Apartment Income REIT Corp. (“AIR”) (NYSE: AIRC) announced today
third quarter results for 2021; an increase to full year Same Store
Revenue, NOI, and FFO guidance; $1.7 billion of property sales
closed, under contract, or in negotiation with proceeds to be used
to reduce year-end net leverage to EBITDAre to 5.3:1, and the
acquisition of a four property portfolio in Washington, D.C. for
$510 million.
Chief Executive Officer Terry Considine comments: “It is a good
time for the multi-family business. Customer demand has recovered,
and rents are at or above long-term trendlines. Our property
operations team continues to excel: raising rents, increasing
occupancy, and, notwithstanding inflationary times, reducing
costs.”
“Fueled by increasing rents and low interest rates, property
values have appreciated above their pre-COVID levels. We decided
that it was an opportune time to sell properties selectively to
improve our portfolio, harvest gains, and reduce leverage. The
current yield on the $1.7 billion total is 4.36% and the expected
sales prices average 15% above pre-COVID values. $1.1 billion will
be used to repay debt with a weighted-average interest expense of
3.72%."
"The net of property sales, property acquisitions, debt
refinancing, and de-levering to our target of 5.5:1 will result in
FFO dilution of $0.01 per share per annum. De-levering further to
5.3:1 will result in additional dilution of $0.01 per share per
quarter until the $380 million of borrowing capacity is
reinvested."
“We used $382 million of sales proceeds plus $128 million of
operating partnership units to acquire for $510 million a
four-property portfolio in or near to Washington, D.C. Compared to
the properties sold in the paired trade, we expect to earn a
somewhat higher return during 2022 and to increase longer-term
returns by 50% through select capital investments and the value
created by our operating platform."
“The result of $1.7 billion of sales and $750 million of
property purchases will be a portfolio with higher quality, faster
growth, and less exposure to regulatory risk.”
“We strengthened our senior management team when John McGrath
rejoined us as EVP Strategy and Capital Markets and again when
Joshua Minix joined as an EVP, and with John, co-Chief Investment
Officer.”
“During the third quarter, we also nominated three new
directors: Tom Bohjalian, Kristin Finney-Cooke, and Maggie
Paláu-Hernández. Their remarkable accomplishments are included in
the proxy statement filed earlier this week. After their election,
the AIR board will be refreshed, and continue to be diverse and
highly capable.”
“AIR is less than one year old. In the past 10 months, the hard
work of the entire AIR team, guided by the engaged AIR Board led by
Chairman Tom Keltner has accomplished our initial goals and
positioned the company for accretive growth.”
Chief Financial Officer Paul Beldin adds: “Third quarter FFO of
$0.56 per share was $0.03 above the midpoint of our guidance range
due to better than anticipated Same Store results. For the quarter,
revenue and NOI grew sequentially by 5.4% and 7.9%,
respectively.”
"For the third time this year, we are increasing our full year
Same Store and FFO per share expectations. At the mid-point, we
expect NOI growth of 1.1% and FFO per share of $2.14. More
importantly, the strong finish to peak leasing season will provide
a boost to 2022 revenue and NOI growth."
Financial Results: Third Quarter Pro
Forma FFO Per Share
2021
(all items per common share - diluted)
THIRD QUARTER
SECOND QUARTER
YEAR-TO-DATE
Net income (loss)
$
0.06
$
(0.12
)
$
0.48
NAREIT Funds From Operations
(FFO)
$
0.47
$
0.28
$
1.22
Pro forma adjustments
$
0.09
$
0.24
$
0.36
Pro forma Funds From Operations (Pro
forma FFO)
$
0.56
$
0.52
$
1.58
AIR Operating Results: Third Quarter
Same Store Revenue Up 5.4% Sequentially
The table below includes the operating results of the 92
properties of AIR that meet our Same Store definition. These
properties contribute approximately 98% of AIR’s GAAP revenue.
THIRD QUARTER
YEAR-TO-DATE
Year-over-Year
Sequential
Year-over-Year
($ in millions) *
2021
2020
Variance
2nd Qtr.
Variance
2021
2020
Variance
Revenue, before utility reimbursements
$162.5
$153.4
6.0%
$154.2
5.4%
$469.7
$473.4
(0.8%)
Expenses, net of utility
reimbursements
44.9
45.1
(0.4%)
45.1
(0.6%)
134.0
130.8
2.5%
Net operating income (NOI)
$117.7
$108.3
8.6%
$109.0
7.9%
$335.7
$342.6
(2.0%)
*Amounts are presented on a rounded basis and the sum of the
individual amounts may not foot; please refer to Supplemental
Schedule 6.
