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Filed Pursuant to Rule 424(b)(3)

Registration No. 333-256270

Prospectus Supplement No. 3

(to prospectus dated May 21, 2021)

 

Apartment Income REIT Corp.

7,825,000 Shares of Class A Common Stock

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated May 21, 2021 (as supplemented to date, the “Prospectus”), related to the issuance by us of 7,825,000 shares of our Class A Common Stock, par value $0.01 per share (“Class A Common Stock”), with the information contained in our Quarterly Report on Form 10-Q for the period ended September 30, 2021, filed with the Securities and Exchange Commission (“SEC”) on November 2, 2021 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our Class A Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “AIRC.” On October 27, 2021, the closing price of our Class A common stock was $51.67 per share.

Investing in our securities involves risks. See Risk Factorsbeginning on page 2 of the Prospectus and in any applicable prospectus supplement.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is November 2, 2021.

 

 


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-39686 (Apartment Income REIT Corp.)

Commission File Number: 0-24497 (Apartment Income REIT, L.P.)

APARTMENT INCOME REIT CORP.

APARTMENT INCOME REIT, L.P.

(formerly AIMCO Properties, L.P.)

(Exact name of registrant as specified in its charter)

 

Maryland (Apartment Income REIT Corp.)

 

84-1299717

Delaware (Apartment Income REIT, L.P.)

 

84-1275621

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

4582 South Ulster Street, Suite 1700

 

 

Denver, Colorado

 

80237

(Address of principal executive offices)

 

(Zip Code)

 

(303) 757-8101

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Class A Common Stock (Apartment Income REIT Corp.)

 

AIRC

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Apartment Income REIT Corp.: Yes ☒ No ☐

 

Apartment Income REIT, L.P.: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Apartment Income REIT Corp.: Yes ☒ No ☐

 

Apartment Income REIT, L.P.: Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Apartment Income REIT Corp.:

 

Apartment Income REIT, L.P.:

 

Large accelerated filer

 

 

Accelerated filer

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Apartment Income REIT Corp.:

 

Apartment Income REIT, L.P.:

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Apartment Income REIT Corp.: Yes ☐ No ☒

 

Apartment Income REIT, L.P.: Yes ☐ No ☒

The number of shares of Apartment Income REIT Corp. Class A Common Stock outstanding as of October 27, 2021: 156,985,422

 

 

 


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EXPLANATORY NOTE

On December 15, 2020, Apartment Investment and Management Company (“Aimco”) completed the separation of its business into two, separate and distinct, publicly traded companies, Apartment Income REIT Corp. (“AIR”) and Aimco (the “Separation”).

Notwithstanding the legal form of the Separation, for accounting and financial reporting purposes, Aimco is presented as being spun-off from AIR (as it relates to Aimco subsequent to the Separation, the “Spinnee”). This presentation is in accordance with generally accepted accounting principles in the United States, and is due primarily to the relative significance of AIR’s business, as measured in terms of revenue, net income, assets, and other relevant indicators, as compared to Aimco before the Separation. Therefore, AIR is considered the divesting entity and treated as the accounting spinnor, and Aimco is presented as the predecessor (“AIR’s Predecessor”) for AIR’s financial statements. Unless otherwise stated, financial results prior to the Separation on December 15, 2020, include the financial results of AIR’s Predecessor.

On July 7, 2021, the operating partnership of AIR (“AIR Operating Partnership”) changed its name from “Aimco Properties, L.P.” to “Apartment Income REIT, L.P.”

This filing combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2021, of AIR, the AIR Operating Partnership, and their consolidated subsidiaries. The AIR Operating Partnership’s condensed consolidated financial statements include the accounts of the AIR Operating Partnership and its consolidated subsidiaries. Except as the context otherwise requires, “we,” “us,” or “our” refer to AIR, the AIR Operating Partnership, and their consolidated subsidiaries, collectively.

AIR, a Maryland corporation, is a self-administered and self-managed real estate investment trust. AIR, through wholly-owned subsidiaries, is the general and special limited partner of the AIR Operating Partnership. As of September 30, 2021, AIR owned approximately 93.3% of the legal interest in the common partnership units of the AIR Operating Partnership and 95.2% of the economic interest in the AIR Operating Partnership. The remaining 6.7% legal interest is owned by third-party limited partners. As the sole general partner of the AIR Operating Partnership, AIR has exclusive control of the AIR Operating Partnership’s day-to-day management.

The AIR Operating Partnership holds all of AIR’s assets and manages the daily operations of AIR’s business. Pursuant to the AIR Operating Partnership agreement, AIR is required to contribute to the AIR Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, AIR receives additional interests in the AIR Operating Partnership with similar terms (e.g., if AIR contributes proceeds of a stock offering, AIR receives partnership units with terms substantially similar to the stock issued by AIR).

We believe combining the periodic reports of AIR and the AIR Operating Partnership into this single report provides the following benefits:

We present our business as a whole, in the same manner our management views and operates the business;
We eliminate duplicative disclosure and provide a more streamlined and readable presentation because a substantial portion of the disclosures apply to both AIR and the AIR Operating Partnership; and
We save time and cost through the preparation of a single combined report rather than two separate reports.

We operate AIR and the AIR Operating Partnership as one enterprise, the management of AIR directs the management and operations of the AIR Operating Partnership, and the members of the Board of Directors of AIR are identical to those of the AIR Operating Partnership’s general partner.

We believe it is important to understand the few differences between AIR and the AIR Operating Partnership in the context of how AIR and the AIR Operating Partnership operate as a consolidated company. AIR has no assets or liabilities other than its investment in the AIR Operating Partnership, which is held directly and indirectly through certain intermediate holding companies (in which all of the common stock is owned by AIR). Also, AIR is a corporation that issues publicly traded equity from time to time, whereas the AIR Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by AIR, which are contributed to the AIR Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the AIR Operating Partnership generates all remaining capital required by its business. These sources include the AIR Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.

Equity, partners’ capital, and noncontrolling interests are the main areas of difference between the condensed consolidated financial statements of AIR and those of the AIR Operating Partnership. Interests in the AIR Operating Partnership held by entities other than

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AIR, which we refer to as OP Units, are classified within partners’ capital in the AIR Operating Partnership’s financial statements and as noncontrolling interests in AIR’s financial statements.

To help investors understand the differences between AIR and the AIR Operating Partnership, this report provides: separate condensed consolidated financial statements for AIR and the AIR Operating Partnership; a single set of condensed consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, and earnings per share or earnings per unit, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity, where appropriate.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for AIR and the AIR Operating Partnership in order to establish that the requisite certifications have been made and that AIR and the AIR Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

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APARTMENT INCOME REIT CORP.

APARTMENT INCOME REIT, L.P.

 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

Page

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

 

 

Apartment Income REIT Corp.:

 

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

Condensed Consolidated Statements of Equity

7

 

Condensed Consolidated Statements of Cash Flows

9

 

Apartment Income REIT, L.P.:

 

 

Condensed Consolidated Balance Sheets

10

 

Condensed Consolidated Statements of Operations

11

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

12

 

Condensed Consolidated Statements of Partners’ Capital

13

 

Condensed Consolidated Statements of Cash Flows

15

 

Notes to the Condensed Consolidated Financial Statements of Apartment Income REIT Corp. and Apartment Income REIT, L.P.

16

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

29

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

45

ITEM 4.

CONTROLS AND PROCEDURES

45

 

PART II. OTHER INFORMATION

 

ITEM 1A.

RISK FACTORS

46

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

46

ITEM 6.

EXHIBITS

48

Signatures

 

1

 

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

Buildings and improvements

 

$

5,971,806

 

 

$

6,127,249

 

Land

 

 

1,329,521

 

 

 

1,341,615

 

   Total 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

 

 

588,668

 

 

 

576,026

 

   Total assets

 

$

6,434,509

 

 

$

6,229,278

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

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

 

   Total indebtedness

 

 

4,235,980

 

 

 

4,243,000

 

Accrued liabilities and other

 

 

610,217

 

 

 

598,736

 

   Total liabilities

 

 

4,846,197

 

 

 

4,841,736

 

 

 

 

 

 

 

 

Preferred noncontrolling interests in AIR Operating Partnership

 

 

79,377

 

 

 

79,449

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Perpetual preferred stock

 

 

2,000

 

 

 

2,000

 

Common Stock, $0.01 par value, 1,021,175,000 shares authorized at September 30, 2021 and December 31, 2020, and 156,983,542 and 148,861,036 shares issued/outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

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 Operating Partnership

 

 

57,089

 

 

 

63,185

 

   Total equity

 

 

1,508,935

 

 

 

1,308,093

 

   Total liabilities and equity

 

$

6,434,509

 

 

$

6,229,278

 

 

 

 

 

See notes to condensed consolidated financial statements.

4

 


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APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues

 

$

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

 

 

73,925

 

 

 

65,419

 

 

 

203,300

 

 

 

195,340

 

Depreciation and amortization

 

 

81,121

 

 

 

79,264

 

 

 

232,192

 

 

 

239,659

 

General and administrative expenses

 

 

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

 

 

13,432

 

 

 

2,492

 

 

 

45,088

 

 

 

8,784

 

Interest expense

 

 

(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

 

 

 

 

 

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 Operating Partnership

 

 

(1,603

)

 

 

(1,687

)

 

 

(4,810

)

 

 

(5,415

)

Net (income) loss attributable to common noncontrolling interests in AIR Operating Partnership

 

 

(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

 

 

156,646

 

 

 

119,967

 

 

 

153,289

 

 

 

119,957

 

   Weighted-average common shares outstanding – diluted

 

 

157,042

 

 

 

119,967

 

 

 

153,650

 

 

 

120,035

 

 

See notes to condensed consolidated financial statements.

5

 


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APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

10,671

 

 

$

(24,815

)

 

$

80,099

 

 

$

27,366

 

Unrealized losses on available for sale debt securities

 

 

 

 

 

(243

)

 

 

(3,251

)

 

 

(658

)

Comprehensive income (loss)

 

 

10,671

 

 

 

(25,058

)

 

 

76,848

 

 

 

26,708

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(1,293

)

 

 

(177

)

 

 

(5,147

)

 

 

(6,354

)

Comprehensive income (loss) attributable to AIR

 

$

9,378

 

 

$

(25,235

)

 

$

71,701

 

 

$

20,354

 

 

See notes to condensed consolidated financial statements.

6

 


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APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Noncontrolling
Interests in

 

 

Common
Noncontrolling
Interests in

 

 

 

 

 

 

Shares
Issued

 

 

Amount

 

 

Shares
Issued

 

 

Amount

 

 

Additional
Paid-
in Capital

 

 

 Other
Comprehensive
Income

 

 

Distributions
in Excess
of Earnings

 

 

Total AIR Equity

 

 

Consolidated
Real Estate
Partnerships

 

 

AIR
Operating
Partnership

 

 

Total
Equity

 

Balances at June 30, 2020

 

 

 

 

$

 

 

 

120,225

 

 

$

1,201

 

 

$

3,491,565

 

 

$

3,807

 

 

$

(1,798,561

)

 

$

1,698,012

 

 

$

(3,190

)

 

$

79,414

 

 

$

1,774,236

 

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(484

)

 

 

(484

)

Amortization of share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

902

 

 

 

 

 

 

 

 

 

902

 

 

 

 

 

 

1,052

 

 

 

1,954

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

508,716

 

 

 

 

 

 

 

 

 

508,716

 

 

 

(61,356

)

 

 

335

 

 

 

447,695

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,701

 

 

 

 

 

 

4,701

 

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(228

)

 

 

 

 

 

(228

)

 

 

 

 

 

(15

)

 

 

(243

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,007

)

 

 

(25,007

)

 

 

(31

)

 

 

(1,341

)

 

 

(26,379

)

Common Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(61,034

)

 

 

(61,034

)

 

 

 

 

 

 

 

 

(61,034

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

(3,343

)

 

 

(3,413

)

Other, net

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

 

 

(266

)

 

 

 

 

 

(236

)

Balances at September 30, 2020

 

 

 

 

$

 

 

 

120,226

 

 

$

1,201

 

 

$

4,001,213

 

 

$

3,579

 

 

$

(1,884,602

)

 

$

2,121,391

 

 

$

(60,212

)

 

$

75,618

 

 

$

2,136,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2021

 

 

20

 

 

$

2,000

 

 

 

156,857

 

 

$

1,569

 

 

$

3,773,173

 

 

$

 

 

$

(2,197,843

)

 

$

1,578,899

 

 

$

(67,531

)

 

$

60,388

 

 

$

1,571,756

 

Issuance of Common Stock, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

126

 

 

 

1

 

 

 

6,282

 

 

 

 

 

 

 

 

 

6,283

 

 

 

 

 

 

(6,708

)

 

 

(425

)

Amortization of share-based compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

409

 

 

 

 

 

 

 

 

 

409

 

 

 

 

 

 

992

 

 

 

1,401

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,423

)

 

 

 

 

 

 

 

 

(5,423

)

 

 

 

 

 

5,653

 

 

 

230

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,128

 

 

 

 

 

 

4,128

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,378

 

 

 

9,378

 

 

 

(785

)

 

 

475

 

 

 

9,068

 

Common Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(69,051

)

 

 

(69,051

)

 

 

 

 

 

 

 

 

(69,051

)

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

(43

)

 

 

 

 

 

 

 

 

(43

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,910

)

 

 

(3,481

)

 

 

(7,391

)

Other, net

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

(474

)

 

 

 

 

 

(3

)

 

 

(477

)

 

 

 

 

 

(230

)

 

 

(707

)

Balances at September 30, 2021

 

 

20

 

 

$

2,000

 

 

 

156,984

 

 

$

1,570

 

 

$

3,773,936

 

 

$

 

 

$

(2,257,562

)

 

$

1,519,944

 

 

$

(68,098

)

 

$

57,089

 

 

$

1,508,935

 

 

 

See notes to condensed consolidated financial statements.

