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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. Historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations.

We are presenting our results of operations for the years ended December 31, 2021 and 2020. For additional comparison of results of operations for the years ended December 31, 2020 and December 31, 2019, please refer to our Annual Report on Form 10-K filed with the SEC on February 22, 2021.

This 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 Exchange Act, with respect to our 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.

Executive Summary

We own, manage, acquire, redevelop, and develop apartment communities. We primarily focus on investing in markets characterized by stable and growing economic conditions, strong employment, and an attractive quality of life that we believe, in combination, lead to higher demand for our apartment homes and retention of our residents. As of December 31, 2021, we owned interests in 79 apartment communities consisting of 14,441 homes as detailed in Item 2 - Properties. Property owned, as presented in the consolidated balance sheets, was $2.3 billion at December 31, 2021, compared to $1.8 billion at December 31, 2020.

Renting apartment homes is our primary source of revenue, and our business objective is to provide great homes. We strive to maximize resident satisfaction and retention by investing in high-quality assets in desirable locations and developing and training team members to create vibrant apartment communities through resident-centered operations. We believe that delivering superior resident experiences will drive consistent profitability for our shareholders. We have paid quarterly distributions every quarter since our first distribution in 1971.

COVID-19 Developments

The COVID-19 pandemic has had an impact on our business since March 2020, when it spread to many of the markets in which we own properties. Our first priority continues to be the health and well-being of our residents, team members, and the communities we serve. We enhanced cleaning protocols at our communities and offices, implemented physical distancing in community common spaces, and instituted remote work guidelines for our team members, all in accordance with state and local guidelines. We provided rent deferrals to residents and rent abatement to commercial tenants who were financially impacted by the COVID-19 pandemic.

Certain states and cities, including some of those in which our apartment communities are located, have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, shelter-in-place or stay-at-home directives, restrictions on types of businesses that may continue to operate, and restrictions on the types of construction projects that may continue. The availability of vaccines has led many states and cities to lift restrictions; however, due to new variants of the virus, we cannot predict whether restrictions will be reinstated or if additional restrictions will be imposed in the future. We implemented a plan to safely re-open common spaces in our communities while adhering to state and local guidelines, but we recognize that an increase in COVID-19 cases in these markets could cause us to close common spaces or take other preventive measures.

We cannot predict the continued impact of the pandemic, including the impact of the proposed U.S. vaccinemandate, and the degree to which our business and results of operations may be affected, particularly given the extended duration of the pandemic.

Financial Impact of the COVID-19 Pandemic

Many companies, especially in urban areas, have extended directives for employees to work from home during the COVID-19 pandemic. These extended directives have resulted in decreased traffic to businesses and, in some cases, closures of businesses in urban areas, which has resulted in lower demand and lower rent increases for our urban based apartment communities. The COVID-19 pandemic and these directives have affected our operations but did not have a material impact on our financial condition, operating results, or cash flows for the twelve months ended December 31, 2021.

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The ongoing COVID-19 pandemic may have adverse financial and economic impacts that include, but are not limited to, the following:

•cause our residents or commercial tenants to defer or stop rental payments, and abandon or fail to renew leases, which would reduce our primary source of net operating income and cash flows;

•cause the capital markets generally to become restricted or unavailable, thereby limiting our access to any needed debt or equity capital financing;

•impact the business of, or cause the loss of, certain critical third-party suppliers or other service providers;

•restrict our ability to continue to pay dividends on a quarterly basis at the current rate;

•impair the value of our tangible or intangible assets;

•require us to record loss contingencies and incur additional expenses related to our COVID-19 response; or

•cause the U.S. economy to suffer an extended economic slowdown, which could lead to a prolonged recession or even economic depression, which in turn would affect the demand for our apartment communities and could have an adverse impact on our business and operating results.

Despite our response to the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic on our rental revenue 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 our financial position and operating results, as well as potential adverse impacts on our business. Our management remains committed to ensuring the safety of our team members, residents, and communities, and to maintaining the financial stability of our business enterprise for the duration of the COVID-19 pandemic.

Significant Transactions and Events for the Year Ended December 31, 2021

Highlights. For the year ended December 31, 2021, our highlights included the following:

•Net Loss was $0.47 per diluted share for the year ended December 31, 2021, compared to Net Loss of $0.15 per diluted share for the year ended December 31, 2020;

•Same-store year-over-year revenue growth of 4.8%, driven by 5.1% growth in rental revenue, offset by a decrease of 0.3% in occupancy; and

•Same-store net operating income growth of 4.8%.

Acquisitions and Dispositions. During the year ended December 31, 2021, we completed the following transactions in furtherance of our strategic plan:

•Closed on a strategic portfolio acquisition in Minneapolis and St. Cloud, Minnesota for an aggregate acquisition cost of $359.9 million. The portfolio is comprised of 14 apartment communities in Minneapolis and three apartment communities in St. Cloud with a total of 2,696 apartment homes. In connection with this transaction, we issued 1.8 million Series E preferred units with a par value of $100 per unit. The Series E preferred units pay a 3.875% dividend rate and are convertible, at the holder’s option, into Units at an exchange rate of 1.2048 Units per Series E preferred unit, representing a conversion price of $83.00 per Unit. The acquired assets were subject to $126.5 million in mortgage liabilities, of which $20.0 million was assumed at a rate of 4.31% with the remaining amount financed through a $198.9 million Fannie Mae credit facility agreement. The FMCF includes tranches in 7, 10, and 12-year increments with a weighted average interest rate of 2.78%;

•Acquired Civic Lofts, a 176-home apartment community located in Denver, Colorado for $63.0 million;

•Acquired Union Pointe, a 256-home apartment community located in Longmont, Colorado for $76.9 million; and

•Disposed of five apartment communities in Rochester, Minnesota and a commercial property for an aggregate sale price of $62.3 million.

Financing Transactions. During the year ended December 31, 2021, we completed the following financing transactions:

•Issued 1.8 million common shares at an average price of $86.13 per share for total consideration, net of commissions and issuance costs, of approximately $156.4 million;

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•Amended and expanded our Note Purchase Private Shelf Agreement to increase the aggregate amount under the agreement from $150.0 million to $225.0 million and issued $50.0 million of 2.7% unsecured Series C Notes due June 6, 2030;

•Issued $125.0 million of unsecured notes with a weighted average interest rate of 2.6% and weighted average maturity of 10.5 years; and

•Paid $3.8 million to terminate two interest rate swaps in connection with the pay down of our term loans.

Outlook

We intend to continue our focus on maximizing the financial performance of the communities in our existing portfolio. To accomplish this, we have introduced initiatives to expand our operating margin by enhancing the resident experience, making value-add investments, and implementing technology solutions and expense controls. We will actively manage our existing portfolio and strategically pursue acquisitions of multifamily communities in our target markets of Minneapolis, Minnesota and Denver, Colorado as opportunities arise and market conditions allow. We will explore potential new markets and acquisition opportunities, including in Nashville, Tennessee, as market conditions allow. Our continued management of a strong balance sheet should provide us with flexibility to pursue both internal and external growth.

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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”), which is defined below.

