating Partnership and Series E preferred units | (4,842) |  |  | (1,348) |
Other financing activities | (337) |  |  | (298) |
Net cash provided by (used by) financing activities | $ | (34,499) |  |  | $ | 16,546 |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (23,555) |  |  | 6,328 |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 38,625 |  |  | 7,310 |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 15,070 |  |  | $ | 13,638 |

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |  |  |
Accrued capital expenditures | $ | 2,811 |  |  | $ | 2,034 |
Operating partnership units converted to shares | (375) |  |  | 418 |
Distributions declared but not paid to common shareholders | 11,948 |  |  | 10,449 |
Retirement of shares withheld for taxes | 1,272 |  |  | 905 |
Real estate assets acquired through assumption of debt | 41,623 |  |  | — |
Fair value adjustment to debt | 1,224 |  |  | — |
Note receivable exchanged through real estate acquisition | 43,276 |  |  | — |
Real estate assets acquired through issuance of operating partnership units | 22,882 |  |  | — |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |  |  |
Cash paid for interest | $ | 14,439 |  |  | $ | 13,541 |

| (in thousands)
Balance sheet description | June 30, 2022 |  | December 31, 2021 |  | June 30, 2021
Cash and cash equivalents | $ | 13,156 |  |  | $ | 31,267 |  |  | $ | 5,194 |
Restricted cash | 1,914 |  |  | 7,358 |  |  | 8,444 |
Total cash, cash equivalents and restricted cash | $ | 15,070 |  |  | $ | 38,625 |  |  | $ | 13,638 |

See accompanying Notes to Condensed Consolidated Financial Statements.
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CENTERSPACE AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
for the six months ended June 30, 2022 and 2021
NOTE 1 • ORGANIZATION
Centerspace, collectively with its consolidated subsidiaries (“Centerspace,” “the Company,” “we,” “us,” or “our”), is a North Dakota real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment, and development of apartment communities. As of June 30, 2022, Centerspace owned interests in 83 apartment communities consisting of 14,838 apartment homes.
NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Centerspace conducts a majority of its business activities through a consolidated operating partnership, Centerspace, LP (f/k/a IRET Properties), a North Dakota limited partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities. The accompanying Condensed Consolidated Financial Statements include the Company’s accounts and the accounts of all its subsidiaries in which it maintains a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.
The Condensed Consolidated Financial Statements also reflect the Operating Partnership’s ownership of a joint venture entity in which the Operating Partnership has a general partner or controlling interest. This entity is consolidated into the Company’s operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Centerspace’s interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial position, results of operations, and cash flows for the interim periods, have been included.
The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim Condensed Consolidated Financial Statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
As of June 30, 2022 and December 31, 2021, restricted cash consisted primarily of real estate deposits and escrows held by lenders for real estate taxes, insurance, and capital additions.
LEASES
As a lessor, Centerspace primarily leases multifamily apartment homes which qualify as operating leases with terms that are generally one year or less. Rental revenues are recognized in accordance with ASC 842, Leases, using a method that represents a straight-line basis over the term of the lease. Rental income represents approximately 97.9% of total revenues and includes gross market rent less adjustments for gain or loss to lease, concessions, vacancy loss, and bad debt. Other property revenues represent the remaining 2.1% of total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.
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Some of the Company’s apartment communities have commercial spaces available for lease. Lease terms for these spaces typically range from three to fifteen years. The leases for commercial spaces generally include options to extend the lease for additional terms.
Many of the leases contain non-lease components for utility reimbursement from residents and common area maintenance from commercial tenants. Centerspace has elected the practical expedient to combine lease and non-lease components for all asset classes. The combined components are included in lease income and are accounted for under ASC 842.
The aggregate amount of future scheduled lease income on commercial operating leases, excluding any variable lease income and non-lease components, as of June 30, 2022, was as follows:

|  | (in thousands)
2022 (remainder) |  | $ | 1,112 |
2023 |  | 2,599 |
2024 |  | 2,534 |
2025 |  | 2,469 |
2026 |  | 1,876 |
Thereafter |  | 1,528 |
Total scheduled lease income - commercial operating leases |  | $ | 12,118 |

REVENUES AND GAINS ON SALE OF REAL ESTATE
Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration to which the Company expects to be entitled for those goods and services.
Revenue streams that are included in revenues from contracts with customers include other property revenue such as application fees and other miscellaneous items. Centerspace recognizes revenue for these rental related items not included as a component of a lease as earned.
The following table presents the disaggregation of revenue streams for the three and six months ended June 30, 2022 and 2021:

|  |  | (in thousands)
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
Revenue Stream | Applicable Standard |  | 2022 | 2021 |  | 2022 | 2021
Fixed lease income - operating leases | Leases |  | $ | 59,387 |  | $ | 43,659 |  |  | $ | 116,061 |  | $ | 87,499 |
Variable lease income - operating leases | Leases |  | 2,300 |  | 2,103 |  |  | 4,822 |  | 4,072 |
Other property revenue | Revenue from contracts with customers |  | 1,429 |  | 894 |  |  | 2,547 |  | 1,733 |
Total revenue |  |  | $ | 63,116 |  | $ | 46,656 |  |  | $ | 123,430 |  | $ | 93,304 |

In addition to lease income and other property revenue, the Company recognizes gains or losses on the sale of real estate when the criteria for derecognition of an asset are met, including when (1) a contract exists and (2) the buyer obtained control of the nonfinancial asset that was sold.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets, including investments in real estate, for impairment indicators at least quarterly. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each property, and legal and environmental concerns. If indicators exist, the Company compares the expected future undiscounted cash flows for the property against the carrying amount of that property. If the sum of the estimated undiscounted cash flows is less than the carrying amount, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount. If the anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, the evaluation of impairment charges may be different and such differences could be material to the consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates, and capital requirements that could differ materially from actual results. Reducing planned property holding periods may increase the likelihood of recording impairment losses.
During the three and six months ended June 30, 2022 and 2021, the Company recorded no impairment charges.
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MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE
The Company has a tax increment financing note receivable (“TIF”) with a principal balance of $6.3 million and $6.4 million at June 30, 2022 and December 31, 2021, respectively, which appears within other assets in the Condensed Consolidated Balance Sheets. The note bears an interest rate of 4.5% with payments due in February and August of each year.
Centerspace originated a $29.9 million construction loan and a $15.3 million mezzanine loan for the development of a multifamily community located in Minneapolis, Minnesota. The construction and mezzanine loans bore and accrued interest at 4.5% and 11.5%, respectively. The Company exercised its option to purchase the apartment community in exchange for the loans and cash, during the six months ended June 30, 2022. As of June 30, 2022, the loans had no remaining balance. As of December 31, 2021, the Company had fully funded the $29.9 million construction loan and $13.4 million of the mezzanine loan, both of which appear within mortgage loans receivable in the Condensed Consolidated Balance Sheets.
VARIABLE INTEREST ENTITIES
Centerspace has determined that its Operating Partnership and each of its less-than-wholly owned real estate partnerships are variable interest entities (each, a “VIE”), as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on the balance sheet because the Company has a controlling financial interest in the VIEs and has both the power to direct the activities of the VIEs that most significantly impact the economic performance of the VIEs as well as the obligation to absorb losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Because the Operating Partnership is a VIE, all of the Company’s assets and liabilities are held through a VIE.
NOTE 3 • EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares of beneficial interest (“common shares”) outstanding during the period. Centerspace has issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under the 2015 Incentive Plan, Series D Convertible Preferred Units (“Series D preferred units”), and Series E Convertible Preferred Units (“Series E preferred units”), which could have a dilutive effect on the earnings per share upon exercise of the RSUs or ISOs or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the Series D and the Series E preferred units). Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, there are no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their limited partnership units (“Units”) any time following the first anniversary of the date they acquired such Units (“Exchange Right”). Upon the exercise of Exchange Rights, and in Centerspace’s sole discretion, it may issue common shares in exchange for Units on a one-for-one basis.
For the three months ended June 30, 2022, operating partnership units of 995,000, Series D preferred units of 228,000, Series E preferred units of 2.2 million, time-based RSUs of 9,000, weighted average stock options of 39,000, and performance-based RSUs of 30,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the three months ended June 30, 2021, weighted average stock options of 44,000 and performance-based RSUs of 31,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the six months ended June 30, 2022, operating partnership units of 978,000, Series D preferred units of 228,000, Series E preferred units of 2.2 million, time-based RSUs of 11,000, weighted average stock options of 46,000, and performance-based RSUs of 30,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
For the six months ended June 30, 2021, weighted average stock options of 44,000 and performance-based RSUs of 28,000, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2022 and 2021.
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| (in thousands, except per share data)
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
NUMERATOR |  |  |  |  |  |  |
Net income (loss) attributable to controlling interests | $ | (2,991) |  |  | $ | 21,538 |  |  | $ | (11,580) |  |  | $ | 16,671 |
Dividends to preferred shareholders | (1,607) |  |  | (1,607) |  |  | (3,214) |  |  | (3,214) |
Numerator for basic earnings (loss) per share – net income available to common shareholders | (4,598) |  |  | 19,931 |  |  | (14,794) |  |  | 13,457 |
Noncontrolling interests – Operating Partnership and Series E preferred units | (950) |  |  | 1,386 |  |  | (3,107) |  |  | 917 |
Dividends to preferred unitholders | 160 |  |  | 160 |  |  | 320 |  |  | 320 |
Numerator for diluted earnings (loss) per share | $ | (5,388) |  |  | $ | 21,477 |  |  | $ | (17,581) |  |  | $ | 14,694 |
DENOMINATOR |  |  |  |  |  |  |
Denominator for basic earnings per share weighted average shares | 15,369 |  |  | 13,353 |  |  | 15,233 |  |  | 13,216 |
Effect of redeemable operating partnership units | — |  |  | 916 |  |  | — |  |  | 939 |
Effect of Series D preferred units | — |  |  | 228 |  |  | — |  |  | 228 |
Effect of dilutive restricted stock units and stock options | — |  |  | 17 |  |  | — |  |  | 18 |
Denominator for diluted earnings per share | 15,369 |  |  | 14,514 |  |  | 15,233 |  |  | 14,401 |
NET EARNINGS (LOSS) PER COMMON SHARE – BASIC | $ | (0.30) |  |  | $ | 1.49 |  |  | $ | (0.97) |  |  | $ | 1.02 |
NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED | $ | (0.30) |  |  | $ | 1.48 |  |  | $ | (0.97) |  |  | $ | 1.02 |

