00:03 Good morning and thank you for attending today’s Centerspace Q1 2022 Earnings Call. My name is [Jason] [ph] and I'll be the moderator for today's call. [Operator Instructions] 00:19 I would now like to pass the conference over to Emily Miller. Please proceed.

00:25 Good morning, everyone. Centerspace’s Form 10-Q for the quarter ended March 31, 2022 was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package has been posted to our website at centerspacehomes.com and filed on Form 8-K. 00:46 It’s important to note that today’s remarks will include statements about our business outlook and other forward-looking statements that are based on management’s current views and assumptions. These statements are subject to risks and uncertainties discussed in our Form 10-K filed for the year ended December 31, 2021 under the section titled Risk Factors and in other recent filings with the SEC. 01:09 We cannot guarantee that any forward-looking statement will materialize and you are cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for a reconciliation of any non-GAAP information, which may be discussed on today’s call. 01:25 With me this morning is Mark Decker, our Chief Executive Officer; and Bhairav Patel, our Chief Financial Officer. Mark, I will now turn it over to you.

01:33 Thank you, Emily, and good morning everyone. Quick note, I'm going to cover Anne Olson’s operating commentary this morning since she's a little under the weather. It was around this time a year ago that the housing business really took off and our portfolio with it. For the first quarter, we achieved NOI growth of 7.8% and Core FFO growth of over 3% despite some headwinds from the combination of a colder than average winter combined with a dramatic spike in energy prices. 02:01 Even so, we remain on track and we are reiterating our guidance for the full-year. As we look forward, the health of our business and our customer are outstanding. We have a loss to lease of over 9%, strong employment and relatively balanced supply. Our residents are earning more wages and our homes remain affordable with rent to income ratios in the low to mid-20s. This is an excellent backdrop to continue our re-tooling of operations. 02:29 After converting all of our systems in late 2021, we are still training and optimizing in 2022. These investments will yield easier to access in more actionable data, better compatibility with some of the new prop tech offerings, efficiency, and scalability. 02:45 Turning to capital markets, it's been a volatile few months. We've seen our debt costs nearly double from high-2s for 10-year money to high-4s. Fortunately, we've been aggressively refinancing over the past few years. So, we sit today with low maturities through 2025 and an outstanding ladder beyond that. 03:04 The meaningful movement in debt costs has not changed the desirability of high quality apartment assets. Asset pricing has not moved at this point. There are a lot of cash buyers who remain confident in light of strong underlying fundamentals in housing. 03:18 We believe we may see better opportunities given our balance sheet strength through the rest of the year. In the meantime, we will continue to be opportunistic and maintain our focus on the balance between the quality of the portfolio and quality of earnings. 03:32 Despite the competitiveness of the investment markets, Centerspace has had our most active 12 months and enjoys more capacity than ever. Our debt-to-EBITDA on a forward-looking basis is now in the mid-6s, and we are demonstrating our enhanced ability to compete on value versus price. 03:49 Our first quarter OP unit purchase of the [Min-3] [ph] assets and the Noko [Development Financing Ground Trip] [ph] acquisition are perfect examples of our ability to get higher returns in an ultra-competitive market. 04:02 To date, over 43% or $580 million of the investments we've made since 2017 included intelligent structuring that drove value to us and the seller in a manner that was superior to cash. 04:16 Turning to operations, we continue to see strong revenue growth. During the first quarter, our same store new lease rates were up 6.9% over the prior leases, and same store renewals achieved increases of 9.6%. On a blended basis, this is first quarter rental rate growth of 7.9%. Increases have continued in April with new leases increasing 12.3% and renewals increasing 8.8% for a blended rate increase of 11%. 04:48 Our same store weighted average occupancy was 93.9% on March 31 and continues to climb as we head into prime leasing season. As we progress with the integration of our non-same store portfolio consisting of 23 communities, we're pleased with the rental rate growth we're seeing. 05:06 With respect to our KMS portfolio, new lease and rental rates have meaningfully outpaced our same store portfolio in the Minneapolis market, where we grew at 8% for KMS versus 4.9% on a blended basis. This is proving out our investment thesis that there was a significant opportunity in this portfolio. 05:26 All of this good revenue and wage news comes at a cost and we are also monitoring expense growth, which was 9.6% higher in the first quarter than the same period last year. Increased utility costs are driving the majority of this increase, but we are also seeing inflationary pressures on wages and materials. 05:45 We realized utility expense increase of over 25% versus the same period last year due to both higher rates and increased usage as our Midwest markets experienced more severe weather than 2021. Our increased expense outlook for the remainder of 2022 is primarily a reflection of these increased costs offset by better than expected revenue projections as we realize strong rental rate across the portfolio. 06:10 Of course, all of these great results would not be possible without an incredible team and incredible teamwork, and I'm so grateful to work with our 450 dedicated associates. Thank you, all for what you do towards [better every days] [ph]. 06:22 And now, I'll turn it over to Bhairav to discuss our financial results.