7

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Noncontrolling
Interests in

 

 

Common
Noncontrolling
Interests in

 

 

 

 

 

 

Shares
Issued

 

 

Amount

 

 

Shares
Issued

 

 

Amount

 

 

Additional
Paid-
in Capital

 

 

 Other
Comprehensive
Income

 

 

Distributions
in Excess
of Earnings

 

 

Total AIR Equity

 

 

Consolidated
Real Estate
Partnerships

 

 

AIR
Operating
Partnership

 

 

Total
Equity

 

Balances at December 31, 2019

 

 

 

 

$

 

 

 

120,242

 

 

$

1,202

 

 

$

3,497,654

 

 

$

4,195

 

 

$

(1,722,402

)

 

$

1,780,649

 

 

$

(3,296

)

 

$

83,442

 

 

$

1,860,795

 

Repurchases of Common Stock

 

 

 

 

 

 

 

 

(189

)

 

 

(2

)

 

 

(10,002

)

 

 

 

 

 

 

 

 

(10,004

)

 

 

 

 

 

 

 

 

(10,004

)

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

128

 

 

 

1

 

 

 

5,135

 

 

 

 

 

 

 

 

 

5,136

 

 

 

 

 

 

(6,876

)

 

 

(1,740

)

Amortization of share-based compensation cost

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

3,911

 

 

 

 

 

 

 

 

 

3,911

 

 

 

 

 

 

3,154

 

 

 

7,065

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

504,361

 

 

 

 

 

 

 

 

 

504,361

 

 

 

(61,320

)

 

 

4,647

 

 

 

447,688

 

Cumulative effect of a change in accounting principle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(277

)

 

 

(277

)

 

 

 

 

 

 

 

 

(277

)

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,701

 

 

 

 

 

 

4,701

 

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(616

)

 

 

 

 

 

(616

)

 

 

 

 

 

(42

)

 

 

(658

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,970

 

 

 

20,970

 

 

 

194

 

 

 

1,134

 

 

 

22,298

 

Common Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182,893

)

 

 

(182,893

)

 

 

 

 

 

 

 

 

(182,893

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(178

)

 

 

(9,841

)

 

 

(10,019

)

Other, net

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

154

 

 

 

 

 

 

 

 

 

154

 

 

 

(313

)

 

 

 

 

 

(159

)

Balances at September 30, 2020

 

 

 

 

$

 

 

 

120,226

 

 

$

1,201

 

 

$

4,001,213

 

 

$

3,579

 

 

$

(1,884,602

)

 

$

2,121,391

 

 

$

(60,212

)

 

$

75,618

 

 

$

2,136,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2020

 

 

20

 

 

$

2,000

 

 

 

148,861

 

 

$

1,489

 

 

$

3,432,121

 

 

$

3,039

 

 

$

(2,131,798

)

 

$

1,306,851

 

 

$

(61,943

)

 

$

63,185

 

 

$

1,308,093

 

Issuance of Common Stock, net

 

 

 

 

 

 

 

 

7,825

 

 

 

79

 

 

 

342,053

 

 

 

 

 

 

 

 

 

342,132

 

 

 

 

 

 

 

 

 

342,132

 

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

169

 

 

 

1

 

 

 

8,239

 

 

 

 

 

 

 

 

 

8,240

 

 

 

 

 

 

(12,217

)

 

 

(3,977

)

Amortization of share-based compensation cost

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

2,953

 

 

 

 

 

 

 

 

 

2,953

 

 

 

 

 

 

2,975

 

 

 

5,928

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,846

)

 

 

 

 

 

 

 

 

(9,846

)

 

 

 

 

 

10,076

 

 

 

230

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,126

 

 

 

 

 

 

6,126

 

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,039

)

 

 

 

 

 

(3,039

)

 

 

 

 

 

(212

)

 

 

(3,251

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,740

 

 

 

74,740

 

 

 

(3,417

)

 

 

3,966

 

 

 

75,289

 

Common Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(200,327

)

 

 

(200,327

)

 

 

 

 

 

 

 

 

(200,327

)

Preferred Stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

(136

)

 

 

 

 

 

 

 

 

(136

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,744

)

 

 

(10,684

)

 

 

(19,428

)

Other, net

 

 

 

 

 

 

 

 

96

 

 

 

1

 

 

 

(1,584

)

 

 

 

 

 

(41

)

 

 

(1,624

)

 

 

(120

)

 

 

 

 

 

(1,744

)

Balances at September 30, 2021

 

 

20

 

 

$

2,000

 

 

 

156,984

 

 

$

1,570

 

 

$

3,773,936

 

 

$

 

 

$

(2,257,562

)

 

$

1,519,944

 

 

$

(68,098

)

 

$

57,089

 

 

$

1,508,935

 

 

See notes to condensed consolidated financial statements.

8

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

80,099

 

 

$

27,366

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

   Depreciation and amortization

 

232,192

 

 

 

239,659

 

   Gain on derecognition of leased properties and dispositions of real estate

 

(94,512

)

 

 

(47,295

)

   Income tax expense (benefit)

 

770

 

 

 

(1,678

)

   Other non-cash adjustments, net

 

10,645

 

 

 

10,988

 

Discontinued operations:

 

 

 

 

 

   Depreciation and amortization

 

 

 

 

56,755

 

   Income tax benefit

 

 

 

 

(6,181

)

   Other non-cash adjustments, net

 

 

 

 

720

 

Net changes in operating assets and operating liabilities

 

(41,286

)

 

 

(14,458

)

Loss on extinguishment of debt

 

44,833

 

 

 

 

Net cash provided by operating activities

 

232,741

 

 

 

265,876

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of real estate and deposits related to purchases of real estate

 

(225,526

)

 

 

(6,287

)

Capital expenditures

 

(130,877

)

 

 

(256,952

)

Proceeds from dispositions of real estate

 

45,752

 

 

 

36,869

 

Purchases of corporate assets

 

(4,915

)

 

 

(13,539

)

Maturation of debt investments

 

100,852

 

 

 

 

Other investing activities

 

(35,877

)

 

 

(8,457

)

Discontinued operations:

 

 

 

 

 

   Purchases of real estate and deposits related to purchases of real estate

 

 

 

 

(92,286

)

   Capital expenditures

 

 

 

 

(15,317

)

     Net cash used in investing activities

 

(250,591

)

 

 

(355,969

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from non-recourse property debt of continuing operations

 

 

 

 

608,756

 

Principal repayments on non-recourse property debt of continuing operations

 

(618,111

)

 

 

(659,538

)

Proceeds from term loans

 

1,150,000

 

 

 

350,000

 

Repayment of term loan

 

(350,000

)

 

 

 

Net repayments of revolving credit facility

 

(206,144

)

 

 

(275,000

)

Payment of debt issuance costs

 

(11,124

)

 

 

(7,197

)

Payment of debt extinguishment costs

 

(42,760

)

 

 

(11,792

)

Repurchases of Common Stock

 

 

 

 

(10,004

)

Proceeds from issuance of Common Stock, net

 

342,132

 

 

 

 

Payment of dividends to holders of Common Stock

 

(200,624

)

 

 

(183,003

)

Payment of dividends to holders of Preferred Stock

 

(122

)

 

 

 

Payment of distributions to noncontrolling interests

 

(24,287

)

 

 

(15,863

)

Redemptions of noncontrolling interests in the AIR Operating Partnership

 

(4,045

)

 

 

(19,355

)

Contribution from noncontrolling interests in consolidated real estate partnerships

 

6,126

 

 

 

463,523

 

Other financing activities

 

456

 

 

 

(14,980

)

Discontinued operations:

 

 

 

 

 

Principal repayments on non-recourse property debt

 

 

 

 

(42,816

)

Other financing activities

 

 

 

 

(1,849

)

     Net cash provided by financing activities

 

41,497

 

 

 

180,882

 

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

23,647

 

 

 

90,789

 

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH OF DISCONTINUED OPERATIONS

 

 

 

 

1,995

 

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH OF CONTINUING OPERATIONS

 

23,647

 

 

 

92,784

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

73,480

 

 

 

166,541

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD

$

97,127

 

 

$

259,325

 

 

See notes to condensed consolidated financial statements.

9

 


Table of Contents

 

APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

Buildings and improvements

 

$

5,971,806

 

 

$

6,127,249

 

Land

 

 

1,329,521

 

 

 

1,341,615

 

   Total 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

 

 

588,668

 

 

 

576,026

 

   Total assets

 

$

6,434,509

 

 

$

6,229,278

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

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

 

   Total indebtedness

 

 

4,235,980

 

 

 

4,243,000

 

Accrued liabilities and other

 

 

610,217

 

 

 

598,736

 

   Total liabilities

 

 

4,846,197

 

 

 

4,841,736

 

 

 

 

 

 

 

 

Redeemable preferred units

 

 

79,377

 

 

 

79,449

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

      Preferred units

 

 

2,000

 

 

 

2,000

 

      General Partner and Special Limited Partner

 

 

1,517,944

 

 

 

1,304,851

 

      Limited Partners

 

 

57,089

 

 

 

63,185

 

   Partners’ capital attributable to the AIR Operating Partnership

 

 

1,577,033

 

 

 

1,370,036

 

Noncontrolling interests in consolidated real estate partnerships

 

 

(68,098

)

 

 

(61,943

)

   Total partners’ capital

 

 

1,508,935

 

 

 

1,308,093

 

   Total liabilities and partners’ capital

 

$

6,434,509

 

 

$

6,229,278

 

 

See notes to condensed consolidated financial statements.

10

 


Table of Contents

 

APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues

 

$

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

 

 

73,925

 

 

 

65,419

 

 

 

203,300

 

 

 

195,340

 

Depreciation and amortization

 

 

81,121

 

 

 

79,264

 

 

 

232,192

 

 

 

239,659

 

General and administrative expenses

 

 

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

 

 

13,432

 

 

 

2,492

 

 

 

45,088

 

 

 

8,784

 

Interest expense

 

 

(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

 

 

 

 

 

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

 

Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships

 

 

785

 

 

 

154

 

 

 

3,417

 

 

 

153

 

   Net income (loss) attributable to the AIR Operating Partnership

 

 

11,456

 

 

 

(24,661

)

 

 

83,516

 

 

 

27,519

 

Net income attributable to the AIR Operating Partnership’s preferred unitholders

 

 

(1,646

)

 

 

(1,687

)

 

 

(4,946

)

 

 

(5,415

)

Net income attributable to participating securities

 

 

(46

)

 

 

(39

)

 

 

(149

)

 

 

(125

)

Net income (loss) attributable to the AIR Operating Partnership’s common unitholders

 

$

9,764

 

 

$

(26,387

)

 

$

78,421

 

 

$

21,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common unit - basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations attributable to the AIR Operating Partnership per common unit

 

$

0.06

 

 

$

(0.23

)

 

$

0.49

 

 

$

0.09

 

Income (loss) from discontinued operations attributable to the AIR Operating Partnership per common unit

 

 

 

 

 

0.02

 

 

 

 

 

 

0.08

 

Net income (loss) attributable to the AIR Operating Partnership common unitholders per unit - basic

 

$

0.06

 

 

$

(0.21

)

 

$

0.49

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common unit - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations attributable to the AIR Operating Partnership per common unit

 

$

0.06

 

 

$

(0.23

)

 

$

0.48

 

 

$

0.09

 

Income (loss) from discontinued operations attributable to the AIR Operating Partnership per common unit

 

 

 

 

 

0.02

 

 

 

 

 

 

0.08

 

Net income (loss) attributable to the AIR Operating Partnership common unitholders per unit - diluted

 

$

0.06

 

 

$

(0.21

)

 

$

0.48

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Weighted-average common units outstanding – basic

 

 

164,603

 

 

 

126,399

 

 

 

161,336

 

 

 

126,440

 

   Weighted-average common units outstanding – diluted

 

 

164,999

 

 

 

126,399

 

 

 

161,697

 

 

 

126,547

 

 

See notes to condensed consolidated financial statements.

11

 


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APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

10,671

 

 

$

(24,815

)

 

$

80,099

 

 

$

27,366

 

Unrealized losses on available for sale debt securities

 

 

 

 

 

(243

)

 

 

(3,251

)

 

 

(658

)

Comprehensive income (loss)

 

 

10,671

 

 

 

(25,058

)

 

 

76,848

 

 

 

26,708

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

785

 

 

 

154

 

 

 

3,417

 

 

 

153

 

Comprehensive income (loss) attributable to the AIR Operating Partnership

 

$

11,456

 

 

$

(24,904

)

 

$

80,265

 

 

$

26,861

 

 

 

See notes to condensed consolidated financial statements.