Components of Same Store Revenue Growth – The table below
summarizes the change in the components of our Same Store revenue
growth.
THIRD QUARTER
YEAR-TO-DATE
Same Store Revenue Components
Year-over-Year
Sequential
Year-over-Year
Residential Rents
0.4
%
2.0
%
(0.9
%)
Average Daily Occupancy
3.3
%
1.2
%
0.6
%
Residential Net Rental Income
3.7
%
3.2
%
(0.3
%)
Bad Debt
0.4
%
0.7
%
(0.6
%)
Late Fees and Other
0.2
%
0.5
%
(0.3
%)
Residential Revenue
4.3
%
4.4
%
(1.2
%)
Commercial Revenue
1.7
%
1.0
%
0.4
%
Same Store Revenue Growth
6.0
%
5.4
%
(0.8
%)
Same Store Rental Rates – We measure changes in rental
rates by comparing, on a lease-by-lease basis, the effective rate
on a newly executed lease to the effective rate on the expiring
lease for that same apartment. A newly executed lease is classified
either as a new lease, where a vacant apartment is leased to a new
customer, or as a renewal.
The table below details changes in lease rates, as well as the
weighted-average (blended) lease rates for leases executed in the
respective period. Transacted leases are those that became
effective during a reporting period and are therefore the best
measure of immediate effect on current revenues. Signed leases are
those executed during a reporting period and are therefore the best
measure of current activity.
THIRD QUARTER
YEAR-TO-DATE
2021
2021
2020
Variance
2021
2020
Variance
Jul
Aug
Sept
Oct*
Transacted Leases
Renewal rent changes
7.1
%
2.5
%
4.6
%
4.9
%
3.9
%
1.0
%
5.7
%
7.1
%
9.7
%
11.6
%
New lease rent changes
8.0
%
(8.1
%)
16.1
%
1.6
%
(4.8
%)
6.4
%
5.8
%
8.0
%
12.3
%
14.0
%
Weighted-average rent changes
7.6
%
(3.3
%)
10.9
%
3.1
%
(0.6
%)
3.7
%
5.7
%
7.6
%
11.1
%
13.2
%
Signed Leases
Renewal rent changes
8.8
%
1.8
%
7.0
%
5.3
%
3.7
%
1.6
%
8.0
%
9.4
%
11.0
%
14.1
%
New lease rent changes
11.0
%
(9.6
%)
20.6
%
2.8
%
(5.3
%)
8.1
%
9.2
%
11.7
%
14.4
%
13.5
%
Weighted-average rent changes
10.0
%
(5.8
%)
15.8
%
3.9
%
(1.0
%)
4.9
%
8.6
%
10.7
%
13.4
%
13.6
%
Average Daily Occupancy
96.6
%
93.3
%
3.3
%
95.8
%
95.2
%
0.6
%
95.8
%
96.6
%
97.4
%
97.8
%
*October leasing results are preliminary and as of October 27,
2021.
Same Store Markets – Market conditions continued to be
strong in the third quarter, exceeding our expectations from the
beginning of the year, and our revised expectations after a strong
second quarter. The trend of strengthening lease growth rates
continued through the third quarter, as weighted-average signed
lease changes have trended upwards for 12 consecutive months.
As anticipated, occupancy increased sharply as we completed peak
leasing season, with average daily occupancy increasing from 95.4%
in the second quarter to 96.6% in the third quarter, including
97.4% in September.
In addition to average daily occupancy, we also use “leased
percentage” as a metric predictive of future occupancy. “Leased
percentage” is defined as occupied apartments plus apartments
leased but not yet occupied and less apartments occupied where the
resident has given notice of intent to vacate the apartment. During
the quarter, the percentage of apartment homes currently leased
increased from 93.1% to 97.5%. Our leased percentage is now 600
basis points ahead of 2020 and 300 basis points ahead of the third
quarter of 2019. As a result, we see occupancy remaining at or
above current levels through the first quarter of 2022.