NOTE 4 • EQUITY AND MEZZANINE EQUITY
Operating Partnership Units. The Operating Partnership had 995,000 and 832,000 outstanding Units at June 30, 2022 and December 31, 2021, respectively. During the six months ended June 30, 2022, we issued 209,000 Units as partial consideration for the acquisition of three apartment communities.
Exchange Rights. Centerspace redeemed Units in exchange for common shares in connection with Unitholders exercising their exchange rights during the three and six months ended June 30, 2022 and 2021 as detailed in the table below.

| (in thousands)
Three Months Ended June 30, | Number of Units |  | Net Book Basis
2022 | 1 |  |  | $ | (13) |
2021 | 69 |  |  | $ | 639 |
Six Months Ended June 30, |  |  |
2022 | 11 |  |  | $ | 375 |
2021 | 95 |  |  | $ | 418 |

Pursuant to the exercise of exchange rights, the Company redeemed Units for cash during the three and six months ended June 30, 2022 and 2021 as detailed in the table below.

| (in thousands, except per Unit data)
Three Months Ended June 30, | Number of Units |  | Aggregate Cost |  | Average Price Per Unit
2022 | 4 |  |  | $ | 327 |  |  | $ | 92.03 |
Six Months Ended June 30, |  |  |  |  |
2022 | 35 |  |  | $ | 3,230 |  |  | $ | 93.03 |

Series E Preferred Units (Noncontrolling Interests). On September 1, 2021, Centerspace issued 1.8 million Series E preferred units with a par value of $100 per Series E preferred unit as partial consideration for the acquisition of 17 apartment communities. The Series E preferred unit holders receive a preferred distribution at the rate of 3.875% per year. Each Series E preferred unit is convertible, at the holder’s option, into 1.2048 Units. The Series E preferred units have an aggregate liquidation preference of $181.4 million. The holders of the Series E preferred units do not have voting rights and are required to hold the units for one year before they may elect to convert.
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Common Shares and Equity Awards. Common shares outstanding on June 30, 2022 and December 31, 2021, totaled 15.4 million and 15.0 million, respectively. There were 5,538 and 24,297 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2022, respectively, with a total grant-date fair value of $397,000 and $619,000, respectively. There were 23,385 and 26,186 shares issued upon the vesting of equity awards under the 2015 Incentive Plan during the three and six months ended June 30, 2021, respectively, with a total grant-date fair value of $750,000 and $914,000, respectively. These shares vested based on performance and service criteria.
Equity Distribution Agreement. Centerspace had an equity distribution agreement in connection with an at-the-market offering (“2019 ATM Program”) through which it could offer and sell common shares having an aggregate sales price of up to $150.0 million. In September 2021, the Company replaced the 2019 ATM Program with a new at-the-market offering (“2021 ATM Program”) through which it may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times determined by management. Under the 2021 ATM Program, the Company may enter into separate forward sale agreements. The proceeds from the sale of common shares under the 2021 ATM Program may be used for general corporate purposes, including the funding of acquisitions, construction or mezzanine loans, community renovations, and the repayment of indebtedness. The table below provides details on the sale of common shares during the three and six months ended June 30, 2022 and 2021 under both the 2019 and 2021 ATM Programs. As of June 30, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM Program.

| (in thousands, except per share amounts)
Three Months Ended June 30, | Number of Common Shares |  | Net Consideration(1) |  | Average Net Price Per Share
2022 | — |  |  | $ | — |  |  | $ | — |
2021 | 731 |  |  | $ | 54,636 |  |  | $ | 74.64 |
Six Months Ended June 30, |  |  |  |  |
2022 | 321 |  |  | $ | 31,732 |  |  | $ | 98.89 |
2021 | 896 |  |  | $ | 66,495 |  |  | $ | 74.19 |

(1)Total consideration is net of $338 in commissions and issuance costs during the six months ended June 30, 2022 and $528 and $709 for the three and six months ended June 30, 2021, respectively.
Share Repurchase Program. On June 13, 2022, the Board of Trustees approved a new share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $50.0 million of the Company's outstanding common shares. Under the Share Repurchase Program, the Company is authorized to repurchase common shares through open market purchases, privately-negotiated transactions, block trades or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors. During the six months ended June 30, 2022, the Company had no share repurchases under this program. As of June 30, 2022, the Company had $50.0 million remaining authorized for purchase under this program.
Series C Preferred Shares. Series C preferred shares outstanding were 3.9 million shares at June 30, 2022 and December 31, 2021. The Series C preferred shares are nonvoting and redeemable for cash at $25.00 per share at Centerspace’s option after October 2, 2022. Holders of these shares are entitled to cumulative distributions, payable quarterly (as and if declared by the Board of Trustees). Distributions accrue at an annual rate of $1.65625 per share, which is equal to 6.625% of the $25.00 per share liquidation preference ($97.0 million liquidation preference in the aggregate).
Series D Preferred Units (Mezzanine Equity). Series D preferred units outstanding were 165,600 preferred units at June 30, 2022 and December 31, 2021. The Series D preferred units have a par value price of $100 per preferred unit. The Series D preferred unit holders receive a preferred distribution at the rate of 3.862% per year. The Series D preferred units have a put option which allows the holder to redeem any or all of the Series D preferred units for cash equal to the issuance price. Each Series D preferred unit is convertible, at the holder’s option, into 1.37931 Units. The Series D preferred units have an aggregate liquidation preference of $16.6 million. Changes in the redemption value are charged to common shares on the Condensed Consolidated Balance Sheets from period to period. The holders of the Series D preferred units do not have voting rights. Distributions to Series D unitholders are presented in the Condensed Consolidated Statements of Equity within net income (loss) attributable to controlling interests and noncontrolling interests.
NOTE 5 • DEBT
As of June 30, 2022, 52 apartment communities were not encumbered by mortgages and were available to provide credit support for the unsecured borrowings. The Company’s primary unsecured credit facility (“unsecured credit facility”) is a
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revolving, multi-bank line of credit, with the Bank of Montreal serving as administrative agent. The line of credit has total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of June 30, 2022, the additional borrowing availability was $177.0 million beyond the $73.0 million drawn. This unsecured credit facility was amended on September 30, 2021 to extend the maturity date to September 2025 and to provide for an accordion option to increase borrowing capacity up to $400.0 million.
The interest rates on the line of credit is based, at the Company’s option, on either the lender’s base rate plus a margin, ranging from 25-80 basis points, or the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 125-180 basis points based on the consolidated leverage ratio, as defined under the Third Amended and Restated Credit Agreement. The unsecured credit facility and unsecured senior notes are subject to customary financial covenants and limitations. The Company believes that it was in compliance with all such financial covenants and limitations as of June 30, 2022.
In January 2021, Centerspace amended and expanded its private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) to increase the aggregate amount available for issuance of unsecured senior promissory notes (“unsecured senior notes”) to $225.0 million. In September 2021, the Company entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was issued under the private shelf agreement with PGIM. Under the private shelf agreement with PGIM, the Company has issued $200.0 million unsecured senior notes with $25.0 million remaining available as of June 30, 2022. The following table shows the notes issued under both private shelf agreements.

| (in thousands) |  |  |
| Amount |  | Maturity Date | Interest Rate
Series A | $ | 75,000 |  |  | September 13, 2029 | 3.84 | %
Series B | $ | 50,000 |  |  | September 30, 2028 | 3.69 | %
Series C | $ | 50,000 |  |  | June 6, 2030 | 2.70 | %
Series 2021-A | $ | 35,000 |  |  | September 17, 2030 | 2.50 | %
Series 2021-B | $ | 50,000 |  |  | September 17, 2031 | 2.62 | %
Series 2021-C | $ | 25,000 |  |  | September 17, 2032 | 2.68 | %
Series 2021-D | $ | 15,000 |  |  | September 17, 2034 | 2.78 | %

In September 2021, Centerspace entered into a $198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”) for the acquisition of 16 apartment communities. The FMCF is currently secured by mortgages on those apartment communities. The notes are interest-only, with varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%. As of June 30, 2022, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.
As of June 30, 2022, Centerspace owned 15 apartment communities that served as collateral for mortgage loans, in addition to the apartment communities secured by the FMCF. All of these mortgage loans were non-recourse to the Company other than for standard carve-out obligations. As of June 30, 2022, the Company believes that there were no material defaults or instances of noncompliance in regards to any of these mortgages payable.
Centerspace also has a $6.0 million operating line of credit. This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances. This operating line matures on November 29, 2022, with pricing based on a market spread plus the one-month LIBOR index rate.
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The following table summarizes indebtedness.

| (in thousands) |
| June 30, 2022 | December 31, 2021 | Weighted Average Maturity in Years at June 30, 2022
Lines of credit | $ | 73,000 |  | $ | 76,000 |  | 3.25
Unsecured senior notes (1) | 300,000 |  | 300,000 |  | 8.13
Unsecured debt | 373,000 |  | 376,000 |  | 7.18
Mortgages payable - Fannie Mae credit facility | 198,850 |  | 198,850 |  | 9.07
Mortgages payable - other | 302,360 |  | 284,934 |  | 5.47
Total debt | $ | 874,210 |  | $ | 859,784 |  | 6.96
Weighted average interest rate on lines of credit (rate with swap)(2) | 2.80 | % | 2.74 | % |
Weighted average interest rate on unsecured senior notes | 3.12 | % | 3.12 | % |
Weighted average interest rate on mortgages payable - Fannie Mae credit facility | 2.78 | % | 2.78 | % |
Weighted average interest rate on mortgages payable - other | 3.85 | % | 3.81 | % |
Weighted average interest rate on total debt | 3.27 | % | 3.26 | % |

(1)Included within notes payable on the Condensed Consolidated Balance Sheets.
(2)The interest rate swap was terminated in February 2022. Refer to Note 6 - Derivative Instruments for additional information.
The aggregate amount of required future principal payments as of June 30, 2022, was as follows:

| (in thousands)
2022 (remainder) | $ | 2,808 |
2023 | 45,988 |
2024 | 5,012 |
2025 | 106,850 |
2026 | 50,088 |
Thereafter | 663,464 |
Total payments | $ | 874,210 |

