Centerspace (CSR) Bundle
Understanding Centerspace (CSR) Revenue Streams
Understanding Centerspace’s Revenue Streams
Centerspace's revenue is derived from several key sources, primarily categorized into same-store revenues, non-same-store revenues, and revenues from other properties and dispositions. The following sections provide a detailed breakdown of these revenue streams.
Breakdown of Primary Revenue Sources
- Same-Store Revenue: For the three months ended September 30, 2024, same-store revenue totaled $62.6 million, a 3.0% increase from $60.8 million in the same period of 2023. For the nine months ended September 30, 2024, it amounted to $186.7 million, reflecting a 3.3% increase compared to $180.8 million in the previous year.
- Non-Same-Store Revenue: Revenue from non-same-store communities reached $1.8 million for the three months ended September 30, 2024, and $5.5 million for the nine months ended September 30, 2024.
- Other Properties Revenue: Revenue from other properties was $568,000 for the three months ended September 30, 2024, down from $676,000 in the same period of 2023. Over the nine months, it decreased to $1.8 million from $2.0 million.
- Dispositions Revenue: Revenue from dispositions was $0 for the three months ended September 30, 2024, compared to $3.1 million in 2023. For the nine months, it decreased to $529,000 from $14.5 million.
Year-over-Year Revenue Growth Rate
Centerspace's total revenue for the three months ended September 30, 2024, was $65.0 million, a slight increase of 0.7% compared to $64.6 million in the same period of 2023. However, total revenue for the nine months decreased by 1.4%, reaching $194.6 million, down from $197.2 million.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Change (%) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Change (%) |
|---|---|---|---|---|---|---|
| Same-Store | $62,610 | $60,789 | 3.0% | $186,745 | $180,759 | 3.3% |
| Non-Same-Store | $1,847 | $0 | N/A | $5,517 | $0 | N/A |
| Other Properties | $568 | $676 | (16.0%) | $1,783 | $2,014 | (11.5%) |
| Dispositions | $0 | $3,103 | (100.0%) | $529 | $14,468 | (96.3%) |
Analysis of Significant Changes in Revenue Streams
The most notable change in revenue streams is the decrease in revenue from dispositions, which fell from $3.1 million in Q3 2023 to $0 in Q3 2024, representing a 100% decrease. Additionally, revenue from other properties has also seen a decline, decreasing by 16.0% year-over-year for the three months ended September 30, 2024.
In contrast, same-store revenue continues to show resilience with a year-over-year increase, attributed to improved occupancy rates and higher average monthly revenue per occupied home. The weighted average occupancy increased from 94.6% in September 2023 to 95.3% in September 2024.
A Deep Dive into Centerspace (CSR) Profitability
Profitability Metrics
Gross Profit Margin: For the three months ended September 30, 2024, gross profit was reported at $65.025 million, yielding a gross profit margin of 100% on total revenue of $65.025 million. In comparison, for the same period in 2023, gross profit was $64.568 million, resulting in a gross profit margin of 100% on total revenue of $64.568 million.
Operating Profit Margin: Operating income for the three months ended September 30, 2024, was $6.350 million, representing an operating profit margin of approximately 9.8%. This marks a significant decrease from the operating income of $17.395 million in the same period of 2023, which had an operating profit margin of approximately 26.9%.
Net Profit Margin: The net income (loss) for the three months ended September 30, 2024, was $(1.951) million, resulting in a net profit margin of (3.0%). In contrast, the net income for the three months ended September 30, 2023, was $9.169 million, leading to a net profit margin of approximately 14.2%.
Trends in Profitability Over Time
Over the last year, the profitability metrics indicate a downward trend. The operating income has decreased from $17.395 million in Q3 2023 to $6.350 million in Q3 2024, a decline of 63.5%. Similarly, net income dropped from $9.169 million in Q3 2023 to $(1.951) million in Q3 2024, marking a 121.3% decrease.
Comparison of Profitability Ratios with Industry Averages
The operating profit margin of 9.8% in Q3 2024 is below the industry average of approximately 20%. Furthermore, the net profit margin of (3.0%) contrasts starkly with the industry standard of around 10%.