Rent Collection Update
We measure residential rent collection as the amount of payments
received as a percentage of all residential amounts owed. In the
third quarter, we recognized 98.6% of all residential revenue owed
during the quarter, treating the balance of 1.4% as bad debt. 2.8%
of our residents have extended delinquencies, much of which we
expect to collect from the residents based on their high credit
scores or to be reimbursed by the State of California. 97.2% of our
residents pay rent timely with bad debt under 30 basis points of
revenue, a level still somewhat elevated from our historic
experience.
As of September 30, 2021, our proportionate share of gross
residential accounts receivable was $13.3 million. After
consideration of tenant security deposits and reserves for
uncollectible amounts, our net exposure is $1.3 million, an amount
expected to be collected during the fourth quarter.
73% of the $13.3 million of uncollected accounts receivable
relate to California residents. During the quarter, we received
$2.7 million from California’s rent relief program. We await the
state’s response to an additional $5.2 million of rent relief
requests made. We are working with residents to file an additional
$3.6 million of claims.
We remain cautiously optimistic that this program will allow us
to recover rents uncollected in 2020 or 2021. We expect bad debt
expense to decline with the end of emergency ordinances that
suspend contractual remedies for non-payment of rent.
Portfolio Management
Our portfolio of apartment communities is diversified across
primarily “A” and “B” price points, averaging “B/B+” in quality,
and is also diversified across several of the largest markets in
the United States. After the properties being sold and the
properties acquired this year, our portfolio will be higher
quality, require lower recurring capital replacement spending, and
have a greater allocation to states with greater economic growth
and a more reliable rule of law.
Transactions
Dispositions
During the third quarter, we sold one apartment community
located in Elmhurst, Illinois, with 58 apartment homes at a price
of $40 million. Net sales proceeds from this transaction were $39.9
million.
AIR is under contract to sell four Washington, D.C. area
communities with 976 apartment homes and 11 properties in New York
City for total consideration of approximately $470 million, all of
which are expected to close in the fourth quarter.
Subsequent to quarter end, we entered into a joint venture with
an affiliate of Blackstone to sell, for approximately $408 million,
an 80% interest in three multi-family properties with 1,748 units
located in Virginia. AIR is the general partner with 20% ownership,
and earns various fees for providing property management and
corporate services.
Additionally, we are in contract negotiations on additional $800
million of properties located primarily in select markets in
California.
In aggregate, the completed and under contract sales are
expected to generate gross proceeds of approximately $1.7 billion
and are valued at an implied NOI cap rate of 4.36%, based on
forecasted 2021 NOI and inclusive of fees expected to be earned
from the joint venture. The communities are being sold at a 15%
premium to their estimated 2020 fair market value, pre-COVID.
Acquisitions
Subsequent to quarter end, we acquired a portfolio of four
properties located in the Washington, D.C. area, with 1,400
apartment homes and 84,000 square feet of office and commercial
space, for an expected purchase price of approximately $510
million. The communities acquired are:
- Vaughan Place, located in Washington, D.C., with 389 apartment
homes and 52,000 square feet of office and commercial space.
Sixteen of these homes remain subject to the Tenant Opportunity to
Purchase Act ("TOPA"); if not ultimately acquired, our purchase
price will be reduced by approximately $6.4 million;
- Residences at Capital Crescent Trail, located in Bethesda, MD,
with 258 apartment homes;
- North Park, located in Chevy Chase, MD, with 310 apartment
homes;
- Huntington Gateway, located in Alexandria, VA, with 443
apartment homes and 32,000 square feet of office and commercial
space; and
- Two vacant land parcels adjacent to the Residences at Capital
Crescent Trail, suitable for development of 498 additional
apartment homes, and valued at approximately $20 million. AIR does
not expect to undertake the development of these parcels but rather
expects to sell or lease the land to a third-party developer.
The acquisition was initially funded with $259 million of
existing property debt, an expected issuance of $128 million in OP
Units, and $122 million borrowed on the AIR revolving credit
facility. On a permanent basis, AIR expects to fund the acquisition
with approximately 75% equity and 25% debt.
The paired trade of selling communities in New York and
locations in the suburban Washington, D.C. area to acquire these
four communities is expected to be somewhat accretive to FFO per
share in 2022.
Balance Sheet
We seek to increase financial returns by using leverage with
appropriate caution. We limit risk through our balance sheet
structure, employing low leverage, primarily long-dated debt; and
we build financial flexibility by maintaining ample unused and
available credit; holding properties with substantial value
unencumbered by property debt; maintaining an investment grade
rating; and using partners’ capital when it enhances financial
returns or reduces investment risk.