NOTE 6 • DERIVATIVE INSTRUMENTS
Centerspace used interest rate derivatives to stabilize interest expense and to manage its exposure to interest rate fluctuations. To accomplish this objective, the Company primarily used interest rate swap contracts to fix variable interest rate debt.
Changes in the fair value of derivatives designated and that qualified as cash flow hedges were recorded in accumulated other comprehensive income (“OCI”). Amounts recorded in accumulated other comprehensive income will be reclassified to interest expense in the periods in which interest payments are incurred on variable rate debt. During the next twelve months, the Company estimates an additional $604,000 will be reclassified as an increase to interest expense.
Derivatives not designated as hedges were not speculative and were used to manage the Company’s exposure to interest rate movements and other identified risks but did not meet the strict hedge accounting requirements. Changes in fair value of derivatives not designated in hedging relationships were recorded directly to earnings within other income (loss) in the Condensed Consolidated Statement of Operations. During the six months ended June 30, 2022, the Company recorded a gain of $582,000 related to the interest rate swap not designated in a hedging relationship, prior to its termination.
In February 2022, the Company paid $3.2 million to terminate its $75.0 million interest rate swap and its $70.0 million forward swap. As of June 30, 2022 the Company had no remaining interest rate swaps.
As of December 31, 2021, Centerspace had one interest rate swap contract designated as a cash flow hedge of interest rate risk with a notional amount of $75.0 million to fix the interest rate on the line of credit. The Company also had one additional interest rate swap with an effective date of January 31, 2023 and a notional amount of $70.0 million which was not designated as a hedge in a qualifying hedging relationship.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.
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|  |  |  |  |  |  | (in thousands)
|  |  |  |  |  |  |  |  | June 30, 2022 |  | December 31, 2021
|  |  |  |  |  |  | Balance Sheet Location |  | Fair Value |  | Fair Value
Total derivative instruments designated as hedging instruments - interest rate swaps |  |  |  |  |  |  | Accounts Payable and Accrued Expenses |  | $ | — |  |  | $ | 4,610 |
Total derivative instruments not designated as hedging instruments - interest rate swaps |  |  |  |  |  |  | Accounts Payable and Accrued Expenses |  | $ | — |  |  | $ | 1,097 |

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2022 and 2021.

| (in thousands)
| Gain (Loss) Recognized in OCI |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  | Gain (Loss) Reclassified from Accumulated OCI into Income
Three months ended June 30, | 2022 |  | 2021 |  |  |  | 2022 |  | 2021
Total derivatives in cash flow hedging relationships - Interest rate contracts | $ | — |  |  | $ | (386) |  |  | Interest expense |  | $ | (188) |  |  | $ | (1,120) |
Six months ended June 30, |  |  |  |  |  |  |  |  |
Total derivatives in cash flow hedging relationships - Interest rate contracts | $ | 1,581 |  |  | $ | 1,625 |  |  | Interest expense |  | $ | (492) |  |  | $ | (2,216) |

NOTE 7 • FAIR VALUE MEASUREMENTS
Cash and cash equivalents, restricted cash, accounts payable, accrued expenses, and other liabilities are carried at amounts that reasonably approximate their fair value due to their short-term nature. For variable rate line of credit debt that re-prices frequently, fair values are based on carrying values.
In determining the fair value of other financial instruments, Centerspace applies FASB ASC 820, “Fair Value Measurement and Disclosures.” Fair value hierarchy under ASC 820 distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Levels 1 and 2) and the reporting entity’s own assumptions about market participant assumptions (Level 3). Fair value estimates may differ from the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities.
Fair Value Measurements on a Recurring Basis

| (in thousands)
| Total |  | Level 1 |  | Level 2 |  | Level 3
June 30, 2022 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Notes receivable | $ | 6,072 |  |  | — |  |  | — |  |  | $ | 6,072 |
December 31, 2021 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Mortgages and notes receivable | $ | 49,484 |  |  | — |  |  | — |  |  | $ | 49,484 |
Liabilities |  |  |  |  |  |  |
Derivative instruments - interest rate swaps | $ | 5,707 |  |  | $ | — |  |  | — |  |  | $ | 5,707 |

The fair value of the interest rate swaps was determined using the market standard methodology of netting discounted expected variable cash payments and receipts. The variable cash payments and receipts were based on an expectation of future interest rates (a forward curve) derived from observable market interest rate curves. The Company also considered both its own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurement (Level 3).
Centerspace utilizes an income approach with Level 3 inputs based on expected future cash flows to value mortgages and notes receivable. The inputs include market transactions for similar instruments, management estimates of comparable interest rates (range of 3.75% to 10.75%), and instrument specific credit risk (range of 0.5% to 1.0%). Changes in the fair value of these receivables from period to period are reported in interest and other income on the Condensed Consolidated Statements of Operations.
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| (in thousands)
| Fair Value Measurement at June 30, |  | Other Gains (Losses) |  | Interest Income |  | Total Changes in Fair Value Included in Current-Period Earnings
Six months ended June 30, 2022 |  |  |  |  |  |  |
Notes receivable | $ | 6,072 |  |  | $ | 7 |  |  | $ | 142 |  |  | $ | 149 |
Six months ended June 30, 2021 |  |  |  |  |  |  |
Mortgage loans and notes receivable | $ | 43,796 |  |  | $ | 7 |  |  | $ | 990 |  |  | $ | 997 |

As of June 30, 2022 and December 31, 2021, Centerspace had an investment of $966,000 and $903,000, respectively, in a real estate technology venture consisting of privately held entities that develop technology related to the real estate industry. This investment is measured at net asset value (“NAV”) as a practical expedient under ASC 820. As of June 30, 2022, the Company had unfunded commitments of $1.0 million.
Fair Value Measurements on a Nonrecurring Basis
There were no non-financial assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.
Financial Assets and Liabilities Not Measured at Fair Value
The fair value of unsecured senior notes and mortgages payable are estimated based on the discounted cash flows of the loans using market research and management estimates of comparable interest rates, excluding any prepayment penalties (Level 3).
The estimated fair values of the Company’s financial instruments as of June 30, 2022 and December 31, 2021, respectively, are as follows:

| (in thousands)
| June 30, 2022 |  | December 31, 2021
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
FINANCIAL ASSETS |  |  |  |  |  |  |
Cash and cash equivalents | $ | 13,156 |  |  | $ | 13,156 |  |  | $ | 31,267 |  |  | $ | 31,267 |
Restricted cash | $ | 1,914 |  |  | $ | 1,914 |  |  | $ | 7,358 |  |  | $ | 7,358 |
FINANCIAL LIABILITIES |  |  |  |  |  |  |
Revolving lines of credit(1) | $ | 73,000 |  |  | $ | 73,000 |  |  | $ | 76,000 |  |  | $ | 76,000 |
Unsecured senior notes | $ | 300,000 |  |  | $ | 255,779 |  |  | $ | 300,000 |  |  | $ | 308,302 |
Mortgages payable - Fannie Mae | $ | 198,850 |  |  | $ | 170,710 |  |  | $ | 198,850 |  |  | $ | 198,850 |
Mortgages payable - other | $ | 302,360 |  |  | $ | 282,506 |  |  | $ | 284,934 |  |  | $ | 284,546 |

(1)Excluding the effect of interest rate swap agreements. Refer to Note 6 for discussion on the fair value of the interest rate swap agreements.
NOTE 8 • ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Centerspace had no acquisitions during the three months ended June 30, 2022 and 2021. The acquisitions during the six months ended June 30, 2022 and 2021 are detailed below.
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Six Months Ended June 30, 2022

| Date Acquired |  | (in thousands)
|  | Total Acquisition Cost |  | Form of Consideration |  | Investment Allocation
Acquisitions |  |  | Cash |  | Units(1) |  | Other(2) |  | Land |  | Building |  | Intangible Assets |  | Other(3)
191 homes - Martin Blu - Minneapolis, MN | January 4, 2022 |  | $ | 49,825 |  |  | $ | 3,031 |  |  | $ | 18,885 |  |  | $ | 27,909 |  |  | $ | 3,547 |  |  | $ | 45,212 |  |  | $ | 1,813 |  |  | $ | (747) |
31 homes - Elements - Minneapolis, MN | January 4, 2022 |  | 9,066 |  |  | 1,290 |  |  | 1,748 |  |  | 6,028 |  |  | 941 |  |  | 7,853 |  |  | 335 |  |  | (63) |
45 homes - Zest - Minneapolis, MN | January 4, 2022 |  | 11,364 |  |  | 1,429 |  |  | 2,249 |  |  | 7,686 |  |  | 936 |  |  | 10,261 |  |  | 574 |  |  | (407) |
130 homes - Noko Apartments - Minneapolis, MN | January 26, 2022 |  | 46,619 |  |  | 3,343 |  |  | — |  |  | 43,276 |  |  | 1,915 |  |  | 42,754 |  |  | 1,950 |  |  | — |
Total Acquisitions |  |  | $ | 116,874 |  |  | $ | 9,093 |  |  | $ | 22,882 |  |  | $ | 84,899 |  |  | $ | 7,339 |  |  | $ | 106,080 |  |  | $ | 4,672 |  |  | $ | (1,217) |

(1)Fair value of operating partnership units issued on acquisition.
(2)Assumption of seller's debt upon closing for Martin Blu, Zest, and Elements. Mezzanine and construction loans, financed by Centerspace, exchanged as partial consideration for the acquisition of Noko Apartments.
(3)Debt discount on assumed mortgage.
Six Months Ended June 30, 2021

| Date Acquired |  | (in thousands)
|  | Total Acquisition Cost |  | Form of Consideration |  | Investment Allocation
Acquisitions |  |  | Cash |  |  |  |  |  | Land |  | Building |  | Intangible Assets |  |
256 homes - Union Pointe - Longmont, CO | January 6, 2021 |  | $ | 76,900 |  |  | $ | 76,900 |  |  |  |  |  |  | $ | 5,727 |  |  | $ | 69,966 |  |  | $ | 1,207 |  |  |

DISPOSITIONS
During the three and six months ended June 30, 2022, Centerspace disposed of no real estate compared to $60.0 million in the three and six months ended June 30, 2021. The dispositions during the six months ended June 30, 2021 are detailed below.
Six Months Ended June 30, 2021

|  |  | (in thousands)
Dispositions | Date Disposed |  | Sale Price |  | Book Value and Sales Cost |  | Gain/(Loss)
Multifamily |  |  |  |  |  |  |
76 homes - Crystal Bay-Rochester, MN | May 25, 2021 |  | $ | 13,650 |  |  | $ | 10,255 |  |  | $ | 3,395 |
40 homes - French Creek-Rochester, MN | May 25, 2021 |  | 6,700 |  |  | 4,474 |  |  | 2,226 |
182 homes - Heritage Manor-Rochester, MN | May 25, 2021 |  | 14,125 |  |  | 4,892 |  |  | 9,233 |
140 homes - Olympik Village-Rochester, MN | May 25, 2021 |  | 10,725 |  |  | 6,529 |  |  | 4,196 |
151 homes-Winchester/Village Green-Rochester, MN | May 25, 2021 |  | 14,800 |  |  | 7,010 |  |  | 7,790 |
Total Dispositions |  |  | $ | 60,000 |  |  | $ | 33,160 |  |  | $ | 26,840 |