12

 


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APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Three Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

Preferred Units

 

 

General Partner
and Special
Limited Partner

 

 

Limited Partners

 

 

Partners’ Capital
Attributable to
the AIR
Operating
Partnership

 

 

Noncontrolling
Interests in
Consolidated
Real Estate
Partnerships

 

 

Total Partners’
Capital

 

Balances at June 30, 2020

 

$

 

 

$

1,698,012

 

 

$

79,414

 

 

$

1,777,426

 

 

$

(3,190

)

 

$

1,774,236

 

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

(484

)

 

 

(484

)

 

 

 

 

 

(484

)

Amortization of share-based compensation cost

 

 

 

 

 

902

 

 

 

1,052

 

 

 

1,954

 

 

 

 

 

 

1,954

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

508,709

 

 

 

335

 

 

 

509,044

 

 

 

(61,356

)

 

 

447,688

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,701

 

 

 

4,701

 

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

(228

)

 

 

(15

)

 

 

(243

)

 

 

 

 

 

(243

)

Net income (loss)

 

 

 

 

 

(25,007

)

 

 

(1,341

)

 

 

(26,348

)

 

 

(31

)

 

 

(26,379

)

Distributions to common unitholders

 

 

 

 

 

(61,034

)

 

 

(3,343

)

 

 

(64,377

)

 

 

 

 

 

(64,377

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

(70

)

Other, net

 

 

 

 

 

37

 

 

 

 

 

 

37

 

 

 

(266

)

 

 

(229

)

Balances at September 30, 2020

 

$

 

 

$

2,121,391

 

 

$

75,618

 

 

$

2,197,009

 

 

$

(60,212

)

 

$

2,136,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2021

 

$

2,000

 

 

$

1,576,899

 

 

$

60,388

 

 

$

1,639,287

 

 

$

(67,531

)

 

$

1,571,756

 

Issuance of common partnership units to AIR, net

 

 

 

 

 

(31

)

 

 

 

 

 

(31

)

 

 

 

 

 

(31

)

Redemption of AIR Operating Partnership units

 

 

 

 

 

6,283

 

 

 

(6,708

)

 

 

(425

)

 

 

 

 

 

(425

)

Amortization of share-based compensation cost

 

 

 

 

 

409

 

 

 

992

 

 

 

1,401

 

 

 

 

 

 

1,401

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

(5,423

)

 

 

5,653

 

 

 

230

 

 

 

 

 

 

230

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,128

 

 

 

4,128

 

Net income (loss)

 

 

 

 

 

9,378

 

 

 

475

 

 

 

9,853

 

 

 

(785

)

 

 

9,068

 

Distributions to common unitholders

 

 

 

 

 

(69,051

)

 

 

(3,481

)

 

 

(72,532

)

 

 

 

 

 

(72,532

)

Distributions to preferred unitholders

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,910

)

 

 

(3,910

)

Other, net

 

 

 

 

 

(477

)

 

 

(230

)

 

 

(707

)

 

 

 

 

 

(707

)

Balances at September 30, 2021

 

$

2,000

 

 

$

1,517,944

 

 

$

57,089

 

 

$

1,577,033

 

 

$

(68,098

)

 

$

1,508,935

 

 

 

See notes to condensed consolidated financial statements.

13

 


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APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Nine Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

Preferred Units

 

 

General Partner
and Special
Limited Partner

 

 

Limited Partners

 

 

Partners’ Capital
Attributable to
the AIR
Operating
Partnership

 

 

Noncontrolling
Interests in
Consolidated
Real Estate
Partnerships

 

 

Total Partners’
Capital

 

Balances at December 31, 2019

 

$

 

 

$

1,780,649

 

 

$

83,442

 

 

$

1,864,091

 

 

$

(3,296

)

 

$

1,860,795

 

Repurchases of common partnership units held by AIR's Predecessor

 

 

 

 

 

(10,004

)

 

 

 

 

 

(10,004

)

 

 

 

 

 

(10,004

)

Redemption of common partnership units

 

 

 

 

 

5,137

 

 

 

(6,876

)

 

 

(1,739

)

 

 

 

 

 

(1,739

)

Amortization of share-based compensation cost

 

 

 

 

 

3,911

 

 

 

3,154

 

 

 

7,065

 

 

 

 

 

 

7,065

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

504,361

 

 

 

4,647

 

 

 

509,008

 

 

 

(61,320

)

 

 

447,688

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,701

 

 

 

4,701

 

Cumulative effect of a change in accounting principle

 

 

 

 

 

(277

)

 

 

 

 

 

(277

)

 

 

 

 

 

(277

)

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

(616

)

 

 

(42

)

 

 

(658

)

 

 

 

 

 

(658

)

Net income (loss)

 

 

 

 

 

20,970

 

 

 

1,134

 

 

 

22,104

 

 

 

194

 

 

 

22,298

 

Distributions to common unitholders

 

 

 

 

 

(182,893

)

 

 

(9,841

)

 

 

(192,734

)

 

 

 

 

 

(192,734

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(178

)

 

 

(178

)

Other, net

 

 

 

 

 

153

 

 

 

 

 

 

153

 

 

 

(313

)

 

 

(160

)

Balances at September 30, 2020

 

$

 

 

$

2,121,391

 

 

$

75,618

 

 

$

2,197,009

 

 

$

(60,212

)

 

$

2,136,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2020

 

$

2,000

 

 

$

1,304,851

 

 

$

63,185

 

 

$

1,370,036

 

 

$

(61,943

)

 

$

1,308,093

 

Issuance of common partnership units to AIR, net

 

 

 

 

 

342,132

 

 

 

 

 

 

342,132

 

 

 

 

 

 

342,132

 

Redemption of AIR Operating Partnership units

 

 

 

 

 

8,240

 

 

 

(12,217

)

 

 

(3,977

)

 

 

 

 

 

(3,977

)

Amortization of share-based compensation cost

 

 

 

 

 

2,953

 

 

 

2,975

 

 

 

5,928

 

 

 

 

 

 

5,928

 

Effect of changes in ownership of consolidated entities

 

 

 

 

 

(9,846

)

 

 

10,076

 

 

 

230

 

 

 

 

 

 

230

 

Contribution from noncontrolling interest in consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,126

 

 

 

6,126

 

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

(3,039

)

 

 

(212

)

 

 

(3,251

)

 

 

 

 

 

(3,251

)

Net income (loss)

 

 

 

 

 

74,740

 

 

 

3,966

 

 

 

78,706

 

 

 

(3,417

)

 

 

75,289

 

Distributions to common unitholders

 

 

 

 

 

(200,327

)

 

 

(10,684

)

 

 

(211,011

)

 

 

 

 

 

(211,011

)

Distributions to preferred unitholders

 

 

 

 

 

(136

)

 

 

 

 

 

(136

)

 

 

 

 

 

(136

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,744

)

 

 

(8,744

)

Other, net

 

 

 

 

 

(1,624

)

 

 

 

 

 

(1,624

)

 

 

(120

)

 

 

(1,744

)

Balances at September 30, 2021

 

$

2,000

 

 

$

1,517,944

 

 

$

57,089

 

 

$

1,577,033

 

 

$

(68,098

)

 

$

1,508,935

 

 

See notes to condensed consolidated financial statements.

14

 


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APARTMENT INCOME REIT, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

80,099

 

 

$

27,366

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

   Depreciation and amortization

 

232,192

 

 

 

239,659

 

   Gain on derecognition of leased properties and dispositions of real estate

 

(94,512

)

 

 

(47,295

)

   Income tax expense (benefit)

 

770

 

 

 

(1,678

)

   Other non-cash adjustments, net

 

10,645

 

 

 

10,988

 

Discontinued operations:

 

 

 

 

 

   Depreciation and amortization

 

 

 

 

56,755

 

   Income tax benefit

 

 

 

 

(6,181

)

   Other non-cash adjustments, net

 

 

 

 

720

 

Net changes in operating assets and operating liabilities

 

(41,286

)

 

 

(14,458

)

Loss on extinguishment of debt

 

44,833

 

 

 

 

Net cash provided by operating activities

 

232,741

 

 

 

265,876

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of real estate and deposits related to purchases of real estate

 

(225,526

)

 

 

(6,287

)

Capital expenditures

 

(130,877

)

 

 

(256,952

)

Proceeds from dispositions of real estate

 

45,752

 

 

 

36,869

 

Purchases of corporate assets

 

(4,915

)

 

 

(13,539

)

Maturation of debt investments

 

100,852

 

 

 

 

Other investing activities

 

(35,877

)

 

 

(8,457

)

Discontinued operations:

 

 

 

 

 

   Purchases of real estate and deposits related to purchases of real estate

 

 

 

 

(92,286

)

   Capital expenditures

 

 

 

 

(15,317

)

     Net cash used in investing activities

 

(250,591

)

 

 

(355,969

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from non-recourse property debt of continuing operations

 

 

 

 

608,756

 

Principal repayments on non-recourse property debt of continuing operations

 

(618,111

)

 

 

(659,538

)

Proceeds from term loans

 

1,150,000

 

 

 

350,000

 

Repayment of term loan

 

(350,000

)

 

 

 

Net repayments of revolving credit facility

 

(206,144

)

 

 

(275,000

)

Payment of debt issuance costs

 

(11,124

)

 

 

(7,197

)

Payment of debt extinguishment costs

 

(42,760

)

 

 

(11,792

)

Repurchases of common partnership units held by General Partner and Special Limited Partner

 

 

 

 

(10,004

)

Proceeds from issuance of common partnership units to AIR, net

 

342,132

 

 

 

 

Payment of distributions to General Partner and Special Limited Partner

 

(200,624

)

 

 

(183,003

)

Payment of distributions to Limited Partners

 

(10,739

)

 

 

(10,136

)

Payment of distributions to preferred units

 

(4,932

)

 

 

(5,415

)

Payment of distributions to noncontrolling interests

 

(8,738

)

 

 

(312

)

Redemption of common and preferred units

 

(4,045

)

 

 

(19,355

)

Contributions from noncontrolling interests in consolidated real estate partnerships

 

6,126

 

 

 

463,523

 

Other financing activities

 

456

 

 

 

(14,980

)

Discontinued operations:

 

 

 

 

 

Principal repayments on non-recourse property debt

 

 

 

 

(42,816

)

Other financing activities

 

 

 

 

(1,849

)

     Net cash provided by financing activities

 

41,497

 

 

 

180,882

 

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

23,647

 

 

 

90,789

 

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH OF DISCONTINUED OPERATIONS

 

 

 

 

1,995

 

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH OF CONTINUING OPERATIONS

 

23,647

 

 

 

92,784

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

73,480

 

 

 

166,541

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD

$

97,127

 

 

$

259,325

 

 

See notes to condensed consolidated financial statements.

15

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

APARTMENT INCOME REIT, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

Note 1 — Basis of Presentation and Organization

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Apartment Income REIT Corp. (“AIR”), Apartment Income REIT, L.P. (“AIR Operating Partnership”) and their consolidated subsidiaries. On July 7, 2021, AIR Operating Partnership changed its name from “AIMCO Properties, L.P.” to “Apartment Income REIT, L.P.” The AIR Operating Partnership’s condensed consolidated financial statements include the accounts of the AIR Operating Partnership and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member of a limited liability company. Interests in the AIR Operating Partnership that are held by limited partners other than AIR are reflected in AIR’s accompanying condensed consolidated balance sheets as noncontrolling interests in the AIR Operating Partnership. Interests in partnerships consolidated by the AIR Operating Partnership that are held by third parties are reflected in AIR’s accompanying condensed consolidated balance sheets as noncontrolling interests in consolidated real estate partnerships.

Except as the context otherwise requires, “we,” “our,” and “us” refer to AIR, the AIR Operating Partnership, and their consolidated subsidiaries, collectively.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”), have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The condensed consolidated balance sheets of AIR, the AIR Operating Partnership, and their consolidated subsidiaries as of December 31, 2020, have been derived from their respective audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. Except where indicated, the footnotes refer to AIR, the AIR Operating Partnership and their consolidated subsidiaries, collectively.

The Separation

On December 15, 2020, Apartment Investment and Management Company (“Aimco”) completed the separation of its business into two, separate and distinct, publicly traded companies, AIR and Aimco (the “Separation”).

Notwithstanding the legal form of the Separation, for accounting and financial reporting purposes, Aimco is presented as being spun-off from AIR (as it relates to Aimco subsequent to the Separation, the “Spinnee”). This presentation is in accordance with GAAP, and is due primarily to the relative significance of AIR’s business, as measured in terms of revenues, net income, assets, and other relevant indicators, as compared to Aimco before the Separation. Therefore, AIR is considered the divesting entity and treated as the accounting spinnor, and Aimco is presented as the predecessor (“AIR’s Predecessor”) for AIR’s financial statements. Unless otherwise stated, financial results prior to the Separation on December 15, 2020 include the financial results of AIR’s Predecessor.

The financial results and cash flows attributable to the apartment communities retained by Aimco in the Separation are presented as discontinued operations. Unless otherwise noted, all disclosures in the notes accompanying the condensed consolidated financial statements reflect only continuing operations. Please see Note 9 for further details regarding our discontinued operations.

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Organization and Business

AIR is a self-administered and self-managed real estate investment trust (“REIT”). AIR owns, through its wholly-owned subsidiaries, all of the common equity, the general partner interest, and special limited partner interest in AIR Operating Partnership, a Delaware limited partnership originally incorporated on May 16, 1994. AIR Operating Partnership conducts all of the business of AIR, which is focused on the ownership of stabilized multi-family properties located in top markets including eight important geographic concentrations: Boston; Philadelphia; Greater Washington D.C.; Miami; Denver; the San Francisco Bay Area; Los Angeles; and San Diego.

We own and operate a portfolio of apartment communities, diversified by both geography and price point, in 12 states and the District of Columbia. As of September 30, 2021, our portfolio included 95 apartment communities with 26,364 apartment homes in which we held an average ownership of approximately 93%. We also have four properties leased to Aimco for redevelopment and development.