Analysis of Operational Efficiency
Operational efficiency can be assessed through the trends in gross margins and operating expenses. The gross margin remained stable at 100%, while operating expenses increased significantly. For the nine months ended September 30, 2024, property operating expenses totaled $76.917 million, compared to $80.714 million for the same period in 2023, representing a decrease of 4.7%.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Profit | $65.025M | $64.568M | 0.7% |
| Operating Income | $6.350M | $17.395M | (63.5%) |
| Net Income | $(1.951)M | $9.169M | (121.3%) |
| Operating Profit Margin | 9.8% | 26.9% | (17.1%) |
| Net Profit Margin | (3.0%) | 14.2% | (17.2%) |
Debt vs. Equity: How Centerspace (CSR) Finances Its Growth
Debt vs. Equity: How Centerspace Finances Its Growth
As of September 30, 2024, Centerspace reported total debt of $921.3 million, reflecting a slight increase from $916.0 million at the end of the previous year. This total includes both secured and unsecured debt, with a weighted average interest rate of 3.59%.
Overview of the Company's Debt Levels
The company's debt structure comprises various components:
- Lines of credit: $39 million at a rate of 6.70%
- Unsecured senior notes: $300 million at a rate of 3.12%
- Mortgages payable (Fannie Mae Credit Facility): $198.9 million at 2.78%
- Other mortgages payable: $387.3 million at 4.05%
Debt-to-Equity Ratio and Comparison to Industry Standards
Centerspace's debt-to-equity ratio stands at approximately 1.41, indicating a relatively leveraged position compared to the industry average of about 1.0. This ratio is calculated as follows:
| Metric | Amount |
|---|---|
| Total Debt | $921.3 million |
| Total Equity | $653.5 million |
| Debt-to-Equity Ratio | 1.41 |
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In 2024, Centerspace amended its private shelf agreement with PGIM to extend borrowing capacity to $300 million and to allow borrowing until October 2027. Additionally, the company issued $175 million in unsecured senior promissory notes.
The company maintains a strong credit profile, with its unsecured senior notes rated at Baa3 by Moody's, reflecting moderate credit risk.
Balance Between Debt Financing and Equity Funding
Centerspace strategically balances its debt and equity financing. In September 2024, the company amended its equity distribution agreement under its ATM program, increasing the offering price from $250 million to $500 million. This program allows the company to issue shares as needed for operational flexibility.
In the nine months ending September 30, 2024, Centerspace raised $112.2 million through the issuance of common shares, reinforcing its equity base.
The company’s approach to financing emphasizes maintaining liquidity while managing leverage, as illustrated by its total liquidity of approximately $235.5 million as of September 30, 2024.
Assessing Centerspace (CSR) Liquidity
Assessing Centerspace's Liquidity
Current Ratio: As of September 30, 2024, the current ratio was 0.58, indicating a potential liquidity concern as it is below the benchmark of 1.0.
Quick Ratio: The quick ratio, which excludes inventory from current assets, was 0.58, suggesting similar liquidity challenges.
Working Capital Trends
Working capital as of September 30, 2024, was calculated as follows:
| Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|
| $119,000 | $204,000 | ($85,000) |
This negative working capital indicates that current liabilities exceed current assets, which may pose risks for meeting short-term obligations.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from different activities is outlined below:
| Cash Flow Activity | Amount (in thousands) |
|---|---|
| Net Cash Provided by Operating Activities | $79,583 |
| Net Cash Used in Investing Activities | ($40,460) |
| Net Cash Provided by Financing Activities | $112,218 |
The operating cash flow shows a healthy inflow, contributing to overall liquidity, while the investing cash flow reflects significant capital expenditures.
Potential Liquidity Concerns or Strengths
As of September 30, 2024, total liquidity was approximately $235.5 million, comprised of:
- $221.0 million available on lines of credit.
- $14.5 million in cash and cash equivalents.
Despite a solid liquidity position, the company faces potential concerns due to:
- High leverage levels with total liabilities of $982.3 million against total assets of $1.89 billion.
- Current liabilities exceeding current assets, indicating potential cash flow issues in the short term.
Is Centerspace (CSR) Overvalued or Undervalued?
Valuation Analysis
As of September 30, 2024, the company's financial metrics indicate a mixed valuation outlook. Below are the key ratios relevant to valuation:
| Valuation Ratio | Current Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | − (negative earnings) |
| Price-to-Book (P/B) Ratio | 0.66 |
| Enterprise Value-to-EBITDA (EV/EBITDA) | 14.5 |
Over the last 12 months, the stock price has experienced significant volatility. The following table summarizes the stock price trends:
| Date | Closing Price |
|---|---|
| September 30, 2023 | $72.00 |
| December 31, 2023 | $70.00 |
| March 31, 2024 | $68.50 |
| June 30, 2024 | $66.00 |
| September 30, 2024 | $71.12 |
Regarding dividends, the company declared distributions of $0.75 per common share for the three months ended September 30, 2024. The payout ratio is currently − due to negative net income.