NOTE 9 • SEGMENT REPORTING
Centerspace operates in a single reportable segment which includes the ownership, management, development, redevelopment, and acquisition of apartment communities. Each of the operating properties is considered a separate operating segment because each property earns revenues, incurs expenses, and has discrete financial information. The chief operating decision-makers evaluate each property’s operating results to make decisions about resources to be allocated and to assess performance and do not group the properties based on geography, size, or type for this purpose. The apartment communities have similar long-term economic characteristics and provide similar products and services to residents. No apartment community comprises more than 10% of consolidated revenues, profits, or assets. Accordingly, the apartment communities are aggregated into a single reportable segment. “All other” includes non-multifamily components of mixed-use properties and apartment communities the Company has sold.
The members of the executive management team are the chief operating decision-makers. This team measures the performance of the reportable segment based on net operating income (“NOI”), a non-GAAP measure, which the Company defines as total
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real estate revenues less property operating expenses, including real estate taxes. Centerspace believes that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.
The following tables present NOI for the three and six months ended June 30, 2022 and 2021, respectively, along with reconciliations to net income in the Condensed Consolidated Financial Statements. Segment assets are also reconciled to total assets as reported in the Condensed Consolidated Financial Statements.

| (in thousands)
Three Months Ended June 30, 2022 | Multifamily |  | All Other |  | Total
Revenue | $ | 62,201 |  |  | $ | 915 |  |  | $ | 63,116 |
Property operating expenses, including real estate taxes | 25,986 |  |  | 230 |  |  | 26,216 |
Net operating income | $ | 36,215 |  |  | $ | 685 |  |  | $ | 36,900 |
Property management |  |  |  |  | (2,721) |
Casualty gain (loss) |  |  |  |  | (382) |
Depreciation and amortization |  |  |  |  | (24,768) |
General and administrative expenses |  |  |  |  | (5,221) |
Gain (loss) on sale of real estate and other investments |  |  |  |  | 27 |
Interest expense |  |  |  |  | (7,561) |
Interest and other income |  |  |  |  | (17) |
Net income (loss) |  |  |  |  | $ | (3,743) |

| (in thousands)
Three Months Ended June 30, 2021 | Multifamily |  | All Other |  | Total
Revenue | $ | 44,957 |  |  | $ | 1,699 |  |  | $ | 46,656 |
Property operating expenses, including real estate taxes | 17,967 |  |  | 793 |  |  | 18,760 |
Net operating income | $ | 26,990 |  |  | $ | 906 |  |  | $ | 27,896 |
Property management |  |  |  |  | (2,085) |
Casualty gain (loss) |  |  |  |  | 27 |
Depreciation and amortization |  |  |  |  | (19,308) |
General and administrative expenses |  |  |  |  | (3,797) |
Gain (loss) on sale of real estate and other investments |  |  |  |  | 26,840 |
Interest expense |  |  |  |  | (7,089) |
Interest and other income |  |  |  |  | 619 |
Net income (loss) |  |  |  |  | $ | 23,103 |

| (in thousands)
Six Months Ended June 30, 2022 | Multifamily |  | All Other |  | Total
Revenue | $ | 121,599 |  |  | $ | 1,831 |  |  | $ | 123,430 |
Property operating expenses, including real estate taxes | 51,529 |  |  | 560 |  |  | 52,089 |
Net operating income | $ | 70,070 |  |  | $ | 1,271 |  |  | $ | 71,341 |
Property management expenses |  |  |  |  | (4,974) |
Casualty gain (loss) |  |  |  |  | (980) |
Depreciation and amortization |  |  |  |  | (55,769) |
General and administrative expenses |  |  |  |  | (9,721) |
Gain (loss) on sale of real estate and other investments |  |  |  |  | 27 |
Interest expense |  |  |  |  | (15,276) |
Interest and other income |  |  |  |  | 1,046 |
Net income (loss) |  |  |  |  | $ | (14,306) |

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| (in thousands)
Six Months Ended June 30, 2021 | Multifamily |  | All Other |  | Total
Revenue | $ | 89,198 |  |  | $ | 4,106 |  |  | $ | 93,304 |
Property operating expenses, including real estate taxes | 35,841 |  |  | 2,160 |  |  | 38,001 |
Net operating income | $ | 53,357 |  |  | $ | 1,946 |  |  | $ | 55,303 |
Property management expenses |  |  |  |  | (3,852) |
Casualty gain (loss) |  |  |  |  | (74) |
Depreciation and amortization |  |  |  |  | (39,300) |
General and administrative expenses |  |  |  |  | (7,703) |
Gain (loss) on sale of real estate and other investments |  |  |  |  | 26,840 |
Interest expense |  |  |  |  | (14,320) |
Interest and other income |  |  |  |  | 1,050 |
Net income (loss) |  |  |  |  | $ | 17,944 |

Segment Assets and Accumulated Depreciation
Segment assets are summarized as follows as of June 30, 2022, and December 31, 2021, respectively, along with reconciliations to the Condensed Consolidated Financial Statements:

| (in thousands)
As of June 30, 2022 | Multifamily |  | All Other |  | Total
Segment assets |  |  |  |  |
Property owned | $ | 2,374,726 |  |  | $ | 26,701 |  |  | $ | 2,401,427 |
Less accumulated depreciation | (480,113) |  |  | (7,721) |  |  | (487,834) |
Total property owned | $ | 1,894,613 |  |  | $ | 18,980 |  |  | $ | 1,913,593 |
Cash and cash equivalents |  |  |  |  | 13,156 |
Restricted cash |  |  |  |  | 1,914 |
Other assets |  |  |  |  | 18,950 |
Total Assets |  |  |  |  | $ | 1,947,613 |

| (in thousands)
As of December 31, 2021 | Multifamily |  | All Other |  | Total
Segment assets |  |  |  |  |
Property owned | $ | 2,244,250 |  |  | $ | 26,920 |  |  | $ | 2,271,170 |
Less accumulated depreciation | (436,004) |  |  | (7,588) |  |  | (443,592) |
Total property owned | $ | 1,808,246 |  |  | $ | 19,332 |  |  | $ | 1,827,578 |
Mortgage loans receivable |  |  |  |  | 43,276 |
Cash and cash equivalents |  |  |  |  | 31,267 |
Restricted cash |  |  |  |  | 7,358 |
Other assets |  |  |  |  | 30,582 |
Total Assets |  |  |  |  | $ | 1,940,061 |

NOTE 10 • COMMITMENTS AND CONTINGENCIES
Litigation. In the ordinary course of operations, Centerspace becomes involved in litigation. At this time, the Company knows of no material pending or threatened legal proceedings, or other proceedings contemplated by governmental authorities, that would have a material impact on it.
Environmental Matters. Under various federal, state, and local laws, ordinances, and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around, or under the property. While the Company currently has no knowledge of any material violation of environmental laws, ordinances, or regulations at any of the properties, there can be no assurance that areas of contamination will not be identified at any of its properties or that changes in environmental laws, regulations, or cleanup requirements would not result in material costs.
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Restrictions on Taxable Dispositions. Thirty-seven properties, consisting of 6,754 apartment homes, are subject to restrictions on taxable dispositions under agreements entered into with certain of the sellers or contributors of the properties and are effective for varying periods. Centerspace does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of restricted properties during the restriction period because it generally holds these and other properties for investment purposes rather than for sale. In addition, where the Company deems it to be in the shareholders’ best interests to dispose of such properties, it generally seeks to structure sales of such properties as tax-deferred transactions under Section 1031 of the Internal Revenue Code. Otherwise, the Company may be required to provide tax indemnification payments to the parties to these agreements.
NOTE 11 • SHARE-BASED COMPENSATION
Share-based awards are provided to officers, non-officer employees, and trustees under the 2015 Incentive Plan approved by shareholders on September 15, 2015, as amended and restated on May 18, 2021 (the “2015 Incentive Plan”) which allows for awards in the form of cash, unrestricted and restricted common shares, stock options, stock appreciation rights, and RSUs up to an aggregate of 775,000 shares over the ten-year period in which the plan is in effect. Under the 2015 Incentive Plan, officers and non-officer employees may earn share awards under a long-term incentive plan, which is a forward-looking program that measures long-term performance over the stated performance period. These awards are payable to the extent deemed earned in shares. The terms of the long-term incentive awards granted under the revised program may vary from year to year.
2022 LTIP Awards
Awards granted to employees on January 1, 2022, consisted of an aggregate of 5,849 time-based RSU awards, 13,407 performance RSUs based on total shareholder return (“TSR”), and 30,002 stock options. The time-based awards vest as to one-third of the shares on each of January 1, 2023, January 1, 2024, and January 1, 2025. The stock options vest as to 25% on each of January 1, 2023, January 1, 2024, January 1, 2025, and January 1, 2026. The fair value of stock options was $17.094 per share and was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

| 2022
Exercise price | $ | 110.90 |
Risk-free rate | 1.44 | %
Expected term | 6.25 years
Expected volatility | 21.2 | %
Dividend yield | 2.597 | %