(in thousands, except percentages)

Year Ended December 31,

Adjustments:

Consolidated Results of Operations

The following consolidated results of operations cover the years ended December 31, 2021 and 2020.

(in thousands)

Year Ended December 31,

Revenue

Property operating expenses, including real estate taxes

Net operating income

Dividends to preferred unitholders (640) (640) — —

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Year Ended December 31,

(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 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. The currently offered effective rates on new leases at the community are used as the starting point in determination of the market rates of vacant homes. We believe 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 our calculation of weighted average occupancy may not be comparable to that disclosed by other real estate companies.

December 31,

Net operating income. NOI is a non-GAAP financial measure which we define as total real estate revenues less property operating expenses, including real estate taxes, which is reconciled to operating income (loss) in the table above. We believe 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.

Throughout this Report, we have provided certain information on a same-store and non-same-store basis. Same-store apartment communities are owned or in service for substantially all of the periods being compared and, in the case of development 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 the performance of existing apartment communities and their contribution to net income. Management believes that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our communities are performing year-over-year. Management uses this measure to assess whether or not it has been successful in increasing NOI, renewing the leases of existing residents, controlling operating costs, and making prudent capital improvements. The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store apartment communities because changes from one year to another in real estate revenue and expenses from non-same-store communities are due to the addition of those properties to our real estate portfolio, and accordingly provide less useful information for evaluating the ongoing operational performance of our real estate portfolio.

For the comparison of the twelve months ended December 31, 2021 and 2020, 59 apartment communities were classified as same-store and twenty-one apartment communities were non-same-store. See Item 2 - Properties for the list of communities classified as same-store and non-same-store. Sold communities are included in “Other” for the periods prior to the sale, which also includes non-multifamily properties and the non-multifamily components of mixed-use properties.

Revenue. Total revenue increased by 13.3% to $201.7 million for the year ended December 31, 2021 compared to $178.0 million in the year ended December 31, 2020. Revenue from 21 non-same-store apartment communities and other properties increased by $23.9 million and $684,000, respectively, offset by a decrease of $8.5 million from dispositions. Revenue from same-store communities increased by 4.8% or $7.6 million in the year ended December 31, 2021, compared to the same period in the prior year. Approximately 5.1% of the increase was due to higher average rental revenue, offset by a 0.3% decrease in occupancy as weighted average occupancy decreased from 94.7% to 94.4% for the years ended December 31, 2020 and 2021, respectively.

Property operating expenses, including real estate taxes. Total property operating expenses, including real estate taxes, increased by 11.9% to $81.9 million in the year ended December 31, 2021 compared to $73.2 million in the year ended December 31, 2020. Property operating expenses from non-same-store apartment communities increased by $9.6 million, offset by a decrease of $4.2 million from sold properties. Property operating expenses at same-store communities increased by 4.8% or $3.1 million in the year ended December 31, 2021, compared to the same period in the prior year. At same-store communities, controllable expenses (which exclude insurance and real estate taxes), increased by $1.5 million, primarily due to

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increases in utilities, compensation costs, turnover and maintenance, and marketing costs of $689,000, $284,000, $278,000, and $239,000, respectively. Non-controllable expenses at same-store communities increased by $1.7 million primarily due to insurance costs. Insurance and real estate taxes comprised $1.1 million and $632,000 of the increase, respectively.

Net operating income. NOI increased by 14.3% to $119.8 million in the year ended December 31, 2021 compared to $104.8 million in the year ended December 31, 2020. Net operating income from same-store and non-same-store communities increased by $4.5 million and $14.2 million, respectively, offset by a decrease of $4.3 million from dispositions.

Property management expense. Property management expense, consisting of property management overhead and property management fees paid to third parties increased by 50.9% to $8.8 million in the year ended December 31, 2021, compared to $5.8 million in the year ended December 31, 2020. The increase was primarily due to $1.2 million in non recurring technology initiatives as well as $1.2 million in compensation costs due to the filling of open positions and additional staffing related to the acquisition of 17 communities during the year.

Casualty gain (loss). Casualty loss decreased by 79.3% to $344,000 in the year ended December 31, 2021, compared to $1.7 million in the year ended December 31, 2020. The decrease was primarily due to weather-related losses that occurred in the prior year which did not occur in the current year.

Depreciation and amortization. Depreciation and amortization increased by 21.9% to $92.2 million in the year ended December 31, 2021, compared to $75.6 million in the year ended December 31, 2020, attributable to an increase of $21.6 million from non-same-store properties, offset by decreases of $2.3 million and $2.7 million at same-store communities and sold properties, respectively.

General and administrative expenses. General and administrative expenses increased by 20.6% to $16.2 million in the year ended December 31, 2021, compared to $13.4 million in the year ended December 31, 2020, primarily attributable to increases of $1.3 million in incentive-based compensation costs related to company performance and share-based compensation arrangements due to the timing and form of grants and $808,000 in non-recurring technology initiatives.

Gain (loss) on sale of real estate and other investments. In the years ended December 31, 2021 and 2020, we recorded gains on sale of real estate and other investments in continuing operations of $27.5 million and $25.5 million, respectively.

Operating income. Operating income decreased by 11.7% to $29.9 million in the year ended December 31, 2021, compared to $33.8 million in the year ended December 31, 2020.

Interest expense. Interest expense increased 5.6% to $29.1 million in the year ended December 31, 2021, compared to $27.5 million in the year ended December 31, 2020, primarily due to maintaining a larger average daily balance on the line of credit compared to the same period of the prior year and the addition of new unsecured senior notes and the Fannie Mae credit facility, offset by a lower weighted average interest rate.

Loss on extinguishment of debt. Loss on extinguishment of debt increased to $535,000 in the year ended December 31, 2021, compared to $23,000 in the year ended December 31, 2020, primarily due to prepayment penalties associated with the disposal of assets and the write-off of unamortized loan costs.

Interest and other income (loss). Interest and other income (loss) decreased to $2.4 million loss in the year ended December 31, 2021, compared to a loss of $1.6 million in the prior year. The decrease was primarily due to a $5.4 million loss related to the termination of interest rate swaps, compared to a $3.4 million loss from marketable securities in the prior year.

Funds from Operations and Core Funds From Operations

We believe that Funds from Operations (“FFO”), which is a non-GAAP standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our 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.

We use the definition of 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;

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•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 our 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 the definition. We believe all such interpretations not specifically provided for in the Nareit definition are consistent with the 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 cash needs, including the 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, the company believes 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.

Net loss available to common shareholders for the year ended December 31, 2021 decreased to $6.5 million compared to a net loss of $1.8 million for the year ended December 31, 2020. FFO applicable to common shares and Units for the year ended December 31, 2021, increased to $54.9 million compared to $47.4 million for the year ended December 31, 2020, a change of 16.0%, primarily due to increased NOI from same-store and non-same-store communities as well as lower casualty losses and a prior year loss of $3.4 million on marketable securities that did not occur in the current year. These increases were offset by decreased NOI from sold properties, increases in interest expense, property management and general and administrative expenses, and a $5.4 million loss related to termination of interest rate swaps. For a comparison of FFO applicable to common shares and Units for the years ended December 31, 2020 and 2019, refer to our Annual Report on Form 10-K filed with the SEC on February 22, 2021.