Analyst consensus on the stock valuation is varied, with the following recommendations as of October 2024:
| Analyst Recommendation | Count |
|---|---|
| Buy | 3 |
| Hold | 5 |
| Sell | 2 |
Overall, the valuation metrics suggest a cautious approach, with the P/B ratio indicating potential undervaluation relative to its book value, while the negative earnings impact the P/E ratio significantly.
Key Risks Facing Centerspace (CSR)
Key Risks Facing Centerspace
Centerspace faces a variety of internal and external risks that could impact its financial health. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
As of September 30, 2024, Centerspace owned 70 apartment communities comprising a total of 12,883 apartment homes, an increase from 12,785 homes in the previous year. The competitive landscape in the real estate market remains intense, with numerous players vying for market share, which can lead to pricing pressures and reduced profitability.
Regulatory Changes
Regulatory risks continue to be a concern for the company. Changes in zoning laws, housing regulations, and environmental laws can affect operations. The company has to comply with various federal, state, and local regulations, which can incur additional costs and impact operational flexibility.
Market Conditions
The real estate market dynamics can significantly affect Centerspace's performance. For instance, the weighted average occupancy rates improved slightly from 94.6% in September 2023 to 95.3% in September 2024. However, economic downturns or a slowdown in job growth can adversely affect rental demand.
Operational Risks
Operational risks include the management of property operating expenses, which increased by 3.2% or $807,000 in the three months ended September 30, 2024, compared to the same period in the previous year. Rising costs in utilities, insurance, and maintenance can further squeeze margins.
Financial Risks
Financial risks encompass interest rate fluctuations and access to capital markets. Centerspace had a total debt of $925.1 million as of September 30, 2024, with a significant portion subject to variable interest rates. Any increase in interest rates could lead to higher interest expenses, affecting net income.
Strategic Risks
Strategic risks involve factors such as acquisitions and dispositions of properties. Centerspace disposed of two apartment communities for a total sales price of $19.0 million in the nine months ended September 30, 2024. Failure to identify and execute successful property acquisitions could hinder growth and profitability.
Mitigation Strategies
To mitigate these risks, Centerspace has implemented several strategies. The company maintains a liquidity position of approximately $235.5 million as of September 30, 2024, which includes $221.0 million available on lines of credit. This financial flexibility is critical for managing operational and strategic risks.
| Risk Factor | Description | Impact Level |
|---|---|---|
| Industry Competition | Intense competition leading to pricing pressure | High |
| Regulatory Changes | Compliance with changing regulations | Medium |
| Market Conditions | Fluctuating demand affecting occupancy rates | High |
| Operational Risks | Increased property operating expenses | Medium |
| Financial Risks | Fluctuating interest rates and debt levels | High |
| Strategic Risks | Challenges in property acquisitions and dispositions | Medium |
Future Growth Prospects for Centerspace (CSR)
Future Growth Prospects for Centerspace
Analysis of Key Growth Drivers
Centerspace is positioned for growth through several key drivers, including market expansions, strategic acquisitions, and product innovations. The company has increased its total apartment homes to 12,883 as of September 30, 2024, up from 12,785 a year prior. This growth includes 303 non-same-store units added during the same period.
Future Revenue Growth Projections and Earnings Estimates
Revenue from same-store communities increased by 3.0%, or $1.8 million, in the three months ended September 30, 2024. The nine-month figure also shows growth of 3.3%, or $6.0 million, compared to the previous year. The company's total revenue for the three months ended was $65.025 million, compared to $64.568 million in the same period of 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Centerspace has amended its equity distribution agreement, increasing its maximum aggregate offering price under its ATM Program from $250 million to $500 million. This allows the company to raise capital for acquisitions, community renovations, and debt repayment.
Competitive Advantages That Position the Company for Growth
The company benefits from a weighted average occupancy rate of 95.3% for the three months ended September 30, 2024, which is an increase from 94.6% in the same period of 2023. Furthermore, Centerspace's mortgage debt is non-recourse and backed by fixed rates, reducing exposure to interest rate fluctuations.
| Growth Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Apartment Homes | 12,883 | 12,785 | +98 |
| Same-Store Revenue Growth | 3.0% | - | - |
| Occupancy Rate | 95.3% | 94.6% | +0.7% |
| Equity Offering (ATM Program) | $500 million | $250 million | +100% |
Overall, Centerspace's strategic initiatives, coupled with its competitive advantages and growth metrics, provide a robust foundation for future growth prospects.
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Article updated on 8 Nov 2024
Resources:
- Centerspace (CSR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Centerspace (CSR)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Centerspace (CSR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.