Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Centerspace (CSR, Financial) reported earnings of $1.18 per share of core FFO for the third quarter, driven by stable revenue growth and expense control initiatives.
- Same store revenue increased by 3% over the same period in 2023, with occupancy rising to 95.3%, a 70 basis point improvement over last year.
- The company expanded its presence in the Denver market with the acquisition of the Lydian, which is expected to generate an NOI yield in the mid to high 5% range.
- Centerspace (CSR) raised the midpoint of its full-year core FFO guidance by a penny to $4.86 per share, reflecting positive NOI growth.
- The company successfully issued approximately 1.5 million shares, raising $105 million to redeem its series C preferred shares, simplifying its capital structure and improving cash flow.
Negative Points
- Market rent softened more than expected, impacting revenue growth projections for the remainder of the year.
- Same store expenses increased by 3.2% year-over-year, driven by higher non-controllable expenses such as insurance premiums.
- The company anticipates increased interest expenses due to debt assumed in conjunction with the Lydian acquisition.
- Revenue growth guidance implies a substantial drop from Q3 to Q4, attributed to market rent softening and seasonal trends.
- Bad debt levels are trending towards the high end of expectations, with no significant improvement anticipated in the near term.
Q & A Highlights
Q: You mentioned market rent softening more than expected. Is that also a greater softening than the normal seasonal trend?
A: Bhairav Patel, CFO: It is more than we expected and more than the seasonal expectation, just slightly more. We attribute it mostly to the supply-demand dynamics, which were against our expectations. Our expectations for the year were just a little bit higher.
Q: Looking at the new revenue growth guidance, it implies a substantial drop from Q3 to Q4. What would lead to that large of a drop?
A: Anne Olson, CEO: At the midpoint, we expect about 0.5% to 3% revenue growth. Our blended assumption is flat for the quarter on a year-over-year basis. We expect some favorability in utilities costs and less concessions, which should help bolster occupancy.
Q: Do you have any preliminary read on the October leasing stats?
A: Bhairav Patel, CFO: It's early in the month, but we believe the blended will be flat. New leases have remained slightly negative, and renewals have remained slightly positive.
Q: Can you provide an update on where bad debt was for the quarter and any color on certain markets with more elevated levels of bad debt?
A: Bhairav Patel, CFO: For the third quarter, bad debt was about 45 to 50 basis points. Year-to-date, it puts us towards the high end of our expected range of 30 to 40 basis points. There aren't any broader trends to glean from any specific markets.
Q: What technology savings on the expense side are still left to realize, and how much additional spend over the next 18 months are you anticipating for your tech programs?
A: Bhairav Patel, CFO: We have fully implemented our current technology stack, except for the smart rent implementation, which is about 70% complete. We are focusing on adoption and how staffing models can change with the technology. We expect to see a full year of savings from staffing model implementation next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