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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)

Year Ended December 31,

Net income (loss) available to common shareholders $ (6,457) $ (1,790)

Adjustments:

Noncontrolling interests – Operating Partnership (2,806) (212)

Less depreciation – non real estate (366) (353)

Less depreciation – partially owned entities (93) (379)

(Gain) loss on sale of real estate (27,518) (25,503)

FFO applicable to common shares and Units $ 54,925 $ 47,356

Adjustments to Core FFO:

Casualty loss (recovery) $ — $ 749

Loss on extinguishment of debt 535 23

Rebranding costs — 402

Technology implementation costs 2,020 —

(Gain) loss on marketable securities — 3,378

(Discount) premium on redemption of preferred shares — (297)

Commercial lease termination proceeds (450) —

Acquisition related costs 230 —

Interest rate swap termination, amortization, and mark-to-market 4,942 —

Amortization of assumed debt (53) —

Other miscellaneous items (64) —

Core FFO applicable to common shares and Units $ 62,085 $ 51,611

FFO applicable to common shares and Units $ 54,925 $ 47,356

Dividends to preferred unitholders 640 640

FFO applicable to common shares and Units - diluted $ 55,565 $ 47,996

Core FFO applicable to common shares and Units $ 62,085 $ 51,611

Dividends to preferred unitholders 640 640

Core FFO applicable to common shares and Units - diluted $ 62,725 $ 52,251

Per Share Data

Earnings (loss) per common share - diluted $ (0.47) $ (0.15)

FFO per share and Unit - diluted $ 3.54 $ 3.47

Core FFO per share and Unit - diluted $ 3.99 $ 3.78

Weighted average shares and Units - diluted 15,704 13,835

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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 operation, 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 our unsecured lines of credit, proceeds from property dispositions, including restricted cash related to net tax deferred proceeds, offerings of preferred and common shares under our shelf registration statement, including offerings of common shares under our 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 our communities, distributions to the holders of our preferred shares, common shares, Series D preferred units, Series E preferred units, and Units, value-add redevelopment, common and preferred share buybacks, Unit redemptions, and acquisition of additional communities.

We have historically met our short-term liquidity requirements through net cash flows provided by our operating activities and, from time to time, through draws on our lines of credit. We believe our ability to generate cash from property operating activities and draws on our lines of credit to be adequate to meet all expected operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Code. Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, draws on our lines of credit and/or new borrowings, and we believe we will have sufficient liquidity to meet our commitments over the next twelve months.

To maintain our qualification as a REIT, we must pay dividends to our shareholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. Under a separate requirement, we must distribute 100% of net capital gains or pay a corporate level tax in lieu thereof. While we have historically satisfied this distribution requirement by making cash distributions to our shareholders, we may choose to satisfy this requirement by making distributions of other property, including, in limited circumstances, our own common shares. As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund ongoing operations. We pay dividends from cash available for distribution. Until it is distributed, cash available for distribution is typically invested in investment grade securities or is used to reduce balances outstanding under our line of credit. In the event of deterioration in property operating results, we may need to consider additional cash preservation alternatives, including reducing development activities, capital improvements, and renovations. For the year ended December 31, 2021, we declared cash distributions of $42.7 million to common shareholders and unitholders of Centerspace, LP, as compared to net cash provided by operating activities of $84.0 million and FFO of $54.9 million.

Factors that could increase or decrease our future liquidity include, but are not limited to, changes in interest rates or sources of financing, general volatility in capital and credit markets, changes in minimum REIT dividend requirements, and our ability to access the capital markets on favorable terms, or at all. As a result of the foregoing conditions or general economic conditions in our markets that affect our ability to attract and retain residents, we may not generate sufficient cash flow from operations. If we are unable to obtain capital from other sources, we may not be able to pay the distribution required to maintain our status as a REIT, make required principal and interest payments, make strategic acquisitions or make necessary routine capital improvements or undertake value add renovation opportunities with respect to our existing portfolio of operating assets.

As of December 31, 2021, we had total liquidity of approximately $204.8 million, which included $173.5 million available on our line of credit based on the value of unencumbered properties and $31.3 million of cash and cash equivalents. As of December 31, 2020, we had total liquidity of approximately $97.5 million, which included $97.1 million available on our line of credit based on the value of properties contained in our unencumbered asset pool (“UAP”) and $392,000 of cash and cash equivalents.

Potential Impact of COVID-19-Related Effects on Continuing Debt Availability

Although we are in compliance with our covenants under all of our debt facilities and currently expect to continue to remain in compliance with these covenants, there can be no assurance that we will remain in compliance with those covenants or be able to access these funds depending on the length of the COVID-19 pandemic and the breadth of its impact on the U.S. economy

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generally and the credit markets in particular. Under the terms of our credit facility, we may be unable to obtain advances under our credit facility if:

•we are unable to make certain representations and warranties, including a certification that, since September 30, 2021, there has been no adverse change in our business, financial condition, operations, performance or properties, taken as a whole, which would reasonably be expected to have a material adverse effect;

•changes in our consolidated property NOI or capitalization rates applicable to the properties in our borrowing base reduce or eliminate availability under our credit facility; or

•changes in the nature and composition (including occupancy rate) of the properties in our borrowing base cause these properties to become ineligible to be part of our borrowing base, and if we are not able to replace such properties with other qualifying properties, such ineligibility could reduce or eliminate the availability under our credit facility.

Even if we remain in compliance with the foregoing representations, warranties, and covenants, we may be unable to access the full amount available under our credit facilities if our lenders fail to fund their commitments.

As of the date of this filing, we have not experienced any restrictions or limitations on the availability of credit in our markets or with our lenders, although there can be no assurance that we will continue to be able to access the credit markets generally or our credit facility in the future.

Debt

As of December 31, 2021, we had a multibank, revolving line of credit with total commitments and borrowing capacity of $250.0 million, based on the value of unencumbered properties. As of December 31, 2021, the additional borrowing availability was $173.5 million beyond the $76.0 million drawn. As of December 31, 2020, the line of credit borrowing capacity was $250.0 million based on the value of our unencumbered asset pool (“UAP”), of which $152.9 million was drawn on the line. The line of credit bears interest either at the lender’s base rate plus a margin ranging from 25 to 80 basis points, or LIBOR, plus a margin ranging from 125 to 180 basis points based on our consolidated leverage. The line of credit is utilized to refinance existing indebtedness, to finance property acquisitions, to finance capital expenditures, and for general corporate purposes. This credit facility matures in September 2025 and has an accordion option to increase borrowing capacity up to $400.0 million.

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 promissory notes to $225.0 million. We also issued $50.0 million of unsecured senior notes in connection with the amendment. Under this agreement, we issued $200.0 million unsecured senior notes with $25.0 million remaining available, as of December 31, 2021. In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements.