The TSR performance RSUs are earned based on the Company’s TSR as compared to the FTSE Nareit Apartment Index over a forward looking three-year period. The maximum number of RSUs eligible to be earned is 26,814 RSUs, which is 200% of the RSUs granted. Earned awards (if any) will fully vest as of the last day of the measurement period. These awards have market conditions in addition to service conditions that must be met for the awards to vest. Compensation expense is recognized ratably based on the grant date fair value, as determined using the Monte Carlo valuation model, regardless of whether the market conditions are achieved and the awards ultimately vest. Therefore, previously recorded compensation expense is not adjusted in the event that the market conditions are not achieved. The Company based the expected volatility on a weighted average of the historical volatility of the Company’s daily closing share price and a select peer average volatility, the risk-free interest rate on the interest rates on U.S. treasury bonds with a maturity equal to the remaining performance period of the award, and the expected term on the performance period of the award. The assumptions used to value the TSR performance RSUs were an expected volatility of 22.40%, a risk-free interest rate of 0.97%, and an expected life of 3 years. The share price at the grant date, January 1, 2022, was $110.90 per share.
Awards granted to employees on February 1, 2022, consist of an aggregate of 1,295 time-based RSU awards which vest as to one-third of the RSUs on each of January 1, 2023, January 1, 2024, and January 1, 2025.
Awards granted to trustees on May 17, 2022 consist of 6,563 time-based RSUs, which vest on May 17, 2023. These awards are classified as equity awards.
Share-Based Compensation Expense
Share-based compensation expense recognized in the consolidated financial statements for all outstanding share-based awards was $1.2 million and $1.5 million for the six months ended June 30, 2022 and 2021, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included in this report on Form 10-Q for the quarter ended June 30, 2022 (the “Report”), the audited financial statements for the year ended December 31, 2021, which are included in Form 10-K filed with the SEC on February 28, 2022, and the risk factors in Item 1A, “Risk Factors,” of Form 10-K for the year ended December 31, 2021.
This discussion and analysis, and other sections of this Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the expectations for future periods. Forward-looking statements do not discuss historical fact, but instead include statements related to expectations, projections, intentions or other items related to the future. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “assumes,” “may,” “projects,” “outlook,” “future,” and variations of those words and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial condition, or plans expressed or implied by the forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved. Any statements contained herein that are not statements of historical fact should be deemed forward-looking statements. As a result, reliance should not be placed on these forward-looking statements, as these statements are subject to known and unknown risks, uncertainties, and other factors beyond the our control and could differ materially from actual results and performance.
The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:
•the COVID-19 pandemic and its ongoing effects on our employees, residents, and commercial tenants, third party vendors and suppliers, and apartment communities, as well as our cash flow, business, financial condition, and results of operation;
•the impact of the Russian invasion of Ukraine, including sanctions imposed on Russia by the U.S. and other countries, on inflation, trade, and general economic conditions;
•deteriorating economic conditions, including rising unemployment rates, energy costs, and inflation, in the markets where we own apartment communities or in which we may invest in the future;
•rental conditions in our markets, including occupancy levels and rental rates, potential inability to renew residents or obtain new residents upon expiration of existing leases, changes in tax and housing laws, or other factors, including the impact of the COVID-19-related governmental rules and regulations relating to rental rates, evictions, and other rental conditions;
•changes in operating costs, including real estate taxes, utilities, insurance costs, and expenses related to complying with COVID-19 restrictions or otherwise responding to the COVID-19 pandemic;
•timely access to material and labor required to renovate apartment communities;
•adverse changes in our markets, including future demand for apartment homes in those markets, barriers of entry into new markets, limitations on the ability to increase rental rates, inability to identify and consummate attractive acquisitions and dispositions on favorable terms, inability to reinvest sales proceeds successfully, and inability to accommodate any significant decline in the market value of real estate serving as collateral for mortgage obligations;
•reliance on a single asset class (multifamily) and certain geographic areas of the U.S.;
•inability to expand operations into new or existing markets successfully;
•failure of new acquisitions to achieve anticipated results or be efficiently integrated;
•inability to complete lease-up of projects on schedule and on budget;
•failure to reinvest proceeds from sales of properties into tax-deferred exchanges, which could necessitate special dividend and/or tax protection payments;
•inability to fund capital expenditures out of cash flow;
•inability to pay, or need to reduce, dividends on common shares;
•financing risks, including the potential inability to meet existing covenants in existing credit facilities or to obtain new debt or equity financing on favorable terms, or at all;
•level and volatility of interest or capitalization rates or capital market conditions;
•loss contingencies and the availability and cost of casualty insurance for losses;
•inability to continue to satisfy complex rules in order to maintain status as a REIT for federal income tax purposes, inability of the Operating Partnership to satisfy the rules to maintain its status as a partnership for federal income tax purposes, and the risk of changes in laws affecting REITs;
•inability to attract and retain qualified personnel;
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•cyber liability or potential liability for breaches of privacy or information security systems;
•inability to address catastrophic weather, natural events, and climate change;
•inability to comply with laws and regulations applicable to the business and any related investigations or litigation; and
•other risks identified in this Report, in other SEC reports, or in other documents that we publicly disseminate.
New factors may also arise from time to time that could have an adverse effect on our business and results of operations. Except as otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements to reflect events, circumstances, or changes in expectations after the date on which this Report is filed. Readers also should review the risks and uncertainties detailed from time to time in filings with the SEC, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Executive Summary
We own, manage, acquire, redevelop, and develop apartment communities. We primarily focus on investing in markets characterized by stable and growing economies, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for apartment homes and retention of residents. As of June 30, 2022, we owned interests in 83 apartment communities consisting of 14,838 apartment homes. Property owned, as presented in our Condensed Consolidated Balance Sheets at historical cost, was $2.4 billion at June 30, 2022, compared to $2.3 billion at December 31, 2021.
Renting apartment homes is our primary source of revenue, and our business objective is to provide great homes for our residents. We strive to maximize resident satisfaction and retention by investing in high-quality assets in desirable locations and creating vibrant apartment communities through service-oriented operations. We believe that delivering superior resident experiences will enhance resident satisfaction while also driving profitability for our business and shareholders. We have paid quarterly distributions continuously since our first distribution in 1971.
COVID-19
The COVID-19 pandemic has affected our business since March 2020. Our first priority continues to be the health and well-being of our residents, team members, and the communities we serve. Despite our efforts to manage our r esponse to the effects of the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic on rental revenue for 2022 and in future years cannot be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with residents, commercial tenants, government officials, and business partners and assessing potential impacts to financial position and operating results, as well as potential adverse impacts on our business. Our management remains committed to ensuring the safety of team members, residents, and communities, and to maintaining the financial stability of our business enterprise for the duration of the COVID-19 pandemic.
Overview of the Three Months Ended June 30, 2022
For the three months ended June 30, 2022, revenue increased by $16.5 million to $63.1 million, compared to $46.7 million for the three months ended June 30, 2021, due to same-store communities and 23 non-same-store communities, offset by dispositions. Total expenses increased by $15.3 million to $59.3 million for the three months ended June 30, 2022, compared to $43.9 million for the three months ended June 30, 2021 due to increased property operating expenses, real estate taxes, depreciation and amortization, and general and administrative expenses. Non-GAAP Funds from Operations (“FFO”) applicable to common shares and Units for the three months ended June 30, 2022 increased by $5.4 million to $19.1 million compared to $13.7 million for the three months ended June 30, 2021. See the description of FFO on page 27 and the reconciliation of net income available to common shareholders to FFO on page 28. This increase was primarily due to increased NOI from same-store and non-same-store communities, offset by increased interest, property management, and general and administrative expenses, and decreased interest income and NOI from dispositions. The drivers of these changes are discussed in more detail in the “Results of Operations” section below.
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Results of Operations
Reconciliation of Operating Income (Loss) to Net Operating Income
The following table provides a reconciliation of operating income to net operating income (“NOI”) (non-GAAP), which is defined below.

| (in thousands, except percentages)
| Three Months Ended June 30, |  |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | $ Change |  | % Change |  |  | 2022 |  | 2021 |  | $ Change |  | % Change
Operating income (loss) | $ | 3,835 |  |  | $ | 29,573 |  |  | $ | (25,738) |  |  | (87.0) | % |  |  | $ | (76) |  |  | $ | 31,214 |  |  | $ | (31,290) |  |  | (100.2) | %
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Property management expenses | 2,721 |  |  | 2,085 |  |  | 636 |  |  | 30.5 | % |  |  | 4,974 |  |  | 3,852 |  |  | 1,122 |  |  | 29.1 | %
Casualty (gain) loss | 382 |  |  | (27) |  |  | 409 |  |  | * |  |  | 980 |  |  | 74 |  |  | 906 |  |  | *
Depreciation and amortization | 24,768 |  |  | 19,308 |  |  | 5,460 |  |  | 28.3 | % |  |  | 55,769 |  |  | 39,300 |  |  | 16,469 |  |  | 41.9 | %
General and administrative expenses | 5,221 |  |  | 3,797 |  |  | 1,424 |  |  | 37.5 | % |  |  | 9,721 |  |  | 7,703 |  |  | 2,018 |  |  | 26.2 | %
Gain (loss) on sale of real estate and other investments | (27) |  |  | (26,840) |  |  | 26,813 |  |  | (99.9) | % |  |  | (27) |  |  | (26,840) |  |  | 26,813 |  |  | (99.9) | %
Net operating income | $ | 36,900 |  |  | $ | 27,896 |  |  | $ | 9,004 |  |  | 32.3 | % |  |  | $ | 71,341 |  |  | $ | 55,303 |  |  | $ | 16,038 |  |  | 29.0 | %