Interests in the AIR Operating Partnership that are held by limited partners other than AIR are referred to as OP Units. OP Units include common partnership units, which we refer to as common OP Units, as well as preferred partnership units, which we refer to as preferred OP Units. As of September 30, 2021, after elimination of units held by consolidated subsidiaries, the AIR Operating Partnership had 168,215,225 common OP Units outstanding. As of September 30, 2021, AIR owned 156,983,542 of the common OP Units of the AIR Operating Partnership and AIR had an equal number of shares of its Class A Common Stock outstanding, which we refer to as Common Stock. AIR’s ownership of the total common OP Units outstanding represents a 93.3% legal interest in the AIR Operating Partnership and a 95.2% economic interest.

Note 2 — Summary of Significant Accounting Policies

Principles of Consolidation

We consolidate a variable interest entity (“VIE”), in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

Redeemable Preferred OP Units

As described in Note 5, the preferred OP Units may be redeemed at the holder’s option and are therefore presented within temporary equity in AIR’s condensed consolidated balance sheets and within temporary capital in the AIR Operating Partnership’s condensed consolidated balance sheets. The following table presents a rollforward of the AIR Operating Partnership’s preferred OP Units (in thousands):

Balance at December 31, 2020

 

$

79,449

 

Preferred distributions

 

 

(4,810

)

Redemption of preferred units

 

 

(72

)

Net income

 

 

4,810

 

Balance at September 30, 2021

 

$

79,377

 

The AIR Operating Partnership has outstanding various classes of redeemable preferred OP Units. As of September 30, 2021 and December 31, 2020, the AIR Operating Partnership had 2,935,920 and 2,938,802 redeemable preferred OP Units, respectively, issued and outstanding. Distributions per annum range from 1.92% to 8.75% per class and $0.48 to $8.00 per unit.

Revenue from Leases

The majority of lease payments we receive from our residents and tenants are fixed. We receive variable payments from our residents and tenants primarily for utility reimbursements. Our total lease income, included in continuing operations, was comprised of the following amounts for all operating leases (in thousands):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Fixed lease income

 

$

176,388

 

 

$

165,559

 

 

$

505,400

 

 

$

514,640

 

Variable lease income

 

 

12,953

 

 

 

11,995

 

 

 

34,589

 

 

 

32,829

 

Straight-line rent write-off (1)

 

 

 

 

 

 

 

 

 

 

 

(2,850

)

   Total lease income

 

$

189,341

 

 

$

177,554

 

 

$

539,989

 

 

$

544,619

 

 

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(1)
We monitor the collectability of all unpaid rent amounts. The onset of COVID-19 and the anticipated economic slowdown resulted in a $2.9 million write-off of accrued straight-line rent during the nine months ended September 30, 2020.

Please see Note 9 for discussion of our sales-type leases, which are excluded from the table above.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.

Reclassifications and Revisions

As previously stated in Note 1, the financial results for the three and nine months ended September 30, 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.

Recent Accounting Pronouncements

On August 5, 2020, the Financial Accounting Standards Board issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, and affects the diluted earnings per share calculation for instruments that may be settled in cash or shares, which is effective for us on January 1, 2022. Adoption of the standard requires changes to be made retrospectively. Our preferred OP Units are subject to the new standard, which will require us to include our preferred OP Units in the calculation of dilutive securities. We have evaluated the impact of this standard and do not anticipate the adoption will have a material impact to our consolidated financial statements.

Note 3 — Significant Transactions

Apartment Community Acquisitions

On June 17, 2021, we acquired an apartment community located in Pembroke Pines, Florida. Summarized information regarding this acquisition is set forth in the table below (dollars in thousands):

Number of apartment homes

 

700

 

Purchase price

$

222,650

 

Capitalized transaction costs (1)

 

2,876

 

   Total consideration

$

225,526

 

Consideration allocated to land

$

35,184

 

Consideration allocated to building and improvements

 

186,823

 

Consideration allocated to intangible assets (2)

 

3,644

 

Consideration allocated to below-market lease liabilities (3)

 

(125

)

   Total consideration

$

225,526

 

(1)
Capitalized transaction costs include a broker fee of $2.3 million paid to Aimco.
(2)
Intangible assets include in-place leases and leasing costs with a weighted-average term of less than one year.
(3)
Below-market leases have a weighted-average term of less than one year.

In October of 2021, 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, consisting of $259 million of existing property debt, an expected issuance of $128 million in OP Units, and $122 million borrowed on the revolving credit facility.

Apartment Community Dispositions

During the three and nine months ended September 30, 2021, we sold one apartment community with 58 homes for a gain on disposition of $7.1 million.

During the three months ended September 30, 2020, we sold no apartment communities. During the nine months ended September 30, 2020, we sold one apartment community with 219 apartment homes for a gain on disposition of $47.2 million.

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Subsequent to September 30, 2021, we received $32.2 million in non-refundable deposits on 15 communities expected to be sold for approximately $470 million in the fourth quarter.

In October 2021, we entered into a joint venture with an affiliate of Blackstone to sell, for approximately $408 million, an expected 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with an expected 20% ownership, and earns various fees for providing property management and corporate services.

New Credit Facility

On April 14, 2021, we obtained a $1.4 billion unsecured credit facility (the “Credit Facility”), replacing the previous $950 million facility. The facility is comprised of a revolving credit facility of $600 million and variable rate term loans of $800 million.

The revolving credit facility currently bears interest at a 30-day LIBOR plus 0.90% and allows for an additional one basis point margin reduction if certain environmental, social, and governance targets are achieved. The term of the revolving credit facility ends on April 14, 2025, with two six-month extension options.

Proceeds from the term loans were used to repay our previous $350 million term loan; to repay $213 million of property debt; and to reduce borrowings on our revolving credit facility. The term loans bear interest at a 30-day LIBOR plus 1.00%, with a LIBOR floor of 0.00%. The effective interest on outstanding borrowings on our term loans was 1.6%.

The term loans mature on the following schedule:

$150 million maturing on December 15, 2023, with two one-year extension options;
$300 million maturing on December 15, 2024, with a one-year extension option;
$150 million maturing on December 15, 2025; and
$200 million maturing on April 14, 2026.

Under our revolving credit facility we have agreed to maintain certain financial covenants, as well as other covenants customary for similar credit arrangements. We believe we are in compliance with these covenants as of September 30, 2021.

As of September 30, 2021, we had $78.2 million of outstanding borrowings under our revolving credit facility and had capacity to borrow up to $517.8 million after consideration of undrawn letters of credit backed by the facility. The effective interest on our outstanding borrowings was 1.5% as of September 30, 2021.

Equity Issuance

On April 23, 2021, we issued and sold 7.825 million shares of our Class A Common Stock for $43.766 per share in a private placement to a large global real estate-focused investment firm and received cash proceeds of $342.2 million, net of fees. Proceeds raised were used to repay $318.4 million of property debt with a weighted-average interest rate of 4.6%. Prepayment penalties incurred in connection with the debt repayment totaled $33.8 million and are included in interest expense on our condensed consolidated statements of operations.

July Term Loan

On July 15, 2021, we secured a new $350.0 million term loan. The loan matures on July 14, 2022, includes a six month extension option, and currently bears interest at a 30-day LIBOR plus 0.95% with a 0.00% LIBOR floor. Proceeds from the loan were used to repay borrowings on our revolving credit facility.

Note 4 — Commitments and Contingencies

During the three months ended September 30, 2021, we incurred casualty losses due to Hurricane Ida induced flooding in downtown Philadelphia causing damage to our Park Towne Place apartment community. The loss is currently estimated to be $5.1 million and is included in property operating expenses in our condensed consolidated statements of operations. We anticipate this loss will be covered by our third-party insurance coverage.

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Legal Matters

In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

For claims arising from matters that occurred prior to the Separation, Aimco is responsible for the first $17.5 million of cumulative legal and environmental liabilities incurred and the AIR Operating Partnership is responsible for any such liabilities in excess of $17.5 million. As of September 30, 2021, we have a receivable from Aimco related to the indemnification of approximately $7 million.

Environmental

Various federal, state and local laws subject apartment community owners or operators to liability for management and the costs of removal or remediation of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or for personal injury, disease, disability or other infirmities related to the alleged presence of hazardous materials. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future or apartment communities we no longer own or operate.

We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations (“AROs”), as defined by GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or apartment community casualty, we believe that the fair value of our AROs cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. AROs that are reasonably estimable as of September 30, 2021, are immaterial to our condensed consolidated financial statements.

Note 5 — Earnings and Dividends per Share and Unit

AIR and the AIR Operating Partnership calculate basic earnings (loss) per common share and basic earnings (loss) per common unit based on the weighted-average number of shares of Common Stock and common partnership units outstanding. We calculate diluted earnings (loss) per share and diluted earnings (loss) per unit taking into consideration dilutive common stock and common partnership unit equivalents and dilutive convertible securities outstanding during the period.

Our common stock and common partnership unit equivalents include options to purchase shares of Common Stock, which, if exercised, would result in AIR’s issuance of additional shares and the AIR Operating Partnership’s issuance to AIR of additional common partnership units equal to the number of shares purchased under the options. These equivalents also include unvested total shareholder return (“TSR”) restricted stock awards that do not meet the definition of participating securities, which would result in an increase in the number of shares of Common Stock and common partnership units outstanding equal to the number of the shares that vest. Common partnership unit equivalents also include unvested long-term incentive partnership units. We include in the denominator securities with dilutive effect in calculating diluted earnings (loss) per share and per unit during these periods.

Our restricted stock awards that are subject to time-based vesting receive non-forfeitable dividends similar to shares of Common Stock and common partnership units prior to vesting, and our TSR long-term incentive partnership units receive non-forfeitable distributions based on specified percentages of the distributions paid to common partnership units prior to vesting and conversion. The unvested restricted shares and units related to these awards are participating securities. We include the effect of participating securities in basic and diluted earnings (loss) per share and unit computations using the two-class method of allocating distributed and undistributed earnings when the two-class method is more dilutive than the treasury stock method.

In our condensed consolidated statements of operations, noncontrolling interest in consolidated real estate partnerships is related to both continuing and discontinued operations. For purposes of our earnings (loss) per share calculation, we have appropriately allocated the noncontrolling interest in consolidated real estate partnerships for the three and nine months ended September 30, 2020. Please see Note 9 for detail of noncontrolling interest in consolidated real estate partnerships associated with discontinued operations.

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Reconciliations of the numerator and denominator in the calculations of basic and diluted earnings (loss) per share and per unit are as follows (in thousands, except per share and per unit data):

 

Three Months Ended September 30, 2021

 

 

Nine Months Ended September 30, 2021

 

 

Income (Numerator)

 

 

Shares (Denominator)

 

 

Per Share Amount

 

 

Income (Numerator)

 

 

Shares (Denominator)

 

 

Per Share Amount

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to AIR common stockholders

$

9,289

 

 

 

156,646

 

 

$

0.06

 

 

$

74,455

 

 

 

153,289

 

 

$

0.49

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

396

 

 

 

 

 

 

 

 

 

361

 

 

 

(0.01

)

Net income (loss) attributable to AIR common stockholders

$

9,289

 

 

 

157,042

 

 

$

0.06

 

 

$

74,455

 

 

 

153,650

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-dilutive share equivalents outstanding

 

 

 

 

7,958

 

 

 

 

 

 

 

 

 

8,093

 

 

 

 

 

 

Three Months Ended September 30, 2020

 

 

Nine Months Ended September 30, 2020

 

 

Income (Numerator)

 

 

Shares (Denominator)

 

 

Per Share Amount

 

 

Income (Numerator)

 

 

Shares (Denominator)

 

 

Per Share Amount

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to AIR

$

(27,746

)

 

 

119,967

 

 

$

(0.23

)

 

$

10,735

 

 

 

119,957

 

 

$

0.09

 

Income from discontinued operations attributable to AIR

 

2,700

 

 

 

119,967

 

 

 

0.02

 

 

 

10,110

 

 

 

119,957

 

 

 

0.08

 

Net income attributable to AIR common stockholders

$

(25,046

)

 

 

119,967

 

 

$

(0.21

)

 

$

20,845

 

 

 

119,957

 

 

$

0.17

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

78

 

 

 

 

Net income (loss) attributable to AIR common stockholders

$

(25,046

)

 

 

119,967

 

 

$

(0.21

)

 

$

20,845

 

 

 

120,035

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-dilutive share equivalents outstanding

 

 

 

 

9,007

 

 

 

 

 

 

 

 

 

8,337

 

 

 

 

 

 

Three Months Ended September 30, 2021

 

 

Nine Months Ended September 30, 2021

 

 

Income (Numerator)

 

 

Units (Denominator)

 

 

Per Unit Amount

 

 

Income (Numerator)

 

 

Units (Denominator)

 

 

Per Unit Amount

 

Basic earnings (loss) per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to the AIR Operating Partnership's common unitholders

$

9,764

 

 

 

164,603

 

 

$

0.06

 

 

$

78,421

 

 

 

161,336

 

 

$

0.49

 

Diluted earnings (loss) per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

396

 

 

 

 

 

 

 

 

 

361

 

 

 

(0.01

)

Net income (loss) attributable to the AIR Operating Partnership's common unitholders

$

9,764

 

 

 

164,999

 

 

$

0.06

 

 

$

78,421

 

 

 

161,697

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-dilutive partnership unit equivalents outstanding

 

 

 

 

45

 

 

 

 

 

 

 

 

 

615

 

 

 

 

 

 

Three Months Ended September 30, 2020

 

 

Nine Months Ended September 30, 2020

 

 

Income (Numerator)

 

 

Units (Denominator)

 

 

Per Unit Amount

 

 

Income (Numerator)

 

 

Units (Denominator)

 

 

Per Unit Amount

 

Basic earnings (loss) per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to the AIR Operating Partnership

$

(29,087

)

 

 

126,399

 

 

$

(0.23

)

 

$

11,869

 

 

 

126,440

 

 

$

0.09

 

Income from discontinued operations attributable to the AIR Operating Partnership

 

2,700

 

 

 

126,399

 

 

 

0.02

 

 

 

10,110

 

 

 

126,440

 

 

 

0.08

 

Net income attributable to the AIR Operating Partnership's common unitholders

$

(26,387

)

 

 

126,399

 

 

$

(0.21

)

 

$

21,979

 

 

 

126,440

 

 

$

0.17

 

Diluted earnings (loss) per unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

107

 

 

 

 

Net income (loss) attributable to the AIR Operating Partnership's common unitholders

$

(26,387

)

 

 

126,399

 

 

$

(0.21

)

 

$

21,979

 

 

 

126,547

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-dilutive partnership unit equivalents outstanding

 

 

 

 

2,220

 

 

 

 

 

 

 

 

 

1,596

 

 

 

 

 

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The AIR Operating Partnership has various classes of preferred OP Units, which may be redeemed at the holders’ option. The AIR Operating Partnership may redeem these units for cash, or at its option, shares of Common Stock. As of September 30, 2021, these preferred OP Units were potentially redeemable for approximately 1.6 million shares of Common Stock (based on the period end market price) or cash. The AIR Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Accordingly, we have excluded these securities from earnings per share and unit computations for the periods presented above.