(in thousands)

Amount Maturity Date Interest Rate

In September 2021, we entered into a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”) for financing the acquisition of 16 apartment communities. The FMCF is currently secured by mortgages on those apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended weighted average interest rate of 2.78%. As of December 31, 2021, the FMCF had a balance of $198.9 million. The FMCF is included within mortgages payable on the Consolidated Balance Sheets.

Mortgage loan indebtedness, excluding the FMCF, was $284.9 million on December 31, 2021 and $298.4 million on December 31, 2020. As of December 31, 2021, the weighted average rate of interest on our mortgage debt was 3.81%, compared to 3.93% on December 31, 2020. Refer to Note 6 of our consolidated financial statements contained in this Report for the principal payments due on our mortgage indebtedness and other tabular information.

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We also have a $6.0 million unsecured 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.

All of our term debt is at fixed rates of interest, with staggered maturities. This reduces the exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on our results of operations and cash flows.

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. Under the 2019 ATM Program, we sold shares having an aggregate sales price of $149.9 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 that we determine. The proceeds from the sale of common shares under the 2021 ATM Program are intended to be used for general corporate purposes, which may include the funding of acquisitions and the repayment of indebtedness. During the year ended December 31, 2021, we issued 1.8 million common shares under the 2019 and 2021 ATM Programs at an average price of $86.13 per share, net of commissions. Total consideration, net of commissions and issuance costs, was approximately $156.4 million. As of December 31, 2021, common shares having an aggregate offering price of up to $158.7 million remained available under the 2021 ATM Program.

On September 1, 2021, we 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, representing a conversion exchange rate of $83 per unit. 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.

As of December 31, 2021 and 2020, we had 3.9 million Series C preferred shares outstanding.

Changes in Cash, Cash Equivalents, and Restricted Cash

As of December 31, 2021, we had cash and cash equivalents of $31.3 million and restricted cash consisting of $2.4 million of escrows held by lenders for real estate taxes, insurance, and capital additions and $5.0 million in deposits for real estate acquisitions. As of December 31, 2020, we had cash and cash equivalents of $392,000 and restricted cash consisting of $1.9 million of escrows held by lenders for real estate taxes, insurance, and capital additions and $5.0 million in net tax-deferred exchange proceeds remaining from a portion of our dispositions.

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash which are presented in our consolidated statements of cash flows in Item 15 of this report.

In addition to cash flows from operations, during the year ended December 31, 2021, we generated capital from various activities, including:

•Receipt of $174.5 million, net of fees, from the issuance of unsecured senior notes;

•Receipt of $61.3 million, net of transaction costs, from the sale of five apartment communities in Rochester, Minnesota and a commercial property;

•Receipt of $196.7 million, net of fees, from the Fannie Mae credit facility which was used to pay off debt as partial consideration for the September 1,2021 portfolio acquisition; and

•Receipt of $156.0 million, net of fees, from the issuance of 1.8 million common shares under our 2019 and 2021 ATM Programs.

During the year ended December 31, 2021, we used capital for various activities, including:

•Acquisition of Union Pointe, a 256-home apartment community located in Longmont, Colorado, for an aggregate purchase price of $76.9 million;

•Acquisition of a portfolio of 17 apartment communities located in Minneapolis, Minnesota and St. Cloud, Minnesota, for $15.7 million in cash, the paydown of $106.7 million in existing mortgages, and the remainder through the issuance of Series E preferred units;

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•Funding mezzanine and construction loans of $18.6 million;

•Repaying approximately $36.3 million of mortgage principal;

•Paying off $145.0 million in term loans;

•Paying $3.8 million for the termination of interest rate swaps;

•Paying $76.9 million on our lines of credit;

•Paying distributions on common shares, Series E preferred units, and Units of $43.4 million; and

•Funding capital improvements for apartment communities of approximately $35.9 million.

Contractual Obligations and Other Commitments

Our primary contractual obligations relate to borrowings under our lines of credit, unsecured senior notes, and mortgages payable. The primary line of credit had a $76.0 million balance outstanding at December 31, 2021 and matures in September 2025. Our unsecured senior notes have an aggregate balance of $300.0 million at December 31, 2021 with varying maturities from September 2028 through September 2034.

(in thousands)

Less than More than

Total 1 Year 1-3 Years 3-5 Years 5 Years

(1)The future interest payments on the lines of credit were estimated using the outstanding principal balance and interest rate in effect as of December 31, 2021.

We fund capital expenditures, primarily to maintain or renovate our apartment communities. The amounts of these expenditures can vary from year to year depending on the age of the apartment community, timing of planned improvements, and lease turnover.

As of December 31, 2021, we had no significant off-balance-sheet arrangements.

Inflation

Our apartment leases generally have terms of one year or less, which means that, in an inflationary environment, we would have the ability 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. A worsening of the current environment could contribute to delays in obtaining construction materials for maintenance or value add projects and result in higher than anticipated costs, which could prevent us from obtaining expected returns on value add projects.

Critical Accounting Estimates

Set forth below is a summary of the accounting estimates that management believes are critical to the preparation of the consolidated financial statements included in this Report.

Real Estate. Real estate is carried at cost, net of accumulated depreciation, less an adjustment for impairment, if any. Depreciation requires an estimate by management of the useful life of each asset as well as an allocation of the costs associated with a property to its various components. As described further below, the process of allocating property costs to its components involves a considerable amount of subjective judgments to be made by management. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. We use a 10-37 year estimated life for buildings and improvements and a 5-10 year estimated life for furniture, fixtures, and equipment. Maintenance and repairs are charged to operations as incurred. Renovations and improvements that improve and/or extend the useful life of the asset are capitalized over their estimated useful life, generally five to twenty years.

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Acquisition of Investments in Real Estate. Upon acquisitions of real estate, we assess the fair value of acquired tangible assets (including land, buildings and personal property), which is determined by valuing the property as if it were vacant, and consider whether there were significant intangible assets acquired (for example, above-and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments. The as-if-vacant value is allocated to land, buildings, and personal property based on our determination of the relative fair value of these assets. Techniques used to estimate fair value include discounted cash flow analysis and reference to recent sales of comparable properties. Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property. Land value is assigned based on the purchase price if land is acquired separately or based on a relative fair value allocation if acquired in a portfolio acquisition.

Other intangible assets acquired include amounts for in-place lease values that are based upon our evaluation of the specific characteristics of the leases. Factors considered in the fair value analysis include an estimate of carrying costs and foregone rental income during hypothetical expected lease-up periods, consideration of current market conditions, and costs to execute similar leases. We also consider information about each property obtained during our pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets acquired.

Impairment. We periodically evaluate our long-lived assets, including our investments in real estate, for impairment indicators. 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, we compare 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 our anticipated holding period for properties, the estimated fair value of properties, or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our 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. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

Recent Accounting Pronouncements

For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to our consolidated financial statements appearing elsewhere in this Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is primarily related to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations. We have used interest rate swaps to offset the impact of interest rate fluctuations on our variable-rate debt. During the year ended December 31, 2021, we prepaid two variable rate term loans and terminated two of our four interest rate swaps. As of December 31, 2021, we had a swap with a notional of $75.0 million on the line of credit and which has an average pay rate of 2.81% and a forward swap with a notional of $70.0 million. The aggregate fair value of our interest rate swaps is a liability of $5.7 million, as of December 31, 2021. We do not enter into derivative instruments for trading or speculative purposes. The interest rate swaps expose us to credit risk in the event of non-performance by the counterparty under the terms of the agreement.