Components of Leverage
Our leverage includes our share of long-term, non-recourse
property debt encumbering our apartment communities, together with
outstanding borrowings under our revolving credit facility, our
term loans, and our preferred equity.
AS OF SEPTEMBER 30,
2021
($ in millions)*
Amount
% of Total
Weighted-Avg. Maturity
(Yrs.)
AIR share of long-term, non-recourse
property debt
$
2,551
66
%
8.7
Term loans
1,150
30
%
3.4
Outstanding borrowings on revolving credit
facility
78
2
%
4.5
Preferred equity**
81
2
%
9.9
Total Leverage
$
3,861
100
%
7.1
Cash and restricted cash
(80
)
Notes receivable from Aimco***
(534
)
Net Leverage
$
3,247
*Amounts are presented on a rounded basis and the sum of the
individual amounts may not foot; please refer to Supplemental
Schedule 5.
** AIR’s Preferred equity is perpetual in nature; however, for
illustrative purposes, we have computed the weighted-average
maturity of our preferred OP Units assuming a 10-year maturity and
preferred stock assuming it is called at the expiration of the
no-call period.
*** We have notes receivable from Aimco with an aggregate
principal amount of $534 million. The notes will mature on January
31, 2024, and are secured by a pool of properties owned by Aimco.
We consider the notes a reduction of leverage as we expect proceeds
to be used to repay loan amounts currently outstanding.
Leverage Reduction – On Track
We target Net Leverage to Adjusted EBITDAre at 5.5x, with a
range between 5.0x and 6.0x.
The net proceeds from the sales activity and property
acquisitions described above, and our debt refinancing is expected
to result in the following:
Sources & Uses
Estimated Yield
FFO Impact
Estimated gross proceeds
$
1,715,000
4.36%
$
(74,774
)
Transaction costs (~2% of gross proceeds)
and transfer taxes (~0.5%) of gross proceeds
(43,500
)
Prepayment penalties on debt repaid to
facilitate sales
(31,500
)
Prepayment penalties on other debt prepaid
(1)
(148,408
)
Net Proceeds
1,491,592
(74,774
)
Acquisition equity funded through paired
trades (2)
434,500
5.20%
22,594
Property debt repaid
1,057,091
3.72%
39,324
Property debt refinancing (3)
—
3,648
Uses of Net Proceeds
1,491,591
65,566
Net FFO impact before investment of
incremental proceeds
(9,208
)
Investment of incremental proceeds (4)
7,220
Net FFO impact after investment of
incremental proceeds
(1,988
)
Net FFO impact per share before
investment of incremental proceeds
$
(0.05
)
Net FFO impact per share after
investment of incremental proceeds
$
(0.01
)
(1)
Of the $148 million of estimated prepayment penalties approximately
$66 million relates to the mark to market on the debt and the
remaining $82 million is an investment in higher future earnings; a
$1.8 billion increase in our pool of unencumbered properties;
increased financial flexibility; and enhanced access to public debt
markets.
(2)
The unlevered yield of the 2021 property acquisitions is expected
to be ~4.3%, resulting in an expected levered yield of ~5.2%.
(3)
As part of our deleveraging activities, we are refinancing
approximately $275 million of high cost property debt. The
effective spread on this refinancing is 130 basis points.
(4)
Assumes the investment of $380 million of incremental proceeds at
4.3%; with a debt cost of 2.4%.
Pro forma expected sales activity, year-end Net Leverage to
EBITDAre is expected to be ~5.3x, 0.2x of a turn better than
target, providing ~$380 million of capacity to fund future
acquisitions.
Liquidity
We use our revolving credit facility for working capital and
other short-term purposes and to secure letters of credit. At
September 30, 2021, our share of cash and restricted cash was $80
million and we had the capacity to borrow up to $518 million under
our revolving credit facility, bringing total liquidity to $598
million.
We manage our financial flexibility by maintaining an investment
grade rating and holding communities that are unencumbered by
property debt. AIR has been rated BBB by Standard & Poor’s. As
of September 30, 2021, we held unencumbered communities with
property debt with an estimated fair market value of approximately
$4.2 billion; an increase of 50% from December 31, 2020; pro forma
expected sales activity, the value of properties unencumbered by
property debt is anticipated to increase to approximately $6.0
billion.