Dividends and distributions paid per share of Common Stock and per common unit were as follows:

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Dividends and distributions paid

 

 

 

 

 

 

$

0.44

 

 

$

0.41

 

 

$

1.30

 

 

$

1.23

 

 

Note 6 — Fair Value Measurements

Recurring Fair Value Measurements

We measured at fair value on a recurring basis our investments in the securitization trust that held certain of our property debt, which we classified as available for sale (“AFS”) debt securities. These investments were presented within other assets in the condensed consolidated balance sheets. We held several positions in the securitization trust that paid interest and we also held the first loss position in the securitization trust, which accrued interest over the term of the investment. These investments were acquired at a discount to face value and accreted to the $100.9 million face value of the investments through interest income using the effective interest method over the term of the investments. During the second quarter of 2021, these investments were settled in cash at the face value. Our amortized cost basis for these investments, which represented the original cost adjusted for interest accretion less interest payments received, was $97.1 million as of December 31, 2020.

Our investments in AFS debt securities were classified within Level 2 of the GAAP fair value hierarchy. We estimated the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. The fair value of the positions that paid interest typically moved in an inverse relationship with movements in interest rates. The fair value of the first loss position was primarily correlated to collateral quality and demand for similar subordinate commercial mortgage-backed securities.

During 2020, we paid an upfront premium of $12.1 million for the option to enter into an interest rate swap at a future date. This interest rate option, or swaption, provides partial protection against our refinancing interest rate risk and is intended to mitigate interest rate increases between now and 2024. We receive a cash settlement in the future if the prevailing interest rate is higher than the 1.68% strike price. The amount of future cash settlement is limited if the prevailing interest rate exceeds 2.78%. Alternatively, if interest rates were to decrease below the specified strike price, we would not receive a cash settlement. In connection with the Separation, AIR assigned all of the risks and rewards of ownership to Aimco, with an offsetting and equal asset or liability recognized for the amount of gain or loss recognized.

We measure at fair value on a recurring basis our interest rate option, which is presented in other assets in our condensed consolidated balance sheets. Our interest rate option is classified within Level 2 of the GAAP fair value hierarchy, and we estimate its fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. The fair value adjustment is included in earnings in other expense, net, in our condensed consolidated statements of operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, and the upfront premium is reflected in other financing in our condensed consolidated statements of cash flows.

The following table summarizes fair value for our AFS debt securities and our interest rate option (in thousands):

 

As of September 30, 2021

 

 

As of December 31, 2020

 

 

Total Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

AFS debt securities

$

 

 

$

 

 

$

 

 

$

 

 

$

100,151

 

 

$

 

 

$

100,151

 

 

$

 

Interest rate option

$

25,617

 

 

$

 

 

$

25,617

 

 

$

 

 

$

13,177

 

 

$

 

 

$

13,177

 

 

$

 

 

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Nonrecurring Fair Value Measurements

As of December 31, 2020, assets measured at fair value on a nonrecurring basis in our condensed consolidated balance sheets consist of a real estate asset that was written down to its estimated fair value for impairment purposes during the year ended December 31, 2020. Our estimate of fair value was determined using valuations performed by third-party specialists, as well as various estimates and assumptions, the most significant being market rental rates, operating expense assumptions, and capitalization rate. These unobservable inputs are classified as Level 3 within the GAAP fair value hierarchy. As of December 31, 2020, the fair value of the real estate asset measured on a nonrecurring basis was $34.4 million.

Financial Assets and Liabilities Not Measured at Fair Value

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximated their fair value as of September 30, 2021, and December 31, 2020, due to their relatively short-term nature and high probability of realization. The carrying amounts of notes receivable from Aimco, the term loans, and the revolving credit facility borrowings also approximated their estimated fair value as of September 30, 2021, and December 31, 2020. We estimate the fair value of our non-recourse property debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality, and loan to value ratios on similarly encumbered apartment communities within our portfolio. We classify the fair value of our non-recourse property debt within Level 2 of the GAAP fair value hierarchy based on the significance of certain of the unobservable inputs used to estimate its fair value.

The following table summarizes carrying value and fair value for our non-recourse property debt, excluding debt issuance costs (in thousands):

 

As of September 30, 2021

 

 

As of December 31, 2020

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Non-recourse property debt

$

3,027,991

 

 

$

3,128,441

 

 

$

3,646,093

 

 

$

3,730,621

 

 

Note 7 — Variable Interest Entities

Consolidated Entities

AIR consolidates the AIR Operating Partnership, a variable interest entity (“VIE”) of which AIR is the primary beneficiary. AIR, through the AIR Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Substantially all of the assets and liabilities of AIR are that of the AIR Operating Partnership.

The AIR Operating Partnership consolidates (i) five VIEs that own interest in one or more apartment communities and are typically structured to generate a return for their partners through the operation and ultimate sale of the communities and (ii) five VIEs related to lessor entities that own interest in the properties leased to Aimco. The assets and liabilities of the VIEs associated with the leased properties consists of our net investment in the leases. The AIR Operating Partnership is the primary beneficiary in the limited partnerships in which it is the sole decision maker and has a substantial economic interest. The table below summarizes apartment community information regarding VIEs consolidated by the AIR Operating Partnership:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

VIEs with interests in apartment communities

 

 

5

 

 

 

5

 

Apartment communities owned by VIEs

 

 

16

 

 

 

16

 

Apartment homes in communities owned by VIEs

 

 

5,369

 

 

 

5,369

 

 

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Assets of the AIR Operating Partnership’s consolidated VIEs must first be used to settle the liabilities of such consolidated VIEs. These consolidated VIEs’ creditors do not have recourse to the general credit of the AIR Operating Partnership. Assets and liabilities of VIEs, excluding those of the AIR Operating Partnership, are summarized in the table below (in thousands):

 

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS:

 

 

 

 

 

 

   Net real estate

 

$

1,103,337

 

 

$

1,125,315

 

   Cash and cash equivalents

 

 

30,354

 

 

 

10,548

 

   Restricted cash

 

 

2,184

 

 

 

8,818

 

   Other assets

 

 

22,927

 

 

 

23,870

 

LIABILITIES:

 

 

 

 

 

 

   Non-recourse property debt secured by AIR communities, net

 

$

1,231,083

 

 

$

1,278,318

 

   Accrued liabilities and other

 

 

38,768

 

 

 

34,038

 

Unconsolidated Entities

We have an interest in a partnership that owns Parkmerced Apartments, which meets the definition of a VIE. However, we are not the primary beneficiary and do not consolidate this partnership. In connection with the Separation, Aimco was allocated economic ownership of the $275.0 million mezzanine loan investment and option to acquire a 30% equity interest in the partnership. The investment accrues interest at 10% per annum with a five-year term and the right to extend for a second five-year term. Subsequent to the Separation, all risks and rewards of ownership are Aimco’s. As of September 30, 2021, and December 31, 2020, the investment balance of $355.7 million and $307.4 million, respectively, primarily consisting of notes receivable, is included in other assets in AIR’s condensed consolidated balance sheets, as legal transfer is not complete. Since AIR has legally assigned all risks and rewards of ownership to Aimco, there is an equal and offsetting liability included in accrued liabilities and other in AIR’s condensed consolidated balance sheets. Accordingly, there is no net effect on AIR’s shareholders’ equity. During the three and nine months ended September 30, 2020, we recognized $6.9 million and $20.6 million, respectively, of income in connection with the mezzanine loan. The mezzanine investment income was entirely offset by an expense to recognize the requirement that this income be contributed to Aimco.

Note 8 — Business Segments

We have two segments: Same Store and Other Real Estate. Our Same Store segment includes communities that: (i) are owned and managed by AIR and (ii) had reached a stabilized level of operations. Our Other Real Estate segment includes communities that do not meet the criteria to be classified as Same Store. Communities included in discontinued operations are excluded from our evaluation of segment performance, as they are no longer included in information used by our chief operating decision maker (“CODM”).

Our CODM uses proportionate property net operating income to assess the operating performance of our communities. Proportionate property net operating income reflects our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, net of utility reimbursements, for consolidated communities. In our condensed consolidated statements of operations, utility reimbursements are included in rental and other property revenues in accordance with GAAP.

As of September 30, 2021, our Same Store segment included 92 apartment communities with 25,427 apartment homes, and our Other Real Estate segment included three apartment communities with 937 apartment homes.

The following tables present the total revenues, property operating expenses, proportionate property net operating income (loss), and income (loss) from continuing operations before income tax benefit (expense) of our segments on a proportionate basis, excluding amounts related to communities sold or communities included in discontinued operations (in thousands):

 

Same Store

 

 

Other
Real Estate

 

 

Proportionate
and Other
Adjustments (1)

 

 

Corporate and
Amounts Not
Allocated to
Segments (2)

 

 

Consolidated

 

Three months ended September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

162,535

 

 

$

5,456

 

 

$

21,647

 

 

$

2,139

 

 

$

191,777

 

Property operating expenses

 

44,901

 

 

 

2,920

 

 

 

11,643

 

 

 

14,461

 

 

 

73,925

 

Other operating expenses not allocated to segments (3)

 

 

 

 

 

 

 

 

 

 

90,812

 

 

 

90,812

 

Total operating expenses

 

44,901

 

 

 

2,920

 

 

 

11,643

 

 

 

105,273

 

 

 

164,737

 

Proportionate property net operating income (loss)

 

117,634

 

 

 

2,536

 

 

 

10,004

 

 

 

(103,134

)

 

 

27,040

 

Other items included in income before income tax benefit (expense) (4)

 

 

 

 

 

 

 

 

 

 

(16,644

)

 

 

(16,644

)

Income (loss) from continuing operations before income tax benefit (expense)

$

117,634

 

 

$

2,536

 

 

$

10,004

 

 

$

(119,778

)

 

$

10,396

 

 

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Same
Store

 

 

Other
Real Estate

 

 

Proportionate
and Other
Adjustments (1)

 

 

Corporate and
Amounts Not
Allocated to
Segments (2)

 

 

Consolidated

 

Nine months ended September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

469,686

 

 

$

8,255

 

 

$

61,787

 

 

$

6,795

 

 

$

546,523

 

Property operating expenses

 

133,983

 

 

 

5,191

 

 

 

32,974

 

 

 

31,152

 

 

 

203,300

 

Other operating expenses not allocated to segments (3)

 

 

 

 

 

 

 

 

 

 

256,909

 

 

 

256,909

 

Total operating expenses

 

133,983

 

 

 

5,191

 

 

 

32,974

 

 

 

288,061

 

 

 

460,209

 

Proportionate property net operating income (loss)

 

335,703

 

 

 

3,064

 

 

 

28,813

 

 

 

(281,266

)

 

 

86,314

 

Other items included in income before income tax benefit (expense) (4)

 

 

 

 

 

 

 

 

 

 

(5,445

)

 

 

(5,445

)

Income (loss) from continuing operations before income tax benefit (expense)

$

335,703

 

 

$

3,064

 

 

$

28,813

 

 

$

(286,711

)

 

$

80,869

 

 

 

Same Store

 

 

Other
Real Estate

 

 

Proportionate
and Other
Adjustments (1)

 

 

Corporate and
Amounts Not
Allocated to
Segments (2)

 

 

Consolidated

 

Three months ended September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

163,003

 

 

$

1,106

 

 

$

11,026

 

 

$

2,988

 

 

$

178,123

 

Property operating expenses

 

47,732

 

 

 

1,242

 

 

 

8,311

 

 

 

8,134

 

 

 

65,419

 

Other operating expenses not allocated to segments (3)

 

 

 

 

 

 

 

 

 

 

104,432

 

 

 

104,432

 

Total operating expenses

 

47,732

 

 

 

1,242

 

 

 

8,311

 

 

 

112,566

 

 

 

169,851

 

Proportionate property net operating income (loss)

 

115,271

 

 

 

(136

)

 

 

2,715

 

 

 

(109,578

)

 

 

8,272

 

Other items included in income before income tax benefit (expense) (4)

 

 

 

 

 

 

 

 

 

 

(35,246

)

 

 

(35,246

)

Income (loss) from continuing operations before income tax benefit (expense)

$

115,271

 

 

$

(136

)

 

$

2,715

 

 

$

(144,824

)

 

$

(26,974

)

 

 

Same
Store

 

 

Other
Real Estate

 

 

Proportionate
and Other
Adjustments (1)

 

 

Corporate and
Amounts Not
Allocated to
Segments (2)

