Multifamily REIT Centerspace is planning to shed 20% of its portfolio after a review of strategic alternatives, opting to remain a public company amid a wave of private takeouts.

Centerspace is under contract to sell 12 communities for up to $245M and plans to use the proceeds to cut leverage and potentially return proceeds to shareholders, the company announced after markets closed Monday.

Shareholders reacted negatively to the news, with the stock down more than 10% in early trading Tuesday.

Management at the REIT said the repositioning of the portfolio would help it thrive as multifamily conditions recovered following the wave of pandemic-era development.

“We expect these actions to enhance shareholder value by capturing the discount between public and private market valuations, while materially strengthening our balance sheet and positively evolving our market exposures,” CEO Anne Olson said.

Centerspace is planning to sell six properties in North Dakota, one in Denver and five other communities in the Mountain West, according to an investor presentation filed with the Securities and Exchange Commission.

The REIT is selling all of its assets in Rapid City, South Dakota, and Bismarck, North Dakota, and exiting those markets as part of the 12-property portfolio with 1,495 combined units.

The transactions are expected to close by the end of the year, with proceeds initially paying down between $175M and $190M in debt, starting with Centerspace’s credit line. The REIT said it may also approve a special distribution to shareholders between $45M and $65M as part of the sales.

Centerspace expects the transaction will allow it to cut its debt by more than a full turn of leverage, shed nearly all of its floating-rate debt, boost liquidity by over $100M and push out its weighted average debt maturity to eight years.

After the sales, the REIT will be left with a 49-property portfolio with 10,768 units in Montana, North Dakota, Minnesota, Utah, Colorado and Nebraska.

"We believe the approved plan will unlock intrinsic asset value, strengthen the balance sheet, create a more focused portfolio and preserve the flexibility to capture future value creation," said John Schissel, the chair of Centerspace’s  board of trustees.

Centerspace’s stock performance Tuesday suggests shareholders may have been looking for a different outcome to the strategic review. Private capital has been circling the REIT market since last year and has been taking firms off the market at perceived discounts to their fundamental value.

Ares Management Corp. cut a $1.7B deal in April to take Whitestone REIT, which owns 5M SF of open-air retail space, off the market. Two Harbors Investment Corp. agreed in March to buy out CrossCountry Mortgage at a $1.1B valuation, and a group of investors reached a $1.6B deal to take investment firm Kennedy Wilson off the market in February.