We anticipate seeking an investment grade credit rating from
Moody’s. In assigning ratings, Moody’s places significant emphasis
on the amount of non-recourse property debt as percentage of the
undepreciated book value of a company’s assets. To achieve Moody’s
required thresholds, we estimate that a Moody’s investment grade
rating will require property debt to approximate $1.8 billion. Pro
forma the leverage activities described above; we anticipate that
our share of property debt will approximate this target level.
Dividend
On October 26, 2021, our Board of Directors declared a quarterly
cash dividend of $0.44 per share of AIR Common Stock. This amount
is payable on November 30, 2021, to stockholders of record on
November 12, 2021.
2021 Outlook
At the midpoint, we expect FFO per share to be $2.14, up $0.02
from our previous expectations due primarily to increased Same
Store NOI.
Our guidance ranges are based on the following components:
YEAR-TO-DATE SEPTEMBER 30,
2021
FULL YEAR 2021
PREVIOUS FULL YEAR
2021
($ Amounts represent AIR Share)
Net Income (loss) per share (1)
$0.48
$(0.26) to $(0.13)
$(0.13) to $0.00
Pro forma FFO per share
$1.58
$2.12 to $2.16
$2.09 to $2.15
Pro forma FFO per share at the
mid-point
$2.14
$2.12
Same Store Operating Components of
NAREIT FFO
Revenue change compared to prior year
(0.8%)
1.40% to 1.60%
0.50% to 1.50%
Expense change compared to prior year
2.5%
2.70% to 2.30%
3.00% to 2.50%
NOI change compared to prior year
(2.0%)
0.90% to 1.30%
(0.50%) to 1.00%
Offsite Costs
Property management expenses
$18M
~$23M
~$23M
General and administrative expenses, net
of asset management income (2)
$12M
~$15M
~$15M
Other Earnings
Lease income (3)
$20M
~$27M
~$27M
Tax expense (3)
($0.6M)
~($1M)
~($1M)
Proceeds from dispositions of real estate,
net of transaction costs
$39.9M
~$1.6B
~$800M
AIR Share of Capital
Investments
Capital Enhancements
$77M
$90M to $100M
$65M to $75M
(1)
Does not include any gain from future property sales.
(2)
In 2021, AIR G&A is expected to be reduced by a $5.8 million
payment from Aimco.
(3)
Presented net of FFO and Pro forma FFO adjustments.
In the fourth quarter, AIR anticipates Pro forma FFO between
$0.54 and $0.58 per share.
AIR Strategic Objectives
We created AIR to be an efficient way to invest in U.S.
multi-family real estate, due to its simplified business model and
diversified portfolio of stabilized apartment communities. Upon
AIR’s separation from Aimco, we identified 10 strategic objectives.
The following table outlines our progress against these
objectives.
Since separation AIR has been focused on delivering on its
strategic objectives: Simple business model without complex
investments or development/lease up risk.
X
Done - 97% of 2021 FFO is derived from netting three items:
Property NOI, G&A and interest expense High quality and
diversified portfolio of stabilized multi-family properties.
X
Done - AIR has a high-quality portfolio that is diversified
across geography and by product type. Best in class property
operations.
X
Done - For the five years ending December 2021, AIR’s
cumulative SS NOI growth is expected to be best amongst the Coastal
multi-family REITs and well above the multi-family average
Efficient cost structure, with the lowest G&A as a percent of
total assets.
X
Done - AIR G&A expense will be equal to 15 basis points
of GAV. Predictable and diversified cash flow to support
dividend payout ratio.
X
Done - AIR’s dividend payout ratio for 2021 is expected to
be ~81%. Refreshed tax basis reduces tax friction on
transactions, permitting more efficient capital allocation
X
Done - With tax basis refreshed by the 2020 taxable
dividend, taxable gains on the sale of $1.7B is reduced by more
than $1B. As a result, no stock dividends are required to
distribute taxable income. Committed focus on ESG
X
Done - including reporting in accordance with GRESB, and AIR
Board refreshment. Strong growth from economic expansion,
portfolio management, and accretive acquisitions of properties with
upside from AIR operations
X
Done - $750M of completed acquisitions. Strong,
flexible balance sheet with low cost of leverage
X
Done - AIR’s net cost of leverage has declined 50 basis
points since December 31, 2021 Reduce net leverage to EBITDA
to ~5.5:1 On plan, expected to be complete by December 31, 2021.