 

 

Consolidated

 

Nine months ended September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

510,151

 

 

$

4,274

 

 

$

24,986

 

 

$

6,398

 

 

$

545,809

 

Property operating expenses

 

140,115

 

 

 

3,400

 

 

 

21,302

 

 

 

30,523

 

 

 

195,340

 

Other operating expenses not allocated to segments (3)

 

 

 

 

 

 

 

 

 

 

285,529

 

 

 

285,529

 

Total operating expenses

 

140,115

 

 

 

3,400

 

 

 

21,302

 

 

 

316,052

 

 

 

480,869

 

Proportionate property net operating income (loss)

 

370,036

 

 

 

874

 

 

 

3,684

 

 

 

(309,654

)

 

 

64,940

 

Other items included in income before income tax benefit (expense) (4)

 

 

 

 

 

 

 

 

 

 

(49,021

)

 

 

(49,021

)

Income (loss) from continuing operations before income tax benefit (expense)

$

370,036

 

 

$

874

 

 

$

3,684

 

 

$

(358,675

)

 

$

15,919

 

 

(1)
Represents adjustments for the noncontrolling interests in consolidated real estate partnerships’ share of the results of consolidated communities in our segments, which are included in the related consolidated amounts but excluded from proportionate property net operating income for our segment evaluation. Also includes the reclassification of utility reimbursements from revenues to property operating expenses for the purpose of evaluating segment results. Utility reimbursements are included in rental and other property revenues in our condensed consolidated statements of operations prepared in accordance with GAAP.
(2)
Includes the operating results of apartment communities sold during the periods shown or held for sale at the end of the period, if any. Also includes property management revenues, which are not part of our segment performance measure and property management expenses and casualty gains and losses, which are included in consolidated property operating expenses and are not part of our segment performance measure. The write-off of straight-line rent receivables, recognized due to the impact of COVID-19 and the resulting economic impact on our commercial tenants, are included in consolidated rental and property revenues and are not included in our measurement of segment performance for the three and nine months ended September 30, 2020.
(3)
Includes depreciation and amortization, general and administrative expenses, and other operating expenses, which may include provision for real estate impairment loss and write-offs of deferred leasing commissions, which are not included in our measure of segment performance.
(4)
Includes gain on derecognition of leased properties and dispositions of real estate, interest income, including interest income related to the properties leased to Aimco, and interest expense.

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The assets of our segments and the consolidated assets not allocated to our segments were as follows (in thousands):

 

September 30, 2021

 

 

December 31, 2020

 

Same Store

$

4,630,357

 

 

$

4,664,291

 

Other Real Estate

 

285,298

 

 

 

82,010

 

Corporate and other assets (1)

 

1,518,854

 

 

 

1,482,977

 

   Total consolidated assets

$

6,434,509

 

 

$

6,229,278

 

(1) Includes the assets not allocated to our segments including: (i) corporate assets; (ii) our notes receivable from Aimco; (iii) our mezzanine loan investment; and (iv) assets of apartment communities which were leased to Aimco, sold, or classified as held for sale as of September 30, 2021.

Capital additions related to our segments were as follows (in thousands):

 

Nine Months Ended September 30,

 

 

2021

 

 

2020

 

Same Store

$

116,745

 

 

$

90,838

 

Other Real Estate (1)

 

9,583

 

 

 

135,389

 

Total capital additions

$

126,328

 

 

$

226,227

 

(1)
For the nine months ended September 30, 2021, Other Real Estate does not include capital additions related to properties leased to Aimco for redevelopment and development.

Note 9 – Discontinued Operations

The financial results attributable to apartment communities retained by the Spinnee for the prior year comparative period have been classified as discontinued operations within the condensed consolidated financial statements.

Summarized results of discontinued operations are shown below (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2020

 

REVENUES

 

 

 

 

 

 

Rental and other property revenues

 

$

37,331

 

 

$

113,005

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

Property operating expenses

 

 

12,770

 

 

 

39,506

 

Depreciation and amortization

 

 

18,985

 

 

 

56,755

 

Other expenses, net

 

 

78

 

 

 

403

 

   Total operating expenses

 

 

31,833

 

 

 

96,664

 

 

 

 

 

 

 

 

Interest income

 

 

548

 

 

 

1,622

 

Interest expense

 

 

(5,911

)

 

 

(15,004

)

Income from unconsolidated real estate partnerships

 

 

277

 

 

 

629

 

   Income before income tax benefit

 

 

412

 

 

 

3,588

 

Income tax benefit

 

 

2,166

 

 

 

6,181

 

   Income from discontinued operations, net of tax

 

 

2,578

 

 

 

9,769

 

Net loss attributable to noncontrolling interests in consolidated real estate partnerships

 

 

122

 

 

 

341

 

   Net income from discontinued operations attributable to Spinnee

 

$

2,700

 

 

$

10,110

 

 

We entered into various separation and transition services agreements with the Spinnee that provide for a framework of our relationship with the Spinnee after the Separation, including: (i) a separation agreement setting forth the mechanics of the Separation, the key provisions relating to the Separation of our assets and liabilities from those of the Spinnee, and certain organizational matters and conditions; (ii) an employee matters agreement to allocate liabilities and responsibilities relating to employment matters, teammate compensation, and benefits plans and programs, and other related matters; (iii) Property Management Agreements pursuant to which we provide property management and related services at a majority of the properties owned or leased by the Spinnee in exchange for a fee based on an agreed percentage of revenue collected; (iv) Master Services Agreement pursuant to which we provide the Spinnee with customary administrative and support services on an ongoing basis in exchange for payment for the fully-burdened costs (including internal allocated costs); and (v) a Master Leasing Agreement pursuant to which the Spinnee may enter into leases with us pursuant to which the Spinnee, at its option, may redevelop, develop, or lease-up apartment communities. The Property Management Agreement, the Master Services Agreement, and the Master Leasing Agreement may be terminated in accordance with the respective agreements.

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During the three and nine months ended September 30, 2021, we recognized revenue of $1.7 million and $5.0 million, respectively, from the Property Management Agreements and Master Services Agreement, all of which is reflected in other revenue in our condensed consolidated statement of operations. In addition, we recognized a reduction to general and administrative expense of $1.1 million and $4.0 million, respectively, from services provided under the Employee Matters Agreement.

The Master Leasing Agreement governs any future leasing arrangements between us and the Spinnee. The initial term of the Master Leasing Agreement is 18 months, with automatic annual extensions (subject to each party’s right to terminate upon notice prior to the end of any such extension term). Each leased property has a separate lease agreement with specified terms. The initial annual rent for any leased property is based on a calculation derived from the then-current fair market value of the subject property and market net operating income cap rates, subject to certain adjustments, and is further subject to periodic escalation as set forth in the applicable lease, and the other terms thereof, including the initial term and extensions on an arm’s-length basis, as determined by and pursuant to the Master Leasing Agreement. The Spinnee has the right to terminate any such lease prior to the end of its term once the leased property is stabilized. In connection with an early termination, we have an option to pay the Spinnee an amount equal to the difference between the then-current fair market value of such property and the initial fair market value of such property at the time of the lease inception, at a small discount. If we do not exercise an option, the Spinnee will have the right to sell the property to a third party with us guaranteed to receive an amount equal to the fair market value of the property at the time of the lease inception, or the Spinnee may elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception (and may subsequently sell the property to a third party, subject to our right of first refusal during the first year following the Spinnee’s acquisition).

During 2021, we leased certain properties to Aimco. In accordance with ASC 842, certain of these leases were accounted for as sales-type leases and we recorded a net investment in the leases, equal to the sum of the lease receivable and residual asset, discounted at the rate implicit to the leases. During the nine months ended September 30, 2021, we recognized a gain of $87.1 million, which is equal to the difference in the net investment values and the carrying values of the underlying properties immediately prior to the commencement of each lease. During the three and nine months ended September 30, 2021, we recognized income of $6.5 million and $19.4 million, respectively, on an effective interest basis at a constant rate of return over the term of the applicable leases, which is reflected in interest income in our condensed consolidated statement of operations. Cash income from the leasing agreements was $6.7 million and $19.9 million, respectively, during the three and nine months ended September 30, 2021.

The initial term of each of the leases range from 10 to 25 years. All of the lease payments are triple net basis to the tenant and we have rights in accordance with the individual lease agreements to protect the value of our leased properties. As of September 30, 2021, the aggregate minimum lease payments owed to us for each of the five succeeding years under the sales-type leases is as follows:

 

2021 (remaining)

 

$

6,270

 

2022

 

 

25,262

 

2023

 

 

25,262

 

2024

 

 

25,262

 

2025

 

 

25,373

 

Thereafter

 

 

730,233

 

   Total lease receivable (1) (2)

 

$

837,662

 

Add: Unguaranteed residual value

 

 

131,580

 

Less: Discount

 

 

(502,794

)

   Total leased real estate assets

 

$

466,448

 

(1)
As of September 30, 2021, this amount includes $244.7 million of guaranteed residual value and $593.0 million of remaining cash lease payments.
(2)
The total future minimum lease payments assume that no early termination option is elected after the leased property is stabilized, which is currently expected between January 1, 2024 and January 1, 2025.

In connection with the Separation, we acquired $534 million in notes receivable pledged by a subsidiary of the Spinnee that has an interest in a portfolio of assets. Our notes receivable are subordinate to senior debt outstanding on the portfolio of assets. The notes receivable mature on January 31, 2024, and bear interest at a rate of 5.2% per annum, payable quarterly on January 1, April 1, July 1, and October 1, commencing on April 1, 2021. The notes receivable contain certain representations, warranties, covenants, and events of default and are secured by a pool of properties owned by Aimco. Notes receivable are reported in our condensed consolidated balance sheet at the outstanding principal balance. Interest receivable related to the unpaid principal is recorded separately from the outstanding balance in other assets in our condensed consolidated balance sheets. During the three and nine months ended September 30, 2021, we

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recognized interest income of $6.9 million and $20.8 million, respectively, associated with the notes receivable, which is reflected in interest income in our condensed consolidated statement of operations.

As of September 30, 2021, we have a receivable from Aimco in the amount of approximately $13.5 million, which is recognized in other assets, and a payable to Aimco in the amount of approximately $3 million, which is recognized in accrued liabilities and other in our condensed consolidated balance sheets. The amount receivable from Aimco primarily includes interest income from our notes receivable which was paid in October.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. This Quarterly Report on Form 10-Q contains information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding: the ongoing relationship between AIR and Aimco following the Separation; the payment of dividends and distributions in the future; the impact of the COVID-19 pandemic, including our ability to maintain current or meet projected occupancy, rental rate and property operating results; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; the effect of acquisitions and dispositions; expectations regarding sales of our apartment communities and the use of proceeds thereof; the availability and cost of corporate debt; our ability to comply with debt covenants; risks related to the provision of property management services to Aimco and our ability to collect property management related fees; and risks related to the inability to fully collect the notes receivable due from Aimco.

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 Separation; the ability and willingness of the parties to the 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 Separation. Other risks and uncertainties are described in this Quarterly Report on Form 10-Q, as well as “Risk Factors” in Item 1A of AIR’s and AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent filings with the SEC. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

In addition, our 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 our ability to meet the various requirements imposed by the Code, through actual operating results, distribution levels and diversity of stock ownership.

Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States (“GAAP”). These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading and include: NAREIT Funds from Operations, Pro forma Funds from Operations, and the measures used to compute our leverage ratios.

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Executive Overview

AIR provides investors with a simple and transparent way to invest in the multi-family sector with public market liquidity.

AIR is distinctive in five important respects:

Efficient: AIR was designed to be the most efficient way to invest in multi-family real estate, as measured by revenue conversion to cash flow, the percent of every revenue dollar available for reinvestment or return to shareholders. AIR has peer leading operating margins and the lowest relative general and administrative expenses.
Low Risk: AIR was designed to be low risk relative to peers. Investment risk is mitigated by a portfolio that is diversified by market and price point. Execution risk is mitigated by investing in only stabilized properties. AIR has no entitlement risk, construction risk, lease-up risk, or exposure to supply-chain disruption. Financial risk is mitigated by low leverage, expected to be 5.3x by year-end 2021, as measured by Leverage to EBITDAre.
Growth: AIR was designed to have superior growth, achieved organically through superior revenue conversion and externally through implementing our operating platform at acquired communities.
Shareholder friendly: AIR was designed to be shareholder friendly, with peer leading general and administrative expenses.
ESG: AIR has been named a Top Workplace in Colorado for nine consecutive years. Assuming the election of the three new nominees, AIR’s Board of Directors will be refreshed and diverse. The eight independent directors will have an average tenure of three years.

Our principal financial objective is to be a low-cost and efficient way to invest in U.S. multi-family real estate. Many of our investors focus on multiples of Funds From Operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), referred to herein as “NAREIT FFO.” These investors also focus on NAREIT FFO, as adjusted for non-cash, unusual or non-recurring items. We refer to this metric as Pro forma Funds From Operations (“Pro forma FFO”) and use it as a secondary measure of operational performance.

Our business is organized around four areas of strategic focus: operational excellence; portfolio management; balance sheet; and team and culture. The results from the execution of our business plan are further described in the sections that follow.

The Separation

For financial reporting purposes, GAAP requires that Aimco is presented as the predecessor (“AIR’s Predecessor”) for AIR’s financial statements. As a result, unless otherwise stated, financial results prior to the Separation on December 15, 2020 include the financial results of AIR’s Predecessor. The financial results prior to the Separation attributable to the apartment communities retained by Aimco are presented as discontinued operations and are excluded from our property net operating income (“NOI”).