* Not a meaningful percentage
Consolidated Results of Operations
The following consolidated results of operations cover the three and six months ended June 30, 2022 and 2021.
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| (in thousands, except percentages)
| Three Months Ended June 30, |  |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | $ Change |  | % Change |  |  | 2022 |  | 2021 |  | $ Change |  | % Change
Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Same-store | $ | 48,867 |  |  | $ | 43,762 |  |  | $ | 5,105 |  |  | 11.7 | % |  |  | $ | 95,758 |  |  | $ | 86,956 |  |  | $ | 8,802 |  |  | 10.1 | %
Non-same-store | 13,334 |  |  | 1,195 |  |  | 12,139 |  |  | 1,015.8 | % |  |  | 25,841 |  |  | 2,242 |  |  | 23,599 |  |  | 1,052.6 | %
Other | 915 |  |  | 664 |  |  | 251 |  |  | 37.8 | % |  |  | 1,831 |  |  | 1,332 |  |  | 499 |  |  | 37.5 | %
Dispositions | — |  |  | 1,035 |  |  | (1,035) |  |  | (100.0) | % |  |  | — |  |  | 2,774 |  |  | (2,774) |  |  | (100.0) | %
Total | 63,116 |  |  | 46,656 |  |  | 16,460 |  |  | 35.3 | % |  |  | 123,430 |  |  | 93,304 |  |  | 30,126 |  |  | 32.3 | %
Property operating expenses, including real estate taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Same-store | 19,700 |  |  | 17,610 |  |  | 2,090 |  |  | 11.9 | % |  |  | 38,915 |  |  | 35,140 |  |  | 3,775 |  |  | 10.7 | %
Non-same-store | 6,286 |  |  | 357 |  |  | 5,929 |  |  | 1,660.8 | % |  |  | 12,614 |  |  | 701 |  |  | 11,913 |  |  | 1,699.4 | %
Other | 230 |  |  | 258 |  |  | (28) |  |  | (10.9) | % |  |  | 560 |  |  | 521 |  |  | 39 |  |  | 7.5 | %
Dispositions | — |  |  | 535 |  |  | (535) |  |  | (100.0) | % |  |  | — |  |  | 1,639 |  |  | (1,639) |  |  | (100.0) | %
Total | 26,216 |  |  | 18,760 |  |  | 7,456 |  |  | 39.7 | % |  |  | 52,089 |  |  | 38,001 |  |  | 14,088 |  |  | 37.1 | %
Net operating income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Same-store | 29,167 |  |  | 26,152 |  |  | 3,015 |  |  | 11.5 | % |  |  | 56,843 |  |  | 51,816 |  |  | 5,027 |  |  | 9.7 | %
Non-same-store | 7,048 |  |  | 838 |  |  | 6,210 |  |  | 741.1 | % |  |  | 13,227 |  |  | 1,541 |  |  | 11,686 |  |  | 758.3 | %
Other | 685 |  |  | 406 |  |  | 279 |  |  | 68.7 | % |  |  | 1,271 |  |  | 811 |  |  | 460 |  |  | 56.7 | %
Dispositions | — |  |  | 500 |  |  | (500) |  |  | (100.0) | % |  |  | — |  |  | 1,135 |  |  | (1,135) |  |  | (100.0) | %
Total | $ | 36,900 |  |  | $ | 27,896 |  |  | $ | 9,004 |  |  | 32.3 | % |  |  | $ | 71,341 |  |  | $ | 55,303 |  |  | $ | 16,038 |  |  | 29.0 | %
Property management expenses | (2,721) |  |  | (2,085) |  |  | 636 |  |  | 30.5 | % |  |  | (4,974) |  |  | (3,852) |  |  | 1,122 |  |  | 29.1 | %
Casualty gain (loss) | (382) |  |  | 27 |  |  | 409 |  |  | * |  |  | (980) |  |  | (74) |  |  | 906 |  |  | *
Depreciation and amortization | (24,768) |  |  | (19,308) |  |  | 5,460 |  |  | 28.3 | % |  |  | (55,769) |  |  | (39,300) |  |  | 16,469 |  |  | 41.9 | %
General and administrative expenses | (5,221) |  |  | (3,797) |  |  | 1,424 |  |  | 37.5 | % |  |  | (9,721) |  |  | (7,703) |  |  | 2,018 |  |  | 26.2 | %
Gain (loss) on sale of real estate and other investments | 27 |  |  | 26,840 |  |  | 26,813 |  |  | 99.9 | % |  |  | 27 |  |  | 26,840 |  |  | 26,813 |  |  | 99.9 | %
Interest expense | (7,561) |  |  | (7,089) |  |  | 472 |  |  | 6.7 | % |  |  | (15,276) |  |  | (14,320) |  |  | 956 |  |  | 6.7 | %
Interest and other income (loss) | (17) |  |  | 619 |  |  | (636) |  |  | (102.7) | % |  |  | 1,046 |  |  | 1,050 |  |  | (4) |  |  | (0.4) | %
NET INCOME (LOSS) | $ | (3,743) |  |  | $ | 23,103 |  |  | $ | (26,846) |  |  | (116.2) | % |  |  | $ | (14,306) |  |  | $ | 17,944 |  |  | $ | (32,250) |  |  | (179.7) | %
Dividends to Series D preferred unitholders | (160) |  |  | (160) |  |  | — |  |  | — |  |  |  | (320) |  |  | (320) |  |  | — |  |  | — |
Net (income) loss attributable to noncontrolling interests – Operating Partnership and Series E preferred units | 950 |  |  | (1,386) |  |  | 2,336 |  |  | (168.5) | % |  |  | 3,107 |  |  | (917) |  |  | 4,024 |  |  | (438.8) | %
Net (income) loss attributable to noncontrolling interests – consolidated real estate entities | (38) |  |  | (19) |  |  | (19) |  |  | 100.0 | % |  |  | (61) |  |  | (36) |  |  | (25) |  |  | 69.4 | %
Net income (loss) attributable to controlling interests | (2,991) |  |  | 21,538 |  |  | (24,529) |  |  | (113.9) | % |  |  | (11,580) |  |  | 16,671 |  |  | (28,251) |  |  | (169.5) | %
Dividends to preferred shareholders | (1,607) |  |  | (1,607) |  |  | — |  |  | — |  |  |  | (3,214) |  |  | (3,214) |  |  | — |  |  | — |
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | (4,598) |  |  | $ | 19,931 |  |  | $ | (24,529) |  |  | (123.1) | % |  |  | $ | (14,794) |  |  | $ | 13,457 |  |  | $ | (28,251) |  |  | (209.9) | %

* Not a meaningful percentage

| Three Months Ended June 30, |  | Six Months Ended June 30,
Weighted Average Occupancy(1) | 2022 |  | 2021 |  | 2022 |  | 2021
Same-store | 94.8 | % |  | 94.9 | % |  | 94.3 | % |  | 94.8 | %
Non-same-store | 95.0 | % |  | 93.1 | % |  | 94.8 | % |  | 91.8 | %
Total | 94.8 | % |  | 94.8 | % |  | 94.4 | % |  | 94.7 | %

(1)Weighted average occupancy is defined as the percentage resulting from dividing actual rental revenue by scheduled rental revenue. Scheduled rental revenue represents the value of all apartment homes, with occupied homes valued at contractual rental rates pursuant to leases and vacant homes valued at estimated market rents. When calculating actual rents for occupied homes and market rents for vacant homes, delinquencies, and concessions are not taken into account. Market rates are determined using the currently offered effective rates on new leases at the community and are used as the starting point in determination of the market rates of vacant apartment homes. Centerspace believes that weighted average occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Weighted average occupancy may not completely reflect short-term trends in physical occupancy, and the calculation of weighted average occupancy may not be comparable to that disclosed by other REITs.

Number of Apartment Homes | June 30, 2022 |  | June 30, 2021
Same-store | 11,319 |  |  | 11,319 |
Non-same-store | 3,519 |  |  | 256 |
Total | 14,838 |  |  | 11,575 |

NOI is a non-GAAP financial measure, which we define as total real estate revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate
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because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.
We have provided certain information on a same-store and non-same-store basis. Same-store apartment communities are owned or in service for the entirety of the periods being compared, and, in the case of newly-constructed properties, have achieved a target level of physical occupancy of 90%. On the first day of each calendar year, we determine the composition of our same-store pool for that year as well as adjust the previous year, which allows us to evaluate full period-over-period operating comparisons for existing apartment communities and their contribution to net income. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of communities are performing year-over-year. We use this measure to assess whether or not we have been successful in increasing NOI, raising average rental revenue, renewing the leases on existing residents, controlling operating costs, and making prudent capital improvements. The discussion below focuses on the main factors affecting real estate revenue and expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store apartment communities are generally due to the addition of those properties to the real estate portfolio, and accordingly provide less useful information for evaluating ongoing operational performance of the real estate portfolio.
For the comparison of the six months ended June 30, 2022 and 2021, 23 apartment communities were non-same-store. Sold communities are included in “Dispositions,” while “Other” includes non-multifamily properties and the non-multifamily components of mixed-use properties.
Revenue. Revenue increased by 35.3% to $63.1 million for the three months ended June 30, 2022, compared to $46.7 million in the three months ended June 30, 2021. Revenue from non-same-store communities increased by $12.1 million and revenue from other properties increased by $251,000, offset by a decrease of $1.0 million from dispositions. Revenue from same-store communities increased 11.7% or $5.1 million in the three months ended June 30, 2022, compared to the same period in the prior year. The increase was attributable to 11.8% growth in average monthly revenue per occupied home for the three months ended June 30, 2022, offset by a decrease of 0.1% in occupancy as weighted average occupancy decreased from 94.9% in the three months ended June 30, 2021 to 94.8% for the three months ended June 30, 2022.
Revenue increased by 32.3% to $123.4 million for the six months ended June 30, 2022, compared to $93.3 million in the six months ended June 30, 2021. Revenue from non-same-store communities increased by $23.6 million and revenue from other properties increased by $499,000, offset by a decrease of $2.8 million from dispositions. Revenue from same-store communities increased 10.1% or $8.8 million in the six months ended June 30, 2022, compared to the same period in the prior year. The increase was attributable to 10.6% growth in average monthly revenue per occupied home for the six months ended June 30, 2022, offset by a decrease of 0.5% in occupancy as weighted average occupancy decreased from 94.8% in the six months ended June 30, 2021 to 94.3% for the six months ended June 30, 2022.
Property operating expenses, including real estate taxes. Property operating expenses, including real estate taxes, increased by 39.7% to $26.2 million in the three months ended June 30, 2022, compared to $18.8 million in the same period of the prior year. An increase of $5.9 million at non-same-store communities was offset by a decrease $535,000 from dispositions. Property operating expenses, including real estate taxes, at same-store communities increased by 11.9% or $2.1 million in the three months ended June 30, 2022, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $1.8 million, primarily due to increased utilities, repairs and maintenance costs, and on-site compensation. Non-controllable expenses at same-store communities increased by $305,000, due to insurance costs and real estate taxes.
Property operating expenses, including real estate taxes, increased by 37.1% to $52.1 million in the six months ended June 30, 2022, compared to $38.0 million in the same period of the prior year. An increase of $11.9 million at non-same-store communities was offset by a decrease of $1.6 million from dispositions. Property operating expenses, including real estate taxes, at same-store communities increased by 10.7% or $3.8 million in the six months ended June 30, 2022, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes) increased by $3.3 million, primarily due to increased utilities, repairs and maintenance costs, and on-site compensation. Non-controllable expenses at same-store communities increased by $494,000, primarily due to insurance costs.
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Property management expenses. Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 30.5% to $2.7 million in the three months ended June 30, 2022, compared to $2.1 million in the same period of the prior year. The increase is primarily due to $490,000 in compensation costs and $136,000 related to technology initiatives.
Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 29.1% to $5.0 million in the six months ended June 30, 2022, compared to $3.9 million in the same period of the prior year. The increase is primarily due to $770,000 in compensation costs and $217,000 related to technology initiatives.
Casualty gain (loss). Casualty gain (loss) increased to a loss of $382,000 in the three months ended June 30, 2022, compared to a gain of $27,000 in the same period of the prior year. The increase is due to lower than usual loss experience in the prior year.
Casualty gain (loss) increased to a loss of $980,000 in the six months ended June 30, 2022, compared to a loss of $74,000 in the same period of the prior year. The increase is due to lower than usual loss experience in the prior year.
Depreciation and amortization. Depreciation and amortization increased by 28.3% to $24.8 million in the three months ended June 30, 2022, compared to $19.3 million in the same period of the prior year, attributable to an increase of $6.4 million from non-same-store properties, offset by decreases from same-store and sold properties.
Depreciation and amortization increased by 41.9% to $55.8 million in the six months ended June 30, 2022, compared to $39.3 million in the same period of the prior year, attributable to an increase of $18.6 million from non-same-store properties, offset by decreases from same-store and sold properties.
General and administrative expenses. General and administrative expenses increased by 37.5% to $5.2 million in the three months ended June 30, 2022, compared to $3.8 million in the same period of the prior year, primarily attributable to $1.1 million from abandoned pursuit costs and increases in professional and consulting fees, travel costs, and salary related expense, offset by a decrease in short-term and long-term incentive costs.
General and administrative expenses increased by 26.2% to $9.7 million in the six months ended June 30, 2022, compared to $7.7 million in the same period of the prior year, primarily attributable to $1.1 million from abandoned pursuit costs, $495,000 in compensation costs and $364,000 in professional and consulting fees.
Interest expense. Interest expense increased by 6.7% to $7.6 million in the three months ended June 30, 2022, compared to $7.1 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility, offset by a lower weighted average interest rate.
Interest expense increased by 6.7% to $15.3 million in the six months ended June 30, 2022, compared to $14.3 million in the same period of the prior year, primarily due to the addition of new unsecured senior notes and the Fannie Mae credit facility, offset by a lower weighted average interest rate.
Interest and other income (loss). Interest and other income decreased to a loss of $17,000 in the three months ended June 30, 2022, compared to income of $619,000 in the same period of the prior year. The decrease was primarily due to interest income on mortgages receivable that were outstanding in the prior year.
Interest and other income decreased to $1.0 million in the six months ended June 30, 2022, compared to $1.1 million in the same period of the prior year. The decrease was primarily due to interest income on mortgages receivable outstanding in the prior year, offset by a gain on the mark to market adjustment for an interest rate swap contract.
Net income (loss) available to common shareholders. Net loss available to common shareholders decreased to a loss of $4.6 million for the three months ended June 30, 2022, compared to net income of $19.9 million in the three months ended June 30, 2021.
Net loss available to common shareholders decreased to a loss of $14.8 million for the six months ended June 30, 2022, compared to net income of $13.5 million in the six months ended June 30, 2021.
Funds from Operations and Core Funds from Operations.
We believe that Funds from Operations (“FFO”), which is a non-GAAP financial measures used as a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding operating performance, primarily because its calculation does not assume the value of real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation.
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We use the definition of Funds from Operations FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“Nareit”). Nareit defines FFO as net income or loss calculated in accordance with GAAP, excluding:
•depreciation and amortization related to real estate;
•gains and losses from the sale of certain real estate assets; and
•impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
The exclusion in Nareit’s definition of FFO of impairment write-downs and gains and losses from the sale of real estate assets helps to identify the operating results of the long-term assets that form the base of investments, and assists management and investors in comparing those operating results between periods.
Due to limitations of the Nareit FFO definition, we have made certain interpretations in applying this definition. We believe that all such interpretations not specifically provided for in the Nareit definition are consistent with this definition. Nareit’s FFO White Paper 2018 Restatement clarified that impairment write-downs of land related to a REIT’s main business are excluded from FFO and a REIT has the option to exclude impairment write-downs of assets that are incidental to the main business.
While FFO is widely used by us as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, but rather should be considered as an additional, supplemental measure. FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund all of the our needs, including our ability to service indebtedness or make distributions to shareholders.
Core Funds from Operations (“Core FFO”), a non-GAAP measure, is FFO adjusted for non-routine items or items not considered core to business operations. By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides investors with additional information to compare core operating and financial performance between periods. Core FFO should not be considered as an alternative to net income or as any other GAAP measurement of performance, but rather should be considered an additional supplemental measure. Core FFO also does not represent cash generated from operating activities in accordance with GAAP, nor is it indicative of funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.
FFO applicable to common shares and Units for the three months ended June 30, 2022, increased to $19.1 million compared to $13.7 million for the comparable period of the prior year, an increase of 39.6%. This increase was primarily due to increased NOI from same-store and non-same-store communities, offset by increased interest, property management, and general and administrative expenses, and decreased interest income and NOI from dispositions.
FFO applicable to common shares and Units for the six months ended June 30, 2022, increased to $37.6 million compared to $26.6 million for the comparable period of the prior year, an increase of 41.4%. This increase was primarily due to increased NOI from same-store and non-same-store communities, offset by increased interest, property management, general and administrative expenses, and casualty loss, and decreased NOI from dispositions.
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Reconciliation of Net Income Available to Common Shareholders to Funds from Operations and Core Funds from Operations