Earnings Conference Call
Information
Live Conference Call:
Conference Call Replay:
Friday, October 29, 2021 at 1:00 p.m.
ET
Replay available until November 26,
2021
Domestic Dial-In Number:
1-844-200-6205
Domestic Dial-In Number:
1-866-813-9403
International Dial-In Number:
1-929-526-1599
International Dial-In Number:
+44-204-525-0658
Passcode: 076655
Passcode: 838944
Live webcast and replay:
investors.aircommunities.com
Supplemental Information
The full text of this Earnings Release and the Supplemental
Information referenced in this release is available on AIR’s
website at investors.aircommunities.com.
Glossary & Reconciliations of
Non-GAAP Financial and Operating Measures
Financial and operating measures found in this Earnings Release
and the Supplemental Information include certain financial measures
used by AIR management that are measures not defined under
accounting principles generally accepted in the United States
(“GAAP”). Certain AIR terms and Non-GAAP measures are defined in
the Glossary in the Supplemental Information and Non-GAAP measures
reconciled to the most comparable GAAP measures.
About AIR
AIR is a real estate investment trust focused on the ownership
and management of quality apartment communities located in the
largest markets in the United States. AIR is one of the country’s
largest owners and operators of apartments, with 95 communities in
12 states and the District of Columbia. AIR common shares are
traded on the New York Stock Exchange under the ticker symbol AIRC,
and are included in the S&P 400. For more information about
AIR, please visit our website at www.aircommunities.com.
Forward-looking
Statements
This Earnings Release and Supplemental Information contain
forward-looking statements within the meaning of the federal
securities laws, including, without limitation, statements
regarding projected results and specifically forecasts of 2021 and
2022 results, including but not limited to: NAREIT FFO, Pro forma
FFO and selected components thereof; expectations regarding
consumer demand, growth in revenue and strength of other
performance metrics and models; expectations regarding sales of AIR
apartment communities and the use of proceeds thereof; and AIR
liquidity and leverage metrics. We caution investors not to place
undue reliance on any such forward-looking statements.
These forward-looking statements are based on management’s
current expectations, estimates and assumptions and subject to
risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements, including, but not
limited to: the effects of the coronavirus pandemic on AIR’s
business and on the global and U.S. economies generally, and the
ongoing, dynamic and uncertain nature and duration of the pandemic,
all of which heightens the impact of the other risks and factors
described herein; real estate and operating risks, including
fluctuations in real estate values and the general economic climate
in the markets in which we operate and competition for residents in
such markets; national and local economic conditions, including the
pace of job growth and the level of unemployment; the amount,
location and quality of competitive new housing supply; the timing
and effects of acquisitions and dispositions; changes in operating
costs, including energy costs; negative economic conditions in our
geographies of operation; loss of key personnel; AIR’s ability to
maintain current or meet projected occupancy, rental rate and
property operating results; expectations regarding sales of
apartment communities and the use of proceeds thereof; insurance
risks, including the cost of insurance, and natural disasters and
severe weather such as hurricanes; financing risks, including the
availability and cost of financing; the risk that cash flows from
operations may be insufficient to meet required payments of
principal and interest; the risk that earnings may not be
sufficient to maintain compliance with debt covenants, including
financial coverage ratios; legal and regulatory risks, including
costs associated with prosecuting or defending claims and any
adverse outcomes; the terms of laws and governmental regulations
that affect us and interpretations of those laws and regulations;
possible environmental liabilities, including costs, fines or
penalties that may be incurred due to necessary remediation of
contamination of apartment communities presently or previously
owned by AIR; our relationship with Aimco after the business
separation; the ability and willingness of the parties to the
business separation to meet and/or perform their obligations under
the related contractual arrangements and any of their obligations
to indemnify, defend and hold the other party harmless from and
against various claims, litigation and liabilities; and the ability
to achieve the expected benefits from the business separation.
Other risks and uncertainties are described in filings by AIR with
the Securities and Exchange Commission (“SEC”), including the
section entitled “Risk Factors” in Item 1A of AIR’s Annual Report
on Form 10-K for the year ended December 31, 2020, and subsequent
filings with the SEC.
In addition, AIR’s current and continuing qualification as a
real estate investment trust involves the application of highly
technical and complex provisions of the Internal Revenue Code of
1986, as amended (the “Code”), and depends on AIR’s ability to meet
the various requirements imposed by the Code, through actual
operating results, distribution levels and diversity of stock
ownership.