Operational Excellence

We own and operate a portfolio of stabilized apartment communities, diversified by both geography and price point. As of September 30, 2021, our portfolio included 95 apartment communities with 26,364 apartment homes in which we held an average ownership of approximately 93%.

Same Store highlights for the third quarter include:

Recognition of 98.6% of all residential revenue billed during the quarter;
Average daily occupancy (“ADO”) of 96.6%, a year-over-year increase of approximately 330 basis points due primarily to AIR’s recovery efforts since the onset of COVID-19;
For leases signed during the quarter (“signed leases”), renewal rents increased by 8.8% and new lease rents increased by 11.0%, for a weighted-average increase of 10.0%; and
For leases becoming effective during the quarter (“transacted leases”), renewal rents increased by 7.1% and signed new lease rents increased by 8.0%, for a weighted-average increase of 7.6%.

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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.

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. We measure the quality of apartment communities in our portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance data and analysis. Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of local market average; and as “B” quality apartment communities those earning rents between 90% and 125% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of local market average rents. Although some companies and analysts within the multi-family real estate industry use apartment community quality ratings of “A” and “B, some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company. Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multi-family real estate industry.

We expect to improve the quality of our portfolio by allocating investment capital to enhance rent growth and increase long-term capital values through routine investments in property upgrades (such as upgrading kitchens, bathrooms and other interior design aspects) and through portfolio design, emphasizing land value as well as location and submarket.

As part of our portfolio strategy, we seek to sell communities with lower expected free cash flow internal rates of return and reinvest the proceeds from such sales in accretive uses such as capital enhancements, share repurchases, and selective acquisitions of stabilized communities with projected free cash flow internal rates of return higher than expected from the communities being sold. When the cost of capital is favorable, we will look to grow through the acquisition of stabilized apartment communities that we believe we can operate better than their previous owners. Through this disciplined approach to capital allocation, we expect to increase the quality and expected growth rate of our portfolio.

Transactions

Dispositions

During the three months ended September 30, 2021, 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 expected 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with an expected 20% ownership, and earns various fees for providing property management and corporate services.

Additionally, we are in contract negotiations on an additional $800 million of properties located primarily in select markets in California.

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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

Components of Leverage

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.

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. 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.

Please see the Liquidity and Capital Resources section for additional information regarding our leverage.

On Track Leverage Reduction

We target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x.

Our leverage ratios for the three months ended September 30, 2021 are presented below:

 

 

Annualized Current Quarter

Proportionate Debt to Adjusted EBITDAre

 

6.9x

Net Leverage to Adjusted EBITDAre

 

7.1x

 

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Please see the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.

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. As of September 30, 2021, our share of cash and restricted cash was $80.0 million and we had the capacity to borrow up to $517.8 million under our revolving credit facility, bringing total liquidity to $597.8 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.

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Team and Culture

Our team and culture are keys to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within. We focus on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. We offer benefits reinforcing our value of caring for each other, including an opportunity to manage one’s life through flexible work schedules and “dress for your day,” paid time for parental leave, profit sharing, retirement plans for all, financial support for our teammates who are becoming United States citizens, and a bonus structure at all levels of the organization. Consistent with the duration of our other leave policies, we also pay full compensation and benefits for teammates who are actively deployed by the United States military.

A critical element of our culture is a relentless focus on efficiency. We continuously seek to reduce costs through the use of additional automation and continued technological investment. We expect this focus will enable our general and administrative expenses to be lower, as a percentage of gross asset value, than our peers.

Our focus on our team and our culture is recognized externally, as well. Out of hundreds of participating companies in 2021, AIR was one of only six recognized as a “Top Workplace” in Colorado for each of the past nine years, and was one of only two real estate companies to receive a BEST award from the Association for Talent Development in recognition of our company-wide success in talent development, marking its third consecutive year receiving this award, and received for the first time the “Top Workplaces 2021” honor from the Washington Post.

Results of Operations

Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we acquire and dispose of our apartment communities affects our operating results.

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements included in Item 1.

Financial Highlights

Net income (loss) from continuing operations attributable to common stockholders per common share, on a dilutive basis, increased $0.29 for the three months ended September 30, 2021, due primarily to an increase in interest income, including income earned from leased properties. Net income (loss) from continuing operations attributable to common stockholders per common share, on a dilutive basis, increased $0.40 for the nine months ended September 30, 2021, due primarily to a gain on derecognition of leased properties and higher interest income, offset partially by increased prepayment penalties.

Pro forma FFO per share was $0.56 and $1.58, respectively, for the three and nine months ended September 30, 2021.

Residential 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.

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Detailed Results of Operations for the Three and Nine Months Ended September 30, 2021, Compared to 2020

Net income (loss) from continuing operations increased by $38.1 million and increased by $62.5 million during the three and nine months ended September 30, 2021, respectively, compared to 2020, as more fully described below.

Property Operations

We have two segments: Same Store and Other Real Estate. Our Same Store segment includes communities that: (i) are owned and managed by AIR and (ii) had reached a stabilized level of operations. Our Other Real Estate segment includes communities that do not meet the criteria to be classified as Same Store.

As of September 30, 2021, our Same Store segment included 92 apartment communities with 25,427 apartment homes and our Other Real Estate segment included three apartment communities with 937 apartment homes.

Proportionate Property Net Operating Income (Non-GAAP)

Our proportionate share of financial information includes our share of unconsolidated real estate partnerships and excludes the noncontrolling interest partners’ share of consolidated real estate partnerships. We believe proportionate information benefits the users of our financial information by providing the amount of revenues, expenses, assets, liabilities, and other items attributable to our stockholders. Other companies may calculate their proportionate information differently than we do, limiting the usefulness as a comparative measure. Because of these limitations, the non-GAAP proportionate financial information should not be considered in isolation or as a substitute for information included in our financial statements as reported under GAAP.

We use proportionate property NOI to assess the operating performance of our communities, which excludes the results of properties retained by Aimco in connection with the Separation, which are included in discontinued operations. Proportionate property NOI is a non-GAAP measure that reflects our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, net of utility reimbursements, for consolidated communities. Accordingly, the results of operations of our segments discussed below are presented on a proportionate (“Ownership-Effected”) basis. In our condensed consolidated statements of operations, utility reimbursements are included in rental and other property revenues in accordance with GAAP. In September 2020, we formed a joint venture with a passive institutional investor to own a portfolio of 12 multi-family communities in California. In order for both periods to be comparable, we have presented, in addition to the actual historical changes in results of operations of our segments, the property operating results as if the California joint venture had closed at the beginning of the earliest period presented.

We do not include offsite costs associated with property management, casualty gains or losses, or the results of apartment communities sold, held for sale, or retained by Aimco in the Separation, which are included in discontinued operations, reported in consolidated amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.

Please see Note 8 to the condensed consolidated financial statements in Item 1 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.

 

Three Months Ended September 30,

 

 

Historical Change

 

 

Ownership-Effected
Change (1)

 

(in thousands)

2021

 

 

2020

 

 

$

 

 

%

 

 

$

 

 

%

 

Rental and other property revenues, before utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

$

162,535

 

 

$

163,003

 

 

$

(468

)

 

 

(0.3

%)

 

$

9,178

 

 

 

6.0

%

   Other Real Estate

 

5,456

 

 

 

1,106

 

 

 

4,350

 

 

 

393.3

%

 

 

4,350

 

 

 

393.3

%

      Total

 

167,991

 

 

 

164,109

 

 

 

3,882

 

 

 

2.4

%

 

 

13,528

 

 

 

8.8

%

Property operating expenses, net of utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

 

44,901

 

 

 

47,732

 

 

 

(2,831

)

 

 

(5.9

%)

 

 

(184

)

 

 

(0.4

%)

   Other Real Estate

 

2,920

 

 

 

1,242

 

 

 

1,678

 

 

 

135.1

%

 

 

1,678

 

 

 

135.1

%

      Total

 

47,821

 

 

 

48,974

 

 

 

(1,153

)

 

 

(2.4

%)

 

 

1,494

 

 

 

3.2

%

Proportionate property net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

 

117,634

 

 

 

115,271

 

 

 

2,363

 

 

 

2.0

%

 

 

9,362

 

 

 

8.6

%

   Other Real Estate

 

2,536

 

 

 

(136

)

 

 

2,672

 

 

 

(1,964.7

%)

 

 

2,672

 

 

 

(1,964.7

%)

      Total

$

120,170

 

 

$

115,135

 

 

$

5,035

 

 

 

4.4

%

 

$

12,034

 

 

 

11.1

%

(1)
Reflects the change for the three months ended September 30, 2021 and 2020, as if the California joint venture had closed on July 1, 2020.

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For the three months ended September 30, 2021, compared to 2020, after giving effect to the sale of partial interest in certain Same Store communities in the California joint venture, our Same Store proportionate property NOI increased by $9.4 million, or 8.6%. This increase was attributable primarily to a $9.2 million, or 6.0%, increase in rental and other property revenues due to a 330 basis point increase in average daily occupancy and a 40 basis point increase in residential rental rates.

The increase in proportionate property NOI was partially offset by an increase of $0.2 million, or 0.4%, in Same Store property operating expenses.

Other Real Estate proportionate property NOI for the three months ended September 30, 2021, compared to 2020, increased by $2.7 million, due primarily to the June acquisition of City Center on 7th.

 

Nine Months Ended September 30,

 

 

Historical Change

 

 

Ownership-Effected
Change (1)

 

(in thousands)

2021

 

 

2020

 

 

$

 

 

%

 

 

$

 

 

%

 

Rental and other property revenues, before utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

$

469,686

 

 

$

510,151

 

 

$

(40,465

)

 

 

(7.9

%)

 

$

(3,692

)

 

 

(0.8

%)

   Other Real Estate

 

8,255

 

 

 

4,274

 

 

 

3,981

 

 

 

93.1

%

 

 

3,981

 

 

 

93.1

%

      Total

 

477,941

 

 

 

514,425

 

 

 

(36,484

)

 

 

(7.1

%)

 

 

289

 

 

 

0.1

%

Property operating expenses, net of utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

 

133,983

 

 

 

140,115

 

 

 

(6,132

)

 

 

(4.4

%)

 

 

3,229

 

 

 

2.5

%

   Other Real Estate

 

5,191

 

 

 

3,400

 

 

 

1,791

 

 

 

52.7

%

 

 

1,791

 

 

 

52.7

%

      Total

 

139,174

 

 

 

143,515

 

 

 

(4,341

)

 

 

(3.0

%)

 

 

5,020

 

 

 

3.7

%

Proportionate property net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Same Store

 

335,703

 

 

 

370,036

 

 

 

(34,333

)

 

 

(9.3

%)

 

 

(6,921

)

 

 

(2.0

%)

   Other Real Estate

 

3,064

 

 

 

874

 

 

 

2,190

 

 

 

250.6

%

 

 

2,190

 

 

 

250.6

%

      Total

$

338,767

 

 

$

370,910

 

 

$

(32,143

)

 

 

(8.7

%)

 

$

(4,731

)

 

 

(1.4

%)

(1)
Reflects the change for the nine months ended September 30, 2021 and 2020, as if the California joint venture had closed on January 1, 2020.

For the nine months ended September 30, 2021, compared to 2020, after giving effect to the sale of partial interest in certain Same Store communities in the California joint venture, our Same Store proportionate property NOI decreased by $6.9 million, or 2.0%. This decrease was attributable primarily to a $3.7 million, or 0.8%, decrease in rental and other property revenues due to a 90 basis point decrease in residential rental rates and a 60 basis point increase in bad debt.

The decrease in proportionate property NOI was also attributable to an increase of $3.2 million, or 2.5%, in Same Store property operating expenses. Controllable operating expenses were up $0.4 million, or 0.6%, compared to the nine months ended September 30, 2020, while real estate taxes and insurance costs increased by $1.4 million and $1.3 million, respectively.

Other Real Estate proportionate property NOI for the nine months ended September 30, 2021, compared to 2020, increased by $2.2 million, due primarily to the June acquisition of City Center on 7th.

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include revenues and offsite costs associated with property management, casualty losses, write-off of straight-line rent receivables, and the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.

For the three months ended September 30, 2021, compared to 2020, non-segment real estate operations decreased by $7.2 million, due primarily to:

$6.5 million of higher casualty losses primarily due to hurricane related flooding in Philadelphia;
$1.4 million of lower NOI attributable to sold properties and properties leased to Aimco; and
$1.0 million of lower property management expenses; offset partially by
$1.7 million of property management revenues recognized during the third quarter related to the management of Aimco communities as a result of the Separation.

For the nine months ended September 30, 2021, compared to 2020, non-segment real estate operations were relatively flat.

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Depreciation and Amortization

For the three and nine months ended September 30, 2021, compared to 2020, depreciation and amortization expense was relatively flat.

General and Administrative Expenses

For the three and nine months ended September 30, 2021, compared to 2020, general and administrative expenses decreased by $1.8 million, or 23.5%, and $7.2 million, or 31.8%, respectively, due primarily to lower personnel costs and structural changes made to reflect AIR’s more focused business model.

Other Expenses, Net

Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses, and certain non-recurring items. For the three and nine months ended September 30, 2021, compared to 2020, other expenses, net decreased $13.7 million, or 78.2%, and $13.9 million, or 60.2%, respectively, due primarily to costs associated with the Separation included in the prior year and unrealized losses on an interest rate derivative recognized in the prior year.

Interest Income

For the three and nine months ended September 30, 2021, compared to 2020, interest income increased by $10.9 million and $36.3 million, respectively. 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.

Interest Expense

For the three months ended September 30, 2021, compared to 2020, interest expense decreased by $7.4 million, or 16.6%, due primarily to lower interest expense on property-level debt following refinancing and debt payoff activity.