We have a private shelf agreement with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. (collectively, PGIM) for the issuance of up to $225.0 million of unsecured senior promissory notes (“unsecured senior notes”). We also issued $50.0 million of unsecured senior notes in connection with the amendment. Under this agreement, we issued $200.0 million unsecured senior notes with $25.0 million remaining available as of December 31, 2021. In September 2021, we entered into a note purchase agreement for the issuance of $125.0 million senior unsecured promissory notes, of which $25.0 million was under the private shelf agreement with PGIM. The following table shows the notes issued under both agreements. The table below shows the notes issued under both agreements.

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(in thousands)

Amount Maturity Date Interest Rate

During the year ended December 31, 2021, we entered into a $198.9 million Fannie Mae Credit Facility Agreement (“FMCF”) for the financing of 16 apartment communities acquired. The FMCF is currently secured by mortgages on those apartment communities. The notes are interest-only, have varying maturity dates of 7, 10, and 12 years, and a blended weighted average interest rate of 2.78%. As of December 31, 2021, the FMCF had a balance of $198.9 million.

As of December 31, 2021, we had no variable-rate mortgage debt outstanding and $76.0 million of variable-rate borrowings under our line of credit, of which $75.0 million is fixed through interest rate swaps. We estimate that a change in 30-day LIBOR of 100 basis points with constant risk spreads would not have a significant impact on our net income due to our interest rate swap on our line of credit.

Mortgage loan indebtedness, excluding the FMCF, decreased by $13.5 million as of December 31, 2021, compared to December 31, 2020, primarily due to loan maturities and prepayments. As of December 31, 2021 and 2020, 100.0% of our $284.9 million of mortgage debt was at fixed rates of interest, with staggered maturities. As of December 31, 2021, the weighted average rate of interest on our mortgage debt was 3.81%, compared to 3.93% on December 31, 2020. Even though our goal is to maintain a fairly low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future repricing or refinancing of our fixed or variable rate debt or future debt.

The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Average variable rates are based on rates in effect at the reporting date.

Future Principal Payments (in thousands, except percentages)

Fair

Average Interest Rate(1) — — — 2.74 % — — 2.74 %

(1)Interest rate is annualized and includes the effect of our interest rate swaps.

(2)Includes our line of credit, of which $75.0 million is synthetically fixed with an interest rate swap.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements and related notes, together with the Report of the Independent Registered Public Accounting Firm, are set forth beginning on page F-1 of this Report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures: As of December 31, 2021, the end of the period covered by this Report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting: There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2021. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP.

As of December 31, 2021, management conducted an assessment of the effectiveness of our internal control over financial reporting, based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2021, was effective.

Our internal control over financial reporting includes policies and procedures that:

•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions, acquisitions and dispositions of assets;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and the trustees; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions or deterioration in the degree of compliance with the policies or procedures.

Our internal control over financial reporting as of December 31, 2021 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report on page F-4 of our consolidated financial statements contained in our Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021.

Item 9B. Other Information

None.

PART III

Item 10. Trustees, Executive Officers and Corporate Governance

The information required by this Item regarding Trustees is incorporated by reference to the information under “Election of Trustees,” “Information About Our Executive Officers,” “Code of Conduct and Code of Ethics for Senior Financial Officers,”

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and “Board Committees” in our definitive proxy statement for our 2022 Annual Meetingof Shareholders to be filed with the SEC no later than 120 days after the end of the year covered by this Report.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to the information under “Trustee Compensation,” “Compensation Discussion and Analysis” and “Executive Officer Compensation Tables” in our definitive proxy statement for our 2022 Annual Meetingof Shareholders to be filed with the SEC no later than 120 days after the end of the year covered by this Report.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item is incorporated by reference to the information under “Securities Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our 2022 Annual Meetingof Shareholders to be filed with the SEC no later than 120 days after the end of the year covered by this Report.

Item 13. Certain Relationships and Related Transactions, and Trustee Independence

The information required by this Item is incorporated by reference to the information under “Relationships and Related Party Transactions” and “Corporate Governance and Board Matters” in our definitive proxy statement for our 2022 Annual Meetingof Shareholders to be filed with the SEC no later than 120 days after the end of the year covered by this Report.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated by reference to the information under “Accounting and Audit Committee Matters” in our definitive proxy statement for our 2022 Annual Meetingof Shareholders to be filed with the SEC no later than 120 days after the end of the year covered by this Report.

PART IV

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as part of this report:

1. Financial Statements

See the “Table of Contents” to our consolidated financial statements on page F-1 of this Report.

2. Financial Statement Schedules

See the “Table of Contents” to our consolidated financial statements on page F-1 of this Report.

The following financial statement schedules should be read in conjunction with the financial statements referenced in Part II, Item 8 of this Report: Schedule III Real Estate and Accumulated Depreciation

3. Exhibits

See the Exhibit Index set forth in part (b) below.

The Exhibit Index below lists the exhibits to this Report. We will furnish a printed copy of any exhibit listed below to any security holder who requests it upon payment of a fee of 15 cents per page. All Exhibits are either contained in this Report or are incorporated by reference as indicated below.

Item 16. 10-K Summary

None.

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EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

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EXHIBIT NO. DESCRIPTION

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EXHIBIT NO. DESCRIPTION

21.1† Subsidiaries of Centerspace

23.1† Consent of Independent Registered Public Accounting Firm

31.1† Section 302 Certification of President and Chief Executive Officer

31.2† Section 302 Certification of Chief Financial Officer

32.1† Section 906 Certification of the President and Chief Executive Officer

32.2† Section 906 Certification of the Chief Financial Officer

† Filed herewith

** Indicates management compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: February 28, 2022 Centerspace

By: /s/ Mark O. Decker, Jr.

Mark O. Decker, Jr.

President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature Title Date

/s/ John A. Schissel

John A. Schissel Trustee & Chairman February 28, 2022

/s/ Mark O. Decker, Jr.

/s/ Bhairav Patel

/s/ Michael T. Dance

Michael T. Dance Trustee February 28, 2022

/s/ Emily Nagle Green

Emily Nagle Green Trustee February 28, 2022

/s/ Linda J. Hall

Linda J. Hall Trustee February 28, 2022

/s/ Jeffrey P. Caira

Jeffrey P. Caira Trustee February 28, 2022

/s/ Mary J. Twinem

Mary J. Twinem Trustee February 28, 2022

/s/ Rodney Jones-Tyson

Rodney Jones-Tyson Trustee February 28, 2022

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CENTERSPACE AND SUBSIDIARIES

TABLE OF CONTENTS

PAGE

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets F-5

Consolidated Statements of Operations F-6

Consolidated Statements of Comprehensive Income F-7

Consolidated Statements of Equity F-8

Consolidated Statements of Cash Flows F-9

Notes to Consolidated Financial Statements F-11

ADDITIONAL INFORMATION

Schedule III - Real Estate and Accumulated Depreciation F-31

Schedules other than those listed above are omitted since they are not requiredor are not applicable, or the required information is shown in the consolidatedfinancial statements or notes thereon.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees and Shareholders

Centerspace

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Centerspace (a North Dakota real estate investment trust) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for the three years in the period ended December 31, 2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2022 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Accounting for Series E preferred units issued.