| (in thousands, except per share and unit amounts)
| Three Months Ended June 30, |  |  | Six Months Ended June 30,
| 2022 |  | 2021 |  |  | 2022 |  | 2021
Net income (loss) available to common shareholders | $ | (4,598) |  |  | $ | 19,931 |  |  |  | $ | (14,794) |  |  | $ | 13,457 |
Adjustments: |  |  |  |  |  |  |  |
Noncontrolling interests – Operating Partnership and Series E preferred units | (950) |  |  | 1,386 |  |  |  | (3,107) |  |  | 917 |
Depreciation and amortization | 24,768 |  |  | 19,308 |  |  |  | 55,769 |  |  | 39,300 |
Less depreciation – non real estate | (101) |  |  | (87) |  |  |  | (202) |  |  | (185) |
Less depreciation – partially owned entities | (7) |  |  | (24) |  |  |  | (28) |  |  | (48) |
(Gain) loss on sale of real estate and other investments | (27) |  |  | (26,840) |  |  |  | (27) |  |  | (26,840) |
FFO applicable to common shares and Units | $ | 19,085 |  |  | $ | 13,674 |  |  |  | $ | 37,611 |  |  | $ | 26,601 |
Adjustments to Core FFO: |  |  |  |  |  |  |  |
Non-cash casualty (gain) loss | 163 |  |  | — |  |  |  | 188 |  |  | — |
Loss on extinguishment of debt | 5 |  |  | — |  |  |  | 5 |  |  | — |
Technology implementation costs(1) | 447 |  |  | 447 |  |  |  | 550 |  |  | 860 |
Interest rate swap termination, amortization, and mark-to-market | 205 |  |  | — |  |  |  | (408) |  |  | — |
Amortization of assumed debt | (116) |  |  | — |  |  |  | (231) |  |  | — |
Pursuit costs | 1,127 |  |  | — |  |  |  | 1,127 |  |  | — |
Other miscellaneous items | 100 |  |  | 3 |  |  |  | 96 |  |  | 3 |
Core FFO applicable to common shares and units | $ | 21,016 |  |  | $ | 14,124 |  |  |  | $ | 38,938 |  |  | $ | 27,464 |
FFO applicable to common shares and Units | $ | 19,085 |  |  | $ | 13,674 |  |  |  | $ | 37,611 |  |  | $ | 26,601 |
Dividends to preferred unitholders | 160 |  |  | 160 |  |  |  | 320 |  |  | 320 |
FFO applicable to common shares and Units - diluted | $ | 19,245 |  |  | $ | 13,834 |  |  |  | $ | 37,931 |  |  | $ | 26,921 |
Core FFO applicable to common shares and units | $ | 21,016 |  |  | $ | 14,124 |  |  |  | $ | 38,938 |  |  | $ | 27,464 |
Dividends to preferred unitholders | 160 |  |  | 160 |  |  |  | 320 |  |  | 320 |
Core FFO applicable to common shares and Units - diluted | $ | 21,176 |  |  | $ | 14,284 |  |  |  | $ | 39,258 |  |  | $ | 27,784 |
Per Share Data |  |  |  |  |  |  |  |
Earnings (loss) per common share - diluted | $ | (0.30) |  |  | $ | 1.48 |  |  |  | $ | (0.97) |  |  | $ | 1.02 |
FFO per share and Unit - diluted | $ | 1.02 |  |  | $ | 0.95 |  |  |  | $ | 2.03 |  |  | $ | 1.87 |
Core FFO per share and Unit - diluted | $ | 1.12 |  |  | $ | 0.98 |  |  |  | $ | 2.10 |  |  | $ | 1.93 |
Weighted average shares - basic | 15,369 |  |  | 13,353 |  |  |  | 15,233 |  |  | 13,216 |
Effect of redeemable operating partnership units | 995 |  |  | 916 |  |  |  | 978 |  |  | 939 |
Effect of Series D preferred units | 228 |  |  | 228 |  |  |  | 228 |  |  | 228 |
Effect of Series E preferred units | 2,186 |  |  | — |  |  |  | 2,186 |  |  | — |
Effect of dilutive restricted stock units and stock options | 48 |  |  | 17 |  |  |  | 57 |  |  | 18 |
Weighted average shares and Units - diluted | 18,826 |  |  | 14,514 |  |  |  | 18,682 |  |  | 14,401 |

(1)Costs are related to a two-year implementation.
Acquisitions and Dispositions
We had no acquisitions or dispositions during the three months ended June 30, 2022.
Distributions Declared
Distributions of $0.73 and $1.46 per common share and Unit were declared during the three and six months ended June 30, 2022, respectively. Distributions of $0.70 and $1.40 per common share and Unit were declared during the three and six months ended June 30, 2021, respectively. Distributions of $0.4140625 and $0.828125 per Series C preferred share were declared during the three and six months ended June 30, 2022 and 2021. Distributions of $0.9655 and $1.931 per Series D preferred unit
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were declared during the three and six months ended June 30, 2022 and 2021. Distributions of $0.968750 and $1.937500 per Series E preferred unit were declared during the three and six months ended June 30, 2022.
Liquidity and Capital Resources
Overview
We strive to maintain a strong balance sheet and preserve financial flexibility, which we believe should enhance our ability to capitalize on appropriate investment opportunities as they may arise. We intend to continue to focus on core fundamentals, which include generating positive cash flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs.
Our primary sources of liquidity are cash and cash equivalents on hand and cash flows generated from operations. Other sources include availability under the unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under the shelf registration statement, including offerings of common shares under the 2021 ATM Program, and long-term unsecured debt and secured mortgages.
Our primary liquidity demands are normally-recurring operating and overhead expenses, debt service and repayments, capital improvements to communities, distributions to the holders of preferred shares, common shares, Series D and Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks and Unit redemptions, and acquisitions of additional communities.
Although we believe that our financial condition and liquidity are sufficient to meet our reasonably anticipated liquidity demands, factors that could impact our future liquidity include, but are not limited to, volatility in capital and credit markets, the ability to access capital and credit markets, the effects of the COVID-19 pandemic, including its potential impact on our ability to access the capital and credit markets on reasonable terms (or at all), the minimum REIT dividend requirements, and our ability to complete asset purchases, sales, or developments.
As of June 30, 2022, we had total liquidity of approximately $196.2 million, which included $183.0 million available on the lines of credit and $13.2 million of cash and cash equivalents. As of December 31, 2021, we had total liquidity of approximately $211.3 million, which included $180.0 million on the lines of credit and $31.3 million of cash and cash equivalents.
Debt
On September 30, 2021, we amended and restated our unsecured credit facility. The amended agreement provides for a revolving line of credit for $250.0 million, an accordion option to increase borrowing capacity up to $400.0 million, and extended the maturity date to September 2025. As of June 30, 2022, the line of credit had total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of June 30, 2022, the additional borrowing availability was $177.0 million beyond the $73.0 million drawn. At December 31, 2021, the line of credit borrowing capacity was $250.0 million based on the value of unencumbered properties, of which $76.0 million was drawn on the line.
In January 2021, we amended and expanded our private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, “PGIM”) to increase the aggregate amount available for issuance of unsecured senior promissory notes to $225.0 million. In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million of senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM. Under the private shelf agreement with PGIM, we have issued $200.0 million unsecured senior notes with $25.0 million remaining available. The following table shows the notes issued under both private shelf agreements.