06:27 Thank you, Mark. Today, I will cover our first quarter results for 2022 and touch on our outlook for the full-year. Last night, we reported Core FFO for the first quarter ending March 31, 2022 of $0.98 per diluted share, an increase of $0.03 or 3.2% from the same period last year. The increase in year-over-year Core FFO is primarily attributable to strong same-store results and the accretive acquisition of 23 properties since the beginning of 2021, offset in part by higher G&A and property management expenses from the investment we made in our operating platform to service a growing portfolio. 07:06 Total G&A was 4.5 million for the current quarter, an increase of 15.2% compared to the 3.9 million in the same period last year, which was primarily attributable to an increase of 473,000 in compensation expenses and 273,000 in professional and consulting fees, offset by a decrease of 377,000 in technology related expenses, mainly driven by the relatively larger investment in the early stages of the Yardi implementation last year. 07:36 Property management expense, which includes property management overhead and property management fees increased to 2.3 million in the three months ended March 31, 2022, compared to 1.8 million in the same period last year. The increase is primarily due to 265,000 in compensation expenses. 07:55 Turning to capital expenditures, which is presented on Page S-13 of our supplemental same store CapEx was 1.6 million for the quarter ended March 31, 2022. That translates to $145 per unit, and we expect this to ramp up over the next couple of quarters as we typically schedule most of the projects due in Q2 and Q3 when the weather is warmer and more conducive. 08:19 Looking at our balance sheet, as of March 31, 2022, we had 223.3 million of total liquidity, including 210 million available on our lines of credit. Our balance sheet remains strong. At the beginning of April, we paid off 22.3 million in mortgages. With those payoffs we now have just 5% of our total debt maturing over the next three years. 08:43 As of the end of the first quarter, the weighted average maturity of our debt was 7.1 years and the weighted average interest rate was approximately 3.3%. In the first quarter of this year, we grew our portfolio by purchasing four additional properties for total consideration of 114.5 million. 09:01 One of the properties acquired was previously financed by us through our preferred financing program with 43.4 million of construction and mezzanine loans. Additionally, during the quarter, we issued 321,000 shares at an average price of 98.89 per share, net of commissions for total consideration of 31.7 million. 09:21 Now, I will discuss our 2022 financial outlook, which is presented on Page S-14 of the supplemental. We are maintaining our Core FFO guidance for 2022 of $4.45 per share at the mid-point of the range and our same store NOI projected growth of 8% to 10%. Please note that our first quarter results are typically impacted by seasonality and the impact was particularly strong during the first quarter of this year from an expense standpoint. 09:47 As Mark mentioned, our utilities cost increased by almost 25% due to a combination of higher per unit costs and higher usage due to a harsher winter. Additionally, we experienced more snowfall than usual in our markets, which drove our snow removal cost by another 25% year-over-year. We do expect that to abate as we enter the warmer months. 10:08 While we do expect expense growth to be higher than previously anticipated and increase by 6.5% of the mid-point, we continue to see strong revenue growth as Mark highlighted in his remarks and expect that to offset the impact of expense increases. Accordingly, we have updated our expectations for revenue growth by raising the mid-point for year-over-year same store revenue growth by 1% to 8% of the mid-point. 10:32 That keeps us on course to achieve the Core FFO growth we included in the initial guidance range we provided at the beginning of the year. As a result, our guidance range for Core FFO remains unchanged and at the midpoint of $4.45 per share equates to an increase of 11.5% over last year. 10:50 To conclude, I wanted to commend the entire Centerspace team for another strong quarter. We’re off to a great start to the year driven by strong rental growth and expect to sustain the momentum as we enter peak leasing season. 11:03 And with that, I will turn it over to the operator to open it up for questions.