As described in Note 4 to the financial statements, in September 2021, the Company 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, representing a conversion exchange rate of $83.00 per unit. 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. The Company recorded the Series E preferred units as a noncontrolling interest within permanent equity on the consolidated balance sheet at fair value. We have identified the accounting for the Series E preferred units as a critical audit matter.

The principal consideration for our determination that accounting for the Series E preferred units is a critical audit matter is it involved a high degree of judgment in assessing management’s conclusions that the Series E preferred units are a noncontrolling interest within permanent equity.

Our audit procedures related to the accounting for the Series E preferred units included the following, among others.

•We tested the design and operating effectiveness of management’s internal controls over their accounting of the Series E preferred units, including controls over the evaluation and application of the appropriate accounting principles.

•We inspected the contribution agreements, Series E preferred unit agreement, and operating partnership agreement to identify and understand the rights of the unit holders and provisions relevant to management’s conclusions.

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•We evaluated relevant provisions within these agreements to determine whether management’s conclusions were consistent with the relevant accounting guidance, specifically whether the Series E preferred units were a noncontrolling interest within permanent equity.

•We consulted our firm’s subject matter expert regarding the appropriateness of management’s conclusions on the accounting for the Series E preferred units.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2013.

Minneapolis, Minnesota

February 28, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees and Shareholders

Centerspace

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Centerspace (a North Dakota real estate investment trust) and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated February 28, 2022 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota

February 28, 2022

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

ASSETS

Real estate investments

LIABILITIES, MEZZANINE EQUITY, AND EQUITY

LIABILITIES

Accounts payable and accrued expenses $ 62,403 $ 55,609

COMMITMENTS AND CONTINGENCIES (NOTE 12)

EQUITY

Accumulated distributions in excess of net income (474,318) (427,681)

Accumulated other comprehensive income (loss) (4,435) (15,905)

Noncontrolling interests – consolidated real estate entities 648 686

TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY $ 1,940,061 $ 1,464,183

See Notes to Consolidated Financial Statements.

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Year Ended December 31,

EXPENSES

Property operating expenses, excluding real estate taxes 57,753 51,625 57,249

Gain (loss) on sale of real estate and other investments 27,518 25,503 97,624

Loss on extinguishment of debt (535) (23) (2,360)

Gain (loss) on litigation settlement — — 6,586

Dividends to preferred unitholders (640) (640) (537)

Net income (loss) attributable to controlling interests (29) 4,441 78,669

Redemption of preferred shares — 297 —

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (6,457) $ (1,790) $ 71,848

NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ (0.47) $ (0.15) $ 6.06

NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ (0.47) $ (0.15) $ 6.00

See Notes to Consolidated Financial Statements.

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Year Ended December 31,

Other comprehensive income:

Unrealized gain (loss) from derivative instrument 2,383 (11,068) (7,040)

(Gain) loss on derivative instrument reclassified into earnings 9,087 2,770 289

See Notes to Consolidated Financial Statements.

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except per share amounts)

NUMBER ACCUMULATED ACCUMULATED

OF DISTRIBUTIONS OTHER NONREDEEMABLE

PREFERRED COMMON COMMON IN EXCESS OF COMPREHENSIVE NONCONTROLLING TOTAL

SHARES SHARES SHARES NET INCOME INCOME INTERESTS EQUITY

Change in fair value of derivatives (6,751) (6,751)

Share-based compensation, net of forfeitures 11 1,905 1,905

Redemption of Units for common shares 173 7,823 (7,823) —

Redemption of Units for cash (8,147) (8,147)

Acquisition of redeemable noncontrolling interests 4,529 4,529

Change in fair value of derivatives (8,298) (8,298)

Share-based compensation, net of forfeitures 20 2,106 2,106

Redemption of Units for common shares 81 (1,750) 1,750 —

Distributions – Series E preferred units ($1.301667 per unit) (2,343) (2,343)

Share-based compensation, net of forfeitures 28 2,689 2,689

Redemption of Units for common shares 144 (4,714) 4,714 —

Change in value of Series D preferred units — (8,771) (8,771)

See Notes to Consolidated Financial Statements.

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Realized (gain) loss on marketable securities — 3,378 —

(Gain) loss on extinguishment of debt and discontinued operations 535 23 2,360

(Gain) loss on litigation settlement — — (1,349)

Changes in other assets and liabilities:

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from repayment of mortgage loans receivable — 10,020 —

Proceeds from sale of marketable securities — 3,856 —

Purchase of marketable securities — (179) (6,942)

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on notes payable and other debt (145,000) — —

Payments for termination of interest rate swaps (3,804) — —

Repurchase of common shares — — (18,023)

Repurchase of preferred shares — (5,629) —

Repurchase of partnership units — (50) (8,147)

Distributions paid to preferred shareholders (6,428) (6,528) (6,821)

Distributions paid to preferred unitholders (640) (640) (377)

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CENTERSPACE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

Year Ended December 31,

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Operating partnership units converted to shares (4,714) (1,750) 7,823

Retirement of shares withheld for taxes 933 — —

Real estate assets acquired through assumption of debt 20,000 — —

Fair value adjustment to debt 2,367 — —

Property acquired through issuance of Series D preferred units — — 16,560

Real estate assets acquired through exchange of note receivable — 17,663 —

Note receivable exchanged through real estate acquisition — (17,663) —

Real estate acquired through issuance of Series E preferred units 217,513 — —

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

(in thousands)

Total cash, cash equivalents and restricted cash $ 38,625 $ 7,310 $ 46,117

See Notes to Consolidated Financial Statements.

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CENTERSPACE AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021, 2020, and 2019

NOTE 1 • ORGANIZATION

Centerspace (“Centerspace,” “we,” “our,” or “us”) is a real estate investment trust (“REIT”) focused on the ownership, management, acquisition, redevelopment and development of apartment communities. As of December 31, 2021, we held for investment 79 apartment communities with 14,441 homes. We conduct a majority of our business activities through our consolidated operating partnership, Centerspace, LP, (the “Operating Partnership”), as well as through a number of other subsidiary entities.

All references to Centerspace, we, our, or us refer to Centerspace and its consolidated subsidiaries.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include our accounts and the accounts of all our subsidiaries in which we maintain a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation.

Our interest in the Operating Partnership as of December 31, 2021 and 2020 was 83.3% and 93.0%, respectively, of the limited partnership units of the Operating Partnership (“Units”), which includes 100% of the general partnership interest.

The consolidated financial statements also reflect the ownership by the Operating Partnership of certain joint venture entities in which the Operating Partnership has a general partner’s or controlling interest. These entities are consolidated into our other operations with noncontrolling interests reflecting the noncontrolling partners’ share of ownership, income, and expenses.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

The following table provides a brief description of recent GAAP accounting standards updates (“ASUs”).