| (in thousands) |  |  |
| Amount |  | Maturity Date | Interest Rate
Series A | $ | 75,000 |  |  | September 13, 2029 | 3.84 | %
Series B | $ | 50,000 |  |  | September 30, 2028 | 3.69 | %
Series C | $ | 50,000 |  |  | June 6, 2030 | 2.70 | %
Series 2021-A | $ | 35,000 |  |  | September 17, 2030 | 2.50 | %
Series 2021-B | $ | 50,000 |  |  | September 17, 2031 | 2.62 | %
Series 2021-C | $ | 25,000 |  |  | September 17, 2032 | 2.68 | %
Series 2021-D | $ | 15,000 |  |  | September 17, 2034 | 2.78 | %

In September 2021, we entered into a $198.9 million Fannie Mae Credit Facility Agreement (the “FMCF”) for the financing of certain apartment communities. The FMCF is currently secured by mortgages on those apartment communities. The notes are
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interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended, weighted average interest rate of 2.78%. As of June 30, 2022 and December 31, 2021, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Condensed Consolidated Balance Sheets.
Mortgage loan indebtedness, excluding the FMCF, was $302.4 million and $284.9 million at June 30, 2022 and December 31, 2021, respectively. All of our mortgage debt is at fixed rates of interest, with staggered maturities. This decreases the exposure to changes in interest rates, which reduces the effect of interest rate fluctuations on our results of operations and cash flows. As of June 30, 2022, the weighted average interest rate on mortgage debt was 3.85%, compared to 3.81% as of December 31, 2021.
We also have a $6.0 million operating line of credit. This operating line of credit is designed to enhance treasury management activities and more effectively manage cash balances. This operating line matures on November 29, 2022, with pricing based on a market spread plus the one-month LIBOR index rate.
Equity
We had an equity distribution agreement in connection with the 2019 ATM Program through which we could offer and sell common shares having an aggregate gross sales price of up to $150.0 million. We replaced the 2019 ATM Program with the 2021 ATM Program, through which we may offer and sell common shares having an aggregate sales price of up to $250.0 million, in amounts and at times determined by management. The proceeds from the sale of common shares under the 2021 ATM program may be used for general corporate purposes, including the funding of acquisitions and the repayment of indebtedness. During the six months ended June 30, 2022, we issued 321,000 common shares under the 2021 ATM program at an average price of $98.89 per share, net of commissions. Total consideration, net of commissions and issuance costs, was $31.7 million. As of June 30, 2022, common shares having an aggregate offering price of up to $126.6 million remained available under the 2021 ATM Program.
On June 13, 2022, the Board of Trustees approved a new share repurchase program (the “Share Repurchase Program”), providing for the repurchase of up to an aggregate of $50.0 million of the Company's outstanding common shares. Under the Share Repurchase Program, the Company is authorized to repurchase common shares through open market purchases, privately-negotiated transactions, block trades or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources or other financial and operational performance, market conditions, securities law limitations, and other factors. During the six months ended June 30, 2022, the Company had no share repurchases under this program. As of June 30, 2022, the Company had $50.0 million remaining authorized for purchase under this program.
Changes in Cash, Cash Equivalents, and Restricted Cash
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in the Condensed Consolidated Statements of Cash Flows in Part I, Item 1 above.
In addition to cash flow from operations, during the six months ended June 30, 2022, we generated capital from various activities, including:
•Receiving $31.6 million in net proceeds from the issuance of 321,000 common shares under the 2021 ATM Program.
During the six months ended June 30, 2022, we used capital for various activities, including:
•Acquiring four apartment communities in Minneapolis, Minnesota for $9.1 million in cash with the remainder of the purchase price in issuance of Units, assumption of mortgage debt, and the exchange of mortgages receivable which we financed;
•Repaying $25.9 million of mortgage principal;
•Repaying $3.0 million on the line of credit;
•Paying $3.2 million for the termination of interest rate swaps; and
•Funding capital improvements for apartment communities of approximately $13.9 million.
Contractual Obligations and Other Commitments
Contractual obligations and other commitments were disclosed in our Form 10-K for the year ended December 31, 2021. There have been no material changes to our contractual obligations and other commitments since that report was filed.
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Inflation and Supply Chain
Our apartment leases generally have terms of one year or less, which means that, in an inflationary environment, we would have the ability, subject to market conditions, to increase rents upon the commencement of new leases or renewal of existing leases to manage the impact of inflation on our business. However, the cost to operate and maintain communities could increase at a rate greater than our ability to increase rents, which could adversely affect our results of operations. Extreme escalation of costs could have a negative impact on our residents and their ability to absorb rent increases.
We also continue to monitor pressures surrounding supply chain challenges. Supply chain and inflationary pressures are likely to result in increasing operating expenses, specifically, increases in energy costs, salary related costs, and construction materials for repairs and maintenance or value add projects. A worsening of the current environment could contribute to delays in obtaining construction materials and result in higher than anticipated costs, which could prevent us from obtaining expected returns on value add projects.
Access to the financial markets remains strong; however, a prolonged disruption of the markets or a decline in credit and financing conditions could negatively affect our ability to access capital necessary to fund our operations or refinance maturing debt in the future. Additionally, rising interest rates could negatively impact our borrowing costs for any variable rate borrowings or refinancing activity.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies
In preparing the Condensed Consolidated Financial Statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of critical accounting policies is included in our Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022 under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements in this report for additional information. There have been no other significant changes to the our critical accounting policies during the six months ended June 30, 2022.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Centerspace’s exposure to market risk is primarily related to fluctuations in the general level of interest rates on the current and future fixed and variable rate debt obligations. The Company used interest rate swaps to offset the impact of interest rate fluctuations on variable-rate debt. During the six months ended June 30, 2022, Centerspace terminated its remaining interest rate swaps, which consisted of a swap with a notional amount of $75.0 million and a forward swap with a notional amount of $70.0 million. The Company does not enter into derivative instruments for trading or speculative purposes.
See our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of the Company’s interest rate sensitivity. As of June 30, 2022, the Company has increased its exposure to market risk by terminating interest rate swaps which synthetically fixed the variable rate on the line of credit.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures:
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting:
In connection with the evaluation required by Rule 13a-15(d), management, with the participation of the Chief Executive Officer and Chief Financial Officer, has identified no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2022 and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of the Company’s operations, the Company becomes involved in litigation. At this time, the Company knows of no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of the Company’s property is the subject.
Item 1A. Risk Factors
Inflation and price volatility in the global economy could negatively impact our business and results of operations.
General inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates, wages, and currency volatility. These increases and any fiscal or other policy interventions by the U.S. government in reaction to such events could negatively impact our business by increasing our operating costs and our borrowing costs as well as decreasing the capital available to our residents and prospective residents who wish to rent in our communities. Although we expect to be able to increase rent to combat inflation, the cost to operate and maintain communities could increase faster or at a rate greater than our ability to increase rents, which could adversely affect our results of operations.
Other than as described above, there have been no material changes to the Risk Factors previously disclosed in Item 1A in Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Securities
On April 30, 2022, the Company issued 615 unregistered Common Shares to limited partners of the Operating Partnership in exchange for their Units, in reliance on the private offering exemption under Section 4(a)(2) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities

|  |  |  |  | Maximum Dollar
|  |  |  | Total Number of Shares | Amount of Shares That
|  | Total Number of | Average Price | Purchased as Part of | May Yet Be Purchased
|  | Shares and Units | Paid per | Publicly Announced | Under the Plans or
Period |  | Purchased | Share and Unit(1) | Plans or Programs | Programs
April 1 - 30, 2022 |  | 2,899 |  | 93.67 |  | — |  | — |
May 1 - 31, 2022 |  | 353 |  | 85.85 |  | — |  | — |
June 1 - 30, 2022 |  | 300 |  | 83.45 |  | — |  | 50,000,000 |
Total |  | 3,552 |  | 92.03 |  | — |  |

(1)Includes Units redeemed for cash pursuant to the exercise of exchange rights.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
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Item 6. Exhibits
The following exhibits are filed as part of this Report.
EXHIBIT INDEX

Exhibit No. | Description
3.1 | Articles of Amendment and Third Restated Declaration of Trust of Investors Real Estate Trust adopted on September 23, 2003, as amended on September 18, 2007 (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the Commission on June 30, 2014).
3.2 | Seventh Restated Trustee’s Regulations (Bylaws) of Investors Real Estate Trust, adopted on April 27, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 1, 2020).
3.3 | Articles Supplementary to the Company’s Articles of Amendment and Third Restated Declaration of Trust designating the Company’s 6.625% Series C Cumulative Redeemable Preferred Shares, no par value per share (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 8-A filed with the SEC on September 28, 2017).
31.1* | Section 302 Certification of Chief Executive Officer
31.2* | Section 302 Certification of Executive Vice President and Chief Financial Officer
32.1* | Section 906 Certifications of Chief Executive Officer
32.2* | Section 906 Certifications of Executive Vice President and Chief Financial Officer
101 INS** | INSTANCE DOCUMENT
101 SCH** | SCHEMA DOCUMENT
101 CAL** | CALCULATION LINKBASE DOCUMENT
101 LAB** | LABELS LINKBASE DOCUMENT
101 PRE** | PRESENTATION LINKBASE DOCUMENT
101 DEF** | DEFINITION LINKBASE DOCUMENT
104** | COVER PAGE INTERACTIVE DATA FILE - THE COVER PAGE XBRL TAGS ARE EMBEDDED WITHIN THE INLINE XBRL DOCUMENT

* Filed herewith
** Submitted electronically herewith. Attached as Exhibit 101 are the following materials from Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Statements of Equity; (iv) the Condensed Consolidated Statements of Cash Flows; (v) notes to these Condensed Consolidated Financial Statements; and (vi) the Cover Page to Quarterly Report on our Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Centerspace
(Registrant)

/s/ Mark O. Decker, Jr. |
Mark O. Decker, Jr. |
President and Chief Executive Officer |
/s/ Bhairav Patel |
Bhairav Patel |
Executive Vice President and Chief Financial Officer |
Date: August 1, 2022 |

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