11:03 Thank you. [Operator Instructions] Our first question comes from Brad Heffern with RBC Capital Markets. Please proceed.

11:54 Bradley, you asking a question? We can't hear you. Operator sounds like he may not be in this line or something?

12:09 Hello, Brad.

12:11 Can you hear me?

12:14 There we are.

12:18 Yes.

12:17 Okay. Sorry. I was asking on the April leasing spread, so, it seems like there was a pretty significant inflection higher, can you talk about what was driving that? Is that just a seasonality or is there something else going on?

12:34 Yes. I think we don't have any specific certainty around. I think it's just certainty. The winter is particularly slow here and it really starts to pick up, kind of once you get to [indiscernible] in terms of traffic and demand to move. As you heard in our prepared comments, it was a pretty tough winter. But we're pretty excited about what we're seeing there. That's some of our best new and renewal and blended lease rates we've seen since 2021.

13:05 Yes. Okay, got it. And it seems like you're generally outperforming the underlying growth across your market, is that partially a KMS benefit or what could be driving that?

13:21 Besides just management excellence Brad? No, I'm kidding. I think it's a combination of things. I mean, in some of our markets, we are the most, I'll say disciplined and focused operator that cuts both ways. I mean, in some markets, we kind of wish everyone else run revenue management, because that might help move market rates, but in Minneapolis specifically, I think it is KMS where that portfolio really was under-optimized on the revenue side, and outside of that, I would say it's a combination of probably us being a little bit more focused. I mean, we're one of the only companies in our markets who has to tell everyone what we're doing every 90 days, I'm sure that helps us keep on our toes a little bit.

14:14 Yes. Okay. Thank you.

14:18 Thanks, Brad.

14:22 Thank you for your question. Our next question comes from Buck Horne with Raymond James. Please proceed.

14:30 Hey, good morning guys. I was curious about the occupancy trends you've seen from month-to-month. I note, last call you guys highlighted that at least thorough the first part of March, the weighted average occupancy was trending at 94.4 and ended up the quarter at 93.9. So, kind of wondering what transpired in March in terms of occupancy trends and has that stabilized through April?

14:59 Yes, it has stabilized. We definitely took a bit of a dip in the fourth quarter, driven in part by the eviction moratorium being lifted and I would say since then slow traffic months to get back to occupied in the first quarter. We are rising now. We've got great traffic. So, I would expect that to continue to climb [up to 94] [ph].

15:30 Okay, All right. Appreciate that. And I was wondering if you could drill down a little bit further just in terms of what happened sequentially between – it looks like Minnesota, I'm sorry, I mean, Minneapolis and North Dakota, both took sequential step downs at the same store level in terms of their monthly rental rates. Just wondering is that just a function of a severe winter or is that just – is there any signs of market weakness in Minneapolis or North Dakota?

16:02 I would say, listen North Dakota for all intents and purposes didn't have COVID. So, North Dakota is, kind of going along like it was, and typically in that fourth quarter, we see negative trade-outs and a weak first quarter. Minneapolis, I think it's a little bit more just driven by the eviction moratorium. And as we had more vacancy, we needed a lower price to [fill back though] [ph].

16:40 Okay. All right. Thanks guys. Appreciate it.

16:43 Thanks Buck.

16:46 Thank you for your question. Our next question comes from Connor Mitchell with Piper Sandler. Please proceed.