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RECLASSIFICATIONS

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. These reclassifications had no impact on net income as reported in the consolidated statement of operations, total assets, liabilities or equity as reported in the consolidated balance sheets and total shareholder’s equity.

REAL ESTATE INVESTMENTS

Real estate investments are recorded at cost less accumulated depreciation and an adjustment for impairment, if any. Property, consisting primarily of real estate investments, totaled $1.8 billion and $1.4 billion as of December 31, 2021 and 2020, respectively. Upon acquisitions of real estate, we assess the fair value of acquired tangible assets (including land, buildings and personal property), which is determined by valuing the property as if it were vacant, and consider whether there were significant intangible assets acquired (for example, above- and below-market leases, the value of acquired in-place leases and resident relationships) and assumed liabilities, and allocate the purchase price based on these assessments. The as-if-vacant value is allocated to land, buildings, and personal property based on our determination of the relative fair values of these assets. The estimated fair value of the property is the amount that would be recoverable upon the disposition of the property. Techniques used to estimate fair value include discounted cash flow analysis and reference to recent sales of comparable properties. Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property. Land value is assigned based on the purchase price if land is acquired separately or based on a relative fair value allocation if acquired in a portfolio acquisition.

Other intangible assets acquired include amounts for in-place lease values that are based upon our evaluation of the specific characteristics of the leases. Factors considered in the fair value analysis include an estimate of carrying costs and foregone rental income during hypothetical expected lease-up periods, considering current market conditions, and costs to execute similar leases. We also consider information about each property obtained during pre-acquisition due diligence, marketing, and leasing activities in estimating the relative fair value of the tangible and intangible assets acquired.

Acquired above- and below-market lease values are recorded as the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental revenue over the remaining terms of the respective leases.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. We use a 10-37 year estimated life for buildings and improvements and a 5-10 year estimated life for furniture, fixtures, and equipment.

We follow the real estate project costs guidance in ASC 970, Real Estate – General, in accounting for the costs of development and redevelopment projects. As real estate is undergoing development or redevelopment, all project costs directly associated with and attributable to the development and construction of a project, including interest expense and real estate tax expense, are capitalized to the cost of the real property. The capitalization period begins when development activities and expenditures begin and are identifiable to a specific property and ends upon completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially complete upon issuance of a certificate of occupancy. General and administrative costs are expensed as incurred. We did not capitalize interest during the years ended December 31, 2021, 2020, and 2019.

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements that improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life, generally five to twenty years. Property sales or dispositions are recorded when control of the assets transfers to the buyer and we have no significant continuing involvement with the property sold.

We periodically evaluate our long-lived assets, including real estate investments, for impairment indicators. 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, we compare 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 our anticipated holding period for properties, the estimated fair value of properties or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future physical occupancy, rental rates, and capital

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requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

During the years ended December 31, 2021, 2020, and 2019 we did not incur a loss for impairment on real estate.

Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. Our determination of fair value is based on inputs management believes are consistent with those that market participants would use. Estimates are significantly impacted by estimates of sales price, selling velocity, and other factors. Due to uncertainties in the estimation process, actual results could differ from such estimates. Depreciation is not recorded on assets classified as held for sale.

We classify properties as held for sale when they meet the GAAP criteria, which include: (a) management commits to and initiates a plan to sell the asset; (b) the sale is probable and expected to be completed within one year under terms that are usual and customary for sales of such assets; and (c) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. We generally consider these criteria met when the transaction has been approved by our Board of Trustees, there are no known significant contingencies related to the sale, and management believes it is probable that the sale will be completed within one year. We had no properties classified as held for sale at December 31, 2021 and 2020.

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Cash and cash equivalents include all cash and highly liquid investments purchased with maturities of three months or less. Cash and cash equivalents consist of our bank deposits, short-term investment certificates acquired subject to repurchase agreements, and our deposits in a money market mutual fund. We are potentially exposed to credit risk for cash deposited with FDIC-insured financial institutions in accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

As of December 31, 2021 restricted cash consisted of $5.0 million of real estate deposits for property acquisitions and $2.4 million in escrows held by lenders. As of December 31, 2020, restricted cash consisted primarily of net tax-deferred exchange proceeds remaining from a portion of our dispositions and escrows held by lenders. Escrows include funds deposited with a lender for payment of real estate taxes and insurance, and reserves to be used for replacement of structural elements and mechanical equipment at certain communities. The funds are under the control of the lender. Disbursements are made after supplying written documentation to the lender.

LEASES

As a lessor, we primarily lease 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 98.2% of our total revenues and includes gross market rent less adjustments for concessions, vacancy loss, and bad debt. Other property revenues represent the remaining 1.8% of our total revenues and are primarily driven by other fee income, which is typically recognized when earned, at a point in time.

Some of our 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.

Beginning in April 2020, we abated rent, common area maintenance, and real estate taxes for commercial tenants that experienced government-mandated interruptions or closures of their businesses. We elected to account for these accommodations as though enforceable rights and obligations existed without evaluating if such a right or obligation existed under the lease agreement, as allowed by the FASB Q&A released on April 10, 2020. The accommodations were recognized as variable lease payments. During the years ended December 31, 2021 and 2020, we recognized a reduction in revenue of $47,000 and $656,000, respectively, due to the abatement of amounts due from our commercial tenants.

Many of our leases contain non-lease components for utility reimbursement from our residents. We have 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 our operating leases for commercial spaces, excluding any variable lease income and non-lease components, as of December 31, 2021, was as follows:

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(in thousands)

Total scheduled lease income - operating leases $ 12,439

REVENUE

Revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration 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 revenues: We recognize revenue for rental related income not included as a component of a lease, such as other application fees, as earned, and have concluded that this is appropriate under the new standard.

•Gains or losses on sales of real estate: A gain or loss is recognized 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. As a result, we may recognize a gain on real estate disposition transactions that previously did not qualify as a sale or for full profit recognition under the previous accounting standard. Any gain or loss on real estate dispositions is net of certain closing and other costs associated with the disposition.

The following table presents the disaggregation of revenue streams of our rental income for the years ended December 31, 2021, 2020, and 2019:

(in thousands)

Year ended December 31,

Variable lease income - operating leases Leases 8,565 7,068 5,586

Other property revenue Revenue from contracts with customers 3,688 2,807 3,463

INCOME TAXES

We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856-860 of the Code. Under those sections, a REIT which distributes at least 90% of its REIT taxable income, excluding capital gains, as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to shareholders. For the years ended December 31, 2021, 2020, and 2019, we distributed in excess of 90% of our taxable income and realized capital gains from property dispositions within the prescribed time limits. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates (including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even as a REIT, we may be subject to certain state and local income and property taxes, and to federal income and excise taxes on undistributed taxable income. In general, however, if we qualify as a REIT, no provisions for federal income taxes are necessary except for taxes on undistributed REIT taxable income and taxes on the income generated by a taxable REIT subsidiary (TRS).