These forward-looking statements reflect management’s judgment
as of this date, and AIR assumes no obligation to revise or update
them to reflect future events or circumstances. This earnings
release does not constitute an offer of securities for sale.
Consolidated Statements of Operations (in thousands, except
per share data) (unaudited)
The separation resulted in Aimco being presented as the
predecessor for AIR’s financial statements. This presentation is in
accordance with GAAP and is due primarily to the relative
significance of AIR’s business as compared to Aimco before the
separation. The financial results prior to the separation on
December 15, 2020, include the financial results of AIR’s
predecessor, and the financial results attributable to the
apartment communities retained by Aimco in the separation are
presented as discontinued operations.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
REVENUES
Rental and other property revenues (1)
$
190,082
$
178,123
$
541,533
$
545,809
Other revenues
1,695
—
4,990
—
Total revenues
191,777
178,123
546,523
545,809
OPERATING EXPENSES
Property operating expenses (1)
73,925
65,419
203,300
195,340
Depreciation and amortization
81,121
79,264
232,192
239,659
General and administrative expenses
(2)
5,875
7,676
15,510
22,731
Other expenses, net
3,816
17,492
9,207
23,139
Total operating expenses
164,737
169,851
460,209
480,869
Interest income (3)
13,432
2,492
45,088
8,784
Interest expense, including prepayment
penalties (4)
(37,203
)
(44,608
)
(145,045
)
(125,653
)
Gain on derecognition of leased properties
and dispositions of real estate
7,127
—
94,512
47,295
Mezzanine investment income, net (5)
—
6,870
—
20,553
Income (loss) from continuing operations
before income tax (expense) benefit and discontinued operations
10,396
(26,974
)
80,869
15,919
Income tax (expense) benefit
275
(419
)
(770
)
1,678
Income (loss) from continuing
operations
10,671
(27,393
)
80,099
17,597
Income from discontinued operations, net
of tax
—
2,578
—
9,769
Net income (loss)
10,671
(24,815
)
80,099
27,366
Noncontrolling interests:
Net (income) loss attributable to
noncontrolling interests in consolidated real estate
partnerships
785
154
3,417
153
Net income attributable to preferred
noncontrolling interests in AIR OP
(1,603
)
(1,687
)
(4,810
)
(5,415
)
Net (income) loss attributable to common
noncontrolling interests in AIR OP
(475
)
1,341
(3,966
)
(1,134
)
Net (income) loss attributable to
noncontrolling interests
(1,293
)
(192
)
(5,359
)
(6,396
)
Net income (loss) attributable to AIR
9,378
(25,007
)
74,740
20,970
Net income attributable to AIR preferred
stockholders
(43
)
—
(136
)
—
Net income attributable to participating
securities
(46
)
(39
)
(149
)
(125
)
Net income (loss) attributable to AIR
common stockholders
$
9,289
$
(25,046
)
$
74,455
$
20,845
Earnings (loss) per common share –
basic
Income (loss) from continuing operations
attributable to AIR per common share
$
0.06
$
(0.23
)
$
0.49
$
0.09
Income (loss) from discontinued operations
attributable to AIR per common share
—
0.02
—
0.08
Net income (loss) attributable to AIR
common stockholders per share – basic
$
0.06
$
(0.21
)
$
0.49
$
0.17
Earnings (loss) per common share –
diluted
Income (loss) from continuing operations
attributable to AIR per common share
$
0.06
$
(0.23
)
$
0.48
$
0.09
Income (loss) from discontinued operations
attributable to AIR per common share
—
0.02
—
0.08
Net income (loss) attributable to AIR
common stockholders per share – diluted
$
0.06
$
(0.21
)
$
0.48
$
0.17
Weighted-average common shares
outstanding – basic (6)
156,646
119,967
153,289
119,957
Weighted-average common shares
outstanding – diluted (6)
157,042
119,967
153,650
120,035
Please see the following page for footnote
descriptions.
Consolidated Statements of Operations (continued)
(1)
Rental and other property revenues for the three and nine months
ended September 30, 2021, is inclusive of $0.4 million and $1.8
million, respectively, of revenues related to sold properties.
Property operating expenses for the three and nine months ended
September 30, 2021, is inclusive of $0.1 million and $0.5 million,
respectively, of expenses related to sold properties. Prior to the
separation, Aimco sold two apartment communities in 2020. Rental
and other property revenues for the three and nine months ended
September 30, 2020, is inclusive of $2.4 million and $8.5 million,
respectively, of revenues related to Aimco’s sold properties.