16:56 Good morning. Thank you for taking my questions. Two questions. So, first, it seems like there's a decent amount of seasonality between quarter-to-quarter. So, without giving quarterly FFO guidance, what's a good way for us to think about modeling the seasonality of the portfolio?

17:17 Bhairav?

17:17 Yes. Brad – sorry, Connor this is Bhairav. Yes, I mean, from a seasonality standpoint, utilities costs were up 25%. They make up about 35% of our first quarter expenses on the controllable side. So, going forward, we would expect expense growth to moderate on a year-over-year basis as the impact of some of the expenses that have hit us harder in the first quarter due to seasonality, just kind of becomes a lower proportion of our overall expense structure.

17:57 I mean, interesting fact, usage was up about 10%, the price of the underlying commodity was up over 70. So, pretty surprising. But I think your question on – we probably don't plan to give quarterly guidance. I guess, we'll make a better effort to just check where people's models are and try to offer feedback, but you can see our first quarter is typically our worst, our first quarter is typically our best and the second and third usually are pretty consistently better than the first and not as good as the fourth.

18:38 Okay, that's helpful. Thank you. And then my second question, can you also just drill down a little bit on what guidance assumes for interest rates and then also energy costs for the balance of the year?

18:54 Yes. So, for interest rates, I mean just a portion of our debt is floating. So, our spot weighted average interest rate is 3.3%. It probably goes up a little bit because LIBOR, we are expecting LIBOR to go up, but other than that because most of it is fixed, it kind of stays there, our LIBOR assumption is, I believe it's 2.5% …

19:19 [Indiscernible] on the curve.

19:19 Yes. So, we just kind of pricing on the curve. And for energy, as I said, the impact that we felt for utilities cost was, because the price per unit went up in Q1 versus the prior year, but then the price kind of stabilized in last year's overall going forward from an expense standpoint, we don't really expect that to drive much of the expense increase, most of the expense increase is going to come from items such as compensation, which overall, we're expecting to be up about 5% year-over-year for the rest of the year.

20:06 That's helpful. Thank you. That's it from me.

20:10 Thanks.

20:12 Thank you for your question. Our next question comes from Rob Stevenson with Janney. Please to proceed.

20:21 Hi, good morning guys. The energy stuff is all natural cash. You don't have oil heating, do you?

20:28 That's correct. It's all natural gas.

20:31 Okay. And have you got thought about hedging? I know when home properties, you have this issue in the past, they wound up doing some hedging on that. Is that something that you guys are looking into or makes sense or given the magnitude not?

20:52 Well, I'd say worth considering and under consideration, the probably more likely [attack] [ph] we’d take is to just RUB those expenses or pass those through to the user, which isn't happening in every instance obviously and an area where we can focus. But the challenge gets to be, you know when you're pushing rent 10% to also push RUBs, I mean, it's like squeezing a balloon, you can always squeeze so much. So, we're going to thoughtfully approach how to lessen our exposure and put that exposure on the end user, but we've got to balance that with our desire to push revenue.

21:36 Was this exposure in the new KBS portfolio? Was this in the legacy portfolio of mix, how should we be thinking about that?

21:46 It was in both. Not one – particularly in one versus the other.

21:54 Okay. And as of today, what percentage of the portfolio is either unable to be [submitter] [ph] or where you're prevented from doing RUBs, where you're going to continue to have exposure to utility cost no matter what?

22:10 I can’t. That's a great question. I don't have the answer to that. And maybe just drop off the top head and might, but we'll have to circle back on that one. I mean most of [these, at least proportionately] [ph] dealt with.

22:24 Okay. I just didn't know whether that's municipalities that didn't allow that, etcetera.

22:29 Yeah. I don't [Multiple Speakers] so but again, that's better [indiscernible]. Sorry.

22:33 Okay. What months last year, did you guys have the biggest jump in terms of rental rates trying to figure out when the comp – the year-over-year comps get toughest for you as we go throughout the year?