We have one TRS, which is subject to corporate federal and state income taxes on its taxable income at regular statutory rates. There were no income tax provisions or material deferred income tax items for our TRS for the years ended December 31, 2021, 2020, and 2019.

We conduct our business activity as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) through our Operating Partnership. UPREIT status allows us to accept the contribution of real estate in exchange for Units. Generally, such a contribution to a limited partnership allows for the deferral of gain by an owner of appreciated real estate.

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The following table indicates how distributions were characterized for federal income tax purposes for the years ended December 31, 2021, 2020, and 2019:

Tax status of distributions

VARIABLE INTEREST ENTITY

We have determined that our Operating Partnership and each of our less-than-wholly owned real estate partnerships is a variable interest entity (“VIE”), as the limited partners or the functional equivalent of limited partners lack substantive kick-out rights and substantive participating rights. We are the primary beneficiary of the VIEs, and the VIEs are required to be consolidated on our balance sheet because we have a controlling financial interest in the VIEs and have 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 our Operating Partnership is a VIE, all of our assets and liabilities are held through a VIE.

OTHER ASSETS

As of December 31, 2021 and 2020, other assets consisted of the following amounts:

in thousands

Receivable arising from straight line rents $ 343 $ 336

Accounts receivable, net of allowance 667 523

Real estate related loans receivable 6,208 6,332

Intangible assets, net of accumulated amortization 7,370 1,150

Property and equipment, net of accumulated depreciation 3,370 2,674

Deferred charges and leasing costs 2,065 1,201

Intangible assets consist of in-place leases valued at the time of acquisition. For the years ended December 31, 2021, 2020, and 2019, we recognized $13.5 million, $3.1 million, and $2.0 million, respectively, of amortization expense related to these intangibles, included within depreciation and amortization in the consolidated statements of operations. The intangible assets remaining at December 31, 2021 will be amortized in 2022.

PROPERTY AND EQUIPMENT

Property and equipment consists primarily of office equipment located at our corporate offices in Minot, North Dakota and in Minneapolis, Minnesota. The consolidated balance sheets reflects these assets at cost, net of accumulated depreciation, and are included within Other Assets. As of December 31, 2021 and 2020, property and equipment cost was $4.7 million and $4.7 million, respectively. Accumulated depreciation was $1.4 million and $2.0 million as of December 31, 2021 and 2020, respectively, and are included within other assets in the consolidated balance sheets.

MORTGAGE LOANS RECEIVABLE AND NOTES RECEIVABLE

In March 2020, in connection with our acquisition of Ironwood, an apartment community in New Hope, Minnesota, we acquired a tax increment financing note receivable (“TIF”) with an initial principal balance of $6.6 million. As of December 31, 2021 and 2020, the principal balance was $6.4 million and $6.6 million, respectively, which appears within Other Assets in our Consolidated Balance Sheets. The note bears an interest rate of 4.5% with payments due in February and August of each year.

In December 2019, we originated a $29.9 million construction loan and a $15.3 million mezzanine loan for the development of a multifamily development located in Minneapolis, Minnesota. The construction and mezzanine loans bear interest at 4.5% and

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11.5%, respectively. As of December 31, 2021, we 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 our Consolidated Balance Sheets. As of December 31, 2020, we had funded $24.7 million of the construction loan. The loans are secured by mortgages and mature on December 31, 2023, and the agreement provides us with an option to purchase the development. The loans represent an investment in an unconsolidated variable interest entity. We are not the primary beneficiary of the VIE as we do not have the power to direct the activities which most significantly impact the entity’s economic performance nor do we have significant influence over the entity.

MARKETABLE SECURITIES

Marketable securities consisted of equity securities. We report equity securities at fair value based on quoted market prices (Level 1 inputs). Any unrealized gains or losses are included in interest and other income (loss) on the consolidated statements of operations. During the year ended December 31, 2020, we had a realized loss of $3.4 million arising from marketable securities which were disposed during the year ended December 31, 2020. As of December 31, 2021 and 2020, we had no marketable securities.

GAIN ON LITIGATION SETTLEMENT

During the year ended December 31, 2019, we recorded a gain on litigation settlement of $6.6 million from the settlement on a construction defect claim. The gain consisted of $5.2 million of cash received and $1.4 million of liabilities waived under the terms of the settlement.

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 outstanding during the period. We have issued restricted stock units (“RSUs”) and incentive stock options (“ISOs”) under our 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 our earnings per share upon exercise of the RSUs, ISOs, or upon conversion of the Series D or Series E preferred units (refer to Note 4 for further discussion of the preferred units). Other than the issuance of RSUs, ISOs, Series D preferred units, and Series E preferred units, we have no outstanding options, warrants, convertible stock, or other contractual obligations requiring issuance of additional common shares that would result in a 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 our sole discretion, we may issue common shares in exchange for Units on a one-for-one-basis.

For the years ended December 31, 2021, 2020, and 2019, performance-based restricted stock awards of 31,821, 26,994, and 37,822 were excluded from the calculation of diluted earnings per share because the assumed proceeds per share plus the average unearned compensation were greater than the average market price of the common shares for the periods presented and, therefore, were anti-dilutive. Refer to Note 16 - Share-Based Compensation for discussion of the terms for these awards.

For the year ended December 31, 2020, Series D preferred units of 228,000, stock options of 86,000, and time-based RSUs of 13,000 were excluded from the calculation of diluted earnings per share because they were anti-dilutive. Including these items would have improved earnings per share.

The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the consolidated financial statements for the years ended December 31, 2021, 2020, and 2019:

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(in thousands, except per share data)

Year Ended December 31,

NUMERATOR

Net income (loss) attributable to controlling interests (29) 4,441 78,669

Redemption of preferred shares — 297 —

Dividends to preferred unitholders 640 640 537

Numerator for diluted earnings (loss) per share $ (8,623) $ (1,362) $ 79,137

DENOMINATOR

Effect of redeemable operating partnership units 899 1,030 1,237

Effect of Series D preferred units 228 — 193

Effect of Series E preferred units 729 — —

Effect of diluted restricted stock awards and restricted stock units 45 — 8

NET EARNINGS (LOSS) PER COMMON SHARE – BASIC $ (0.47) $ (0.15) $ 6.06

NET EARNINGS (LOSS) PER COMMON SHARE – DILUTED $ (0.47) $ (0.15) $ 6.00

NOTE 4 • EQUITY AND MEZZANINE EQUITY

Operating Partnership Units. Outstanding Units in the Operating Partnership were 832,000 Units at December 31, 2021 and 977,000 Units at December 31, 2020.

Exchange Rights. Pursuant to the exercise of Exchange Rights, we redeemed Units in exchange for common shares during the years ended December 31, 2021 and 2020 as detailed in the table below.

(in thousands)

Number of Total Book

Units Value

Series E Preferred Units (Noncontrolling interest). On September 1, 2021, we 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, representing a conversion exchange rate of $83 per unit. We have the option, at our sole election, to convert Series E preferred units into OP Units if our stock has traded at or above $83 per share for 15 of 30 consecutive trading days and we have made at least three consecutive quarters of distributions with a rate of at least $0.804 per OP unit. 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.