Property operating expenses for the three and nine months ended
September 30, 2020, is inclusive of $0.7 million and $2.6 million,
respectively, of expenses related to Aimco’s sold properties.
(2)
In setting our G&A benchmark of 15 bps of total assets, we
consider platform fees earned on our California joint venture as a
reduction of general and administrative expenses. In accordance
with GAAP, general and administrative expenses are shown gross of
these platform fees and they are instead included in the
determination of net income (loss) attributable to noncontrolling
interests in consolidated real estate partnerships.
(3)
Interest income for the three and nine months ended September 30,
2021, includes $6.9 million and $20.8 million, respectively, of
income associated with our notes receivable from Aimco, and $6.5
million and $19.4 million, respectively, of interest income
associated with properties leased to Aimco.
(4)
Interest expense for the three and nine months ended September 30,
2021, includes $6.7 million and $44.9 million, respectively, of
costs related to prepayment penalties from the repayment of
property debt and the write-off of deferred financing costs
associated with our previous credit facility.
(5)
In connection with the separation, Aimco was allocated economic
ownership of the mezzanine loan investment and option to acquire a
30% equity interest in the partnership. Subsequent to the
separation, all risks and rewards of ownership are Aimco’s, but
legal transfer is not complete. During the three and nine months
ended September 30, 2020, we recognized $6.9 million and $20.6
million of income, respectively, in connection with the mezzanine
loan. For the three and nine months ended September 30, 2021, the
mezzanine investment income was entirely offset by an expense to
recognize the requirement that this income be contributed to Aimco.
(6)
During the fourth quarter of 2020, Aimco completed a reverse stock
split and a special dividend paid primarily in stock. For stock
splits, GAAP requires the restatement of weighted-average shares as
if the reverse stock split occurred at the beginning of the period
presented, while shares issued in the special dividend are included
in weighted-average shares outstanding from the date issued. Basic
and diluted weighted-average common shares outstanding were
148,544, as previously reported for the three months ended
September 30, 2020. Basic and diluted weighted-average common
shares outstanding were 148,532 and 148,628, respectively, as
previously reported for the nine months ended September 30, 2020.
Consolidated Balance Sheets (in thousands)
(unaudited)
September 30,
December 31,
2021
2020
Assets
Real estate
$
7,301,327
$
7,468,864
Accumulated depreciation
(2,585,474
)
(2,455,505
)
Net real estate
4,715,853
5,013,359
Cash and cash equivalents
73,687
44,214
Restricted cash
23,440
29,266
Notes receivable from Aimco
534,127
534,127
Leased real estate assets
466,448
—
Goodwill
32,286
32,286
Other assets (1)
588,668
576,026
Total Assets
$
6,434,509
$
6,229,278
Liabilities and Equity
Non-recourse property debt
$
3,027,991
$
3,646,093
Debt issue costs
(14,078
)
(17,857
)
Non-recourse property debt, net
3,013,913
3,628,236
Term loans, net
1,143,867
349,164
Revolving credit facility borrowings
78,200
265,600
Accrued liabilities and other (1)
610,217
598,736
Total Liabilities
4,846,197
4,841,736
Preferred noncontrolling interests in AIR
OP
79,377
79,449
Equity:
Perpetual preferred stock
2,000
2,000
Class A Common Stock
1,570
1,489
Additional paid-in capital
3,773,936
3,432,121
Accumulated other comprehensive income
—
3,039
Distributions in excess of earnings
(2,257,562
)
(2,131,798
)
Total AIR equity
1,519,944
1,306,851
Noncontrolling interests in consolidated
real estate partnerships
(68,098
)
(61,943
)
Common noncontrolling interests in AIR
OP
57,089
63,185
Total Equity
1,508,935
1,308,093
Total Liabilities and Equity
$
6,434,509
$
6,229,278
(1)
Other assets includes the Parkmerced mezzanine investment and the
fair value of our interest rate swap option, and accrued
liabilities and other includes the offsetting liabilities. The
benefits and risks of ownership of both the Parkmerced mezzanine
investment and the interest rate swap option have been transferred
to Aimco, but legal transfer is not complete.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211028006213/en/
Beth Hagan (303) 757-8101 investors@aircommunities.com
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