22:46 Yeah. So, our best quarter, I don't have that by month, I do have it by quarter. Our best quarter was the third quarter where new was [10.8] [ph] and renewal was 7.2 and blended was 9. So, I guess I'd say the third quarter is going to begin our toughest comparison. I mean, on a relative to coastal names, we did have positive NOI growth in the first quarter of 2021. So, tougher comparison for us than some of those names. Some of the southeast names likewise had growth. So, we don’t have that pattern there, but April had a blended 11, is among our best months.

23:30 Okay. And then I'm sorry if I missed it, but did you guys talk about what happened in [seeing Cloud] [ph] from a revenue perspective? Was that something abnormal, because the occupancy went up quarter-over-quarter, but the revenue went down 9%?

23:46 Yes, that's a sequential – are you talking about sequential? I think that's a rent health.

23:49 Yeah, because the rental rate goes up, the occupancy goes up, but the revenue per occupied home goes down and it was just a little weird.

23:58 Yes, I think that the – in the fourth quarter, we had a lot of Minnesota rent health, so essentially our bad debt, not bad debt, but the state funded portion of folks, [rent] [ph] who were behind came in, in a pretty large way in the fourth quarter and that was definitely affected the same cloud numbers. I think that's what we're looking at there. Is that right, Bhairav?

24:19 Yes, on a sequential basis, that's exactly right. We collected more revenue in that market than we booked. So, it was our timing from a bad debt standpoint.

24:32 Okay, because that was helpful because it was just weird to, sort of see occupancy and rental rate up, but revenue down, normally those things go in concert. And then last one for me, what does your acquisition pipeline look like today. And from a standpoint of, are you guys still adding, as looking to add assets in Minneapolis after the continued move, is that still, you know it's obviously your biggest market? Is that still a market where you're comfortable increasing the exposure?

25:05 Yeah, good question. Rob, we really are most opportunistic in Minneapolis because it is our greatest concentration. It's also, I think one of the feedback we get from investors frequently as we would love to see – [be in] [ph] more markets. So, we're mindful of that. It's also where we have some of the deepest routes. So, I'd say, Minneapolis and Denver are definitely our best two hunting grounds, if you will. 25:36 So, we would continue to invest in many, you might see us change, you know may we hold the count, unit count or home count steady, but do some swap outs, we would be interested and we'll continue to fund development that we really like the way the Noko and Ironwood deals have worked out, which were both started as financing deals. So, yes, we'll still be active there. Obviously, we bought the – what we call the Min3 portfolio and Noko, which, I mean, those are good examples where, you know if we were looking at unlevered year-one yields in Nashville, Denver, [Minne] [ph], you know Noko, on the year-one yield was north of 4. A like property in Denver might be mid-3s; and Nashville might be 3; and our year-five and our year-10 would be likewise spread out. So, it's pretty hard to look at those and say well, we should allocate capital to the one with the least amount of yield. 26:39 So, it’s a bit of a trap because obviously the more we do that, the more we get criticized for the concentration, but short answer, yes, we're still looking in many. We’d probably be more aggressive on asset rotation there and the market continues to be pretty robust. I mean, just this morning, I got an alert from a broker, [1985] [ph] products [indiscernible] bought it. $1,600 rents underground parking, in-unit washer dryer, that’s a lot like park place, which is a like asset. 27:18 So, for a [3.5 on trailing, 4.2] [ph] on the brokers going in number, which we would probably discount, and $276,000 a door. So, there's still lots of good demand for property out there. That's a benefit if you're recycling. It's a challenge if you're going to recycle into something new.

27:39 Okay. Thanks guys. I appreciate the time.

27:42 Thanks.

27:46 Thank you for your question. There are no further questions waiting at this time. So, I'll pass the conference back over to Mark for any final remarks.

27:56 Super, thanks. We appreciate everyone's continued interest in Centerspace. We hope to see you at Nareit in June and Happy Mother's Day to all the mothers out there. Thank you.

28:13 That concludes the Centerspace Q1 2022 earnings call. Thank you for your participation. You may now disconnect your lines.