For the nine months ended September 30, 2021, compared to 2020, interest expense increased by $19.4 million, or 15.4%, primarily due to $44.9 million of prepayment penalties from the early payment of property debt and the write-off of deferred financing costs. This was partially offset by $24.4 million of annual interest savings related to lower debt balances and interest rates.

Through September 30, 2021, we repaid $573.1 million of property debt with a weighted-average interest rate of 4.26%.

Gain on Derecognition of Leased Properties and Dispositions of Real Estate

During the three months ended September 30, 2021, we sold one apartment community with 58 apartment homes for a gain on disposition of $7.1 million and net proceeds of $39.9 million. During the three months ended September 30, 2020, we sold no apartment communities.

During the nine months ended September 30, 2021, we recognized $87.1 million of gain associated with the derecognition of the net book value of the properties leased to Aimco for redevelopment and development and $7.1 million of gain associated with the sale of one apartment community. During the nine months ended September 30, 2020, we sold one apartment community with 219 apartment homes for a gain on disposition of $47.2 million and net proceeds of $36.9 million.

Mezzanine Investment Income, Net

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, respectively, of income in connection with the mezzanine loan. For the three and nine months ended September 30, 2021, the mezzanine investment income was offset by an expense to recognize the requirement that this income be contributed to Aimco.

Income Tax (Expense) Benefit

Certain of our operations, including property management, are conducted through taxable REIT subsidiaries (“TRS entities”).

Our income tax (expense) benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities for which the tax consequences have been realized or will be realized in future periods. Income taxes related to these

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items, as well as changes in valuation allowance, are included in income tax (expense) benefit in our condensed consolidated statements of operations.

For the three months ended September 30, 2021, compared to 2020, we recognized income tax benefit of $0.3 million, compared to an income tax provision of $0.4 million during the same period in 2020.

For the nine months ended September 30, 2021, we recognized income tax expense of $0.8 million, compared to an income tax benefit of $1.7 million during the same period in 2020.

Income from Discontinued Operations, Net

For the three and nine months ended September 30, 2020, apartment communities that were included in discontinued operations generated net income of $2.6 million and $9.8 million, respectively.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to capitalized costs and the impairment of long-lived assets.

Our critical accounting policies are described in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020.

In addition to the Critical Accounting Policies and Estimates described in the Annual Report on Form 10-K, we believe the sales-type lease arrangements entered into in 2021 require significant judgment.

We have entered into leases of existing properties with Aimco for redevelopment and development, which are generally accounted for as sales-type leases in accordance with ASC 842. The terms of such leases range from 10 to 25 years. We are required to estimate the fair value of the leased property for the purposes of lease classification and, for sales-type leases, the rate implicit in the lease. We estimate the fair value of our properties using various estimates and assumptions, the most significant being the capitalization rate. As of September 30, 2021, we have assets recorded reflecting our net investment in such leased properties totaling $466 million. Our net investment includes the present value of lease payments not yet received, the present value of the guaranteed amount of the underlying asset’s residual value at the end of the lease term, and the present value of the unguaranteed amount of the underlying asset’s residual value at the end of the lease term. The present value is determined based on the rate implicit in the lease. The residual value is based on the current estimated fair value of the leased property, adjusted for annual depreciation and cost of inflation. Over the respective lease term, we expect our net investment to be recovered as lease payments are made by Aimco.

Other than stated above, there have been no other significant changes in our critical accounting policies from those reported in our Form 10-K and we believe that the related judgments and assessments have been consistently applied and produce financial information that fairly depicts the financial condition, results of operations, and cash flows for all periods presented.

Non-GAAP Measures

Certain key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined and described below, and for those non-GAAP measures used or disclosed within this quarterly report, we provide reconciliations of the non-GAAP measures to the most comparable financial measure computed in accordance with GAAP.

NAREIT Funds From Operations and Pro forma Funds From Operations

NAREIT FFO is a non-GAAP measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate assets generally appreciate over time or maintain residual value to a much greater extent than do other depreciable assets such as machinery, computers, or other personal property. NAREIT defines FFO as net income (loss) computed in accordance with GAAP, excluding: (i) depreciation and amortization related to real estate; (ii) gains and losses from sales and impairment of depreciable assets and land used in our primary business; and (iii) income taxes directly associated with a gain or loss on the sale of real estate, and including (iv) our share of the FFO of unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine NAREIT FFO. We calculate NAREIT FFO

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attributable to AIR common stockholders (diluted) by subtracting dividends on preferred stock and preferred units and amounts allocated from NAREIT FFO to participating securities.

In addition to NAREIT FFO, we use Pro forma FFO to measure short-term performance. Pro forma FFO represents NAREIT FFO as defined above, excluding the results of operations of properties retained by Aimco in the Separation and certain amounts that are unique or occur infrequently.

In computing Pro forma FFO, we made the following adjustments to NAREIT FFO:

Prepayment penalties: as a result of refinancing activities in 2021, we incurred debt extinguishment costs and wrote-off capitalized deferred financing costs related to our previous credit facility and the prepayment of debt during the quarter. We excluded such costs from Pro forma FFO because we believe these costs are not representative of future cash flows.
Casualty losses: during 2021, we incurred casualty losses due to Hurricane Ida induced flooding in downtown Philadelphia causing damage to our Park Towne Place apartment community. We excluded these costs from Pro forma FFO because of the unusual nature of the weather event that caused the loss. We anticipate this loss will be covered by our third party insurance coverage.
Separation and transition related costs: during 2021, we incurred tax, legal and other transition related costs incurred as a result of the separation. We excluded these costs from Pro forma FFO because we believe they are not representative of ongoing operating performance.
Non-cash straight-line rent: in 2018, we assumed a 99-year ground lease with scheduled rent increases. Due to the terms of the lease, GAAP rent expense will exceed cash rent payments until 2076. We include the cash rent payments for this ground lease in Pro forma FFO but exclude the incremental straight-line non-cash rent expense. The rent expense for this lease is included in other expenses, net, on our consolidated statements of operations.
Incremental cash received from leased properties: during 2021, we leased properties to Aimco for redevelopment and development. Due to the terms of these leases, during 2021 cash received exceeded GAAP income. We include the cash lease income in Pro forma FFO.

NAREIT FFO and Pro forma FFO should not be considered alternatives to net income determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.

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NAREIT FFO and Pro forma FFO are calculated as follows (in thousands, except per share data):

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2021

 

Net income (loss) attributable to AIR common stockholders

 

$

9,289

 

 

$

74,455

 

Adjustments:

 

 

 

 

 

 

Real estate depreciation and amortization, net of noncontrolling partners’ interest

 

 

74,864

 

 

 

213,947

 

Gain on derecognition of leased properties and dispositions of real estate

 

 

(7,127

)

 

 

(94,512

)

Income tax adjustments related to gain on dispositions and other tax-related items

 

 

(122

)

 

 

150

 

Common noncontrolling interests in AIR OP’s share of above Adjustments

 

 

(3,269

)

 

 

(5,842

)

NAREIT FFO attributable to AIR common stockholders

 

$

73,635

 

 

$

188,198

 

Adjustments, all net of common noncontrolling interests in AIR Operating Partnership and participating securities:

 

 

 

 

 

 

Prepayment penalties

 

 

6,365

 

 

 

43,355

 

Casualty losses

 

 

4,891

 

 

 

4,891

 

Separation and transition related costs

 

 

1,324

 

 

 

3,666

 

Non-cash straight-line rent

 

 

611

 

 

 

1,881

 

Incremental cash received from leased properties

 

 

179

 

 

 

473

 

Other

 

 

190

 

 

 

190

 

Pro forma FFO

 

$

87,195

 

 

$

242,654

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

 

156,646

 

 

 

153,289

 

Dilutive common share equivalents

 

 

396

 

 

 

361

 

Pro forma shares and dilutive share equivalents used to calculate Pro forma FFO per share

 

 

157,042

 

 

 

153,650

 

 

 

 

 

 

 

 

Net income (loss) attributable to AIR per common share – diluted

 

$

0.06

 

 

$

0.48

 

NAREIT FFO per share – diluted

 

$

0.47

 

 

$

1.22

 

Pro forma FFO per share – diluted

 

$

0.56

 

 

$

1.58

 

Please see the Results of Operations section for discussion of the factors affecting our Pro forma FFO for 2021.

The AIR Operating Partnership does not separately compute or report NAREIT FFO or Pro forma FFO. However, based on AIR’s method for allocation of such amounts to noncontrolling interests in the AIR Operating Partnership, as well as limited differences between the amounts of net income attributable to AIR’s common stockholders and the AIR Operating Partnership’s unitholders during the periods presented, NAREIT FFO and Pro forma FFO amounts on a per unit basis for the AIR Operating Partnership would be expected to be substantially the same as the corresponding per share amounts for AIR.

Leverage Ratios

As discussed under the Balance Sheet heading, we target Net Leverage to Adjusted EBITDAre below 6.0x. We also focus on Proportionate Debt to Adjusted EBITDAre. We believe these ratios, which are based in part on non-GAAP financial information, are commonly used by investors and analysts to assess the relative financial risk associated with balance sheets of companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.

Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt, outstanding borrowings under our revolving credit facility, and our term loans. Proportionate Debt excludes unamortized debt issuance costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations. We reduce our recorded debt by the amounts of cash and restricted cash on-hand (which are primarily restricted under the terms of our property debt agreements), excluding tenant security deposits included in restricted cash, assuming the remaining amounts of cash and restricted cash would be used to reduce our outstanding leverage. We further reduce our recorded debt by our notes receivable from Aimco, the proceeds from which we expect will be used to pay down property debt.

We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.

Preferred equity represents the redemption amounts for AIR’s Preferred Stock and the AIR Operating Partnership’s Preferred Partnership Units and, although perpetual in nature, are another component of our overall leverage.

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The reconciliation of total indebtedness to Proportionate Debt and Preferred Equity, as used in our leverage ratios, is as follows (in thousands):

 

 

September 30, 2021

 

Total indebtedness

 

$

4,235,980

 

Adjustments:

 

 

 

Debt issuance costs related to non-recourse property debt and term loans

 

 

20,211

 

Proportionate share adjustments related to debt obligations

 

 

(476,772

)

Cash and restricted cash

 

 

(97,127

)

Tenant security deposits included in restricted cash

 

 

9,754

 

Proportionate share adjustments related to cash and restricted cash

 

 

7,338

 

Notes receivable from Aimco

 

 

(534,127

)

   Proportionate Debt

 

$

3,165,257

 

Perpetual preferred stock

 

 

2,000

 

Preferred noncontrolling interests in AIR Operating Partnership

 

 

79,377

 

   Net Leverage

 

$

3,246,634

 

We calculated Adjusted EBITDAre used in our leverage ratios based on annualized current quarter amounts. EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and facilitate comparison of credit strength between AIR and other companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. NAREIT defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation and amortization expense, which we have further adjusted for:

gains and losses on the derecognition of leased properties and dispositions of depreciated property;
impairment write-downs of depreciated property; and
adjustments to reflect our share of EBITDAre of investments in unconsolidated entities.

EBITDAre is defined by NAREIT and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted for the effect of the following items:

net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests is excluded to allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry;
the income recognized related to our notes receivable from Aimco is excluded as their proceeds are expected to be used to repay current amounts outstanding;
the amount by which GAAP rent expense exceeds cash rents for a long-term ground lease for which expense exceeds cash payments until 2076 is excluded. The excess of GAAP rent expense over the cash payments for this lease does not reflect a current obligation that affects our ability to service debt; and
the amount by which cash received exceeds GAAP lease income for the properties leased to Aimco for redevelopment and development is included.

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The reconciliation of net income to EBITDAre and Adjusted EBITDAre, as used in our leverage ratios, is as follows (in thousands):

 

 

Three Months Ended

 

 

 

September 30, 2021

 

Net income

 

$

10,671

 

Adjustments:

 

 

 

Interest expense

 

 

37,203

 

Income tax benefit

 

 

(275

)

Depreciation and amortization

 

 

81,121

 

Gain on derecognition of leased properties and dispositions of real estate

 

 

(7,127

)

EBITDAre

 

$

121,593

 

Net loss from continuing operations attributable to noncontrolling interests in consolidated real estate partnerships

 

 

785

 

EBITDAre adjustments attributable to noncontrolling interests

 

 

(9,257

)

Interest income on notes receivable from Aimco

 

 

(6,944

)

Pro forma FFO adjustments, net (1)

 

 

8,246

 

   Adjusted EBITDAre

 

$

114,423

 

   Annualized Adjusted EBITDAre

 

$

457,692

 

(1)
Pro forma adjustments, net, includes pro forma adjustments to NAREIT FFO under the heading NAREIT Funds From Operations and Pro forma Funds From Operations, excluding items that are not included in EBITDAre such as prepayment penalties, net and amounts attributable to noncontrolling interest share, a $1.0 million adjustment to normalize heightened short-term incentive compensation, and a $0.3 million adjustment to reflect the disposition of one apartment community during the period as if the transaction closed on July 1, 2021.

Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flows from operations. Additional sources are proceeds from dispositions of apartment communities, proceeds from refinancing existing property debt, borrowings under new property debt, borrowings under our $1.4 billion credit facility, proceeds from our notes receivable from Aimco, and proceeds from equity offerings.

As of September 30, 2021, our available liquidity was $605.2 million, which consisted of:

$73.7 million in cash and cash equivalents;
$13.7 million of restricted cash, excluding amounts related to tenant security deposits, which consists primarily of escrows held by lenders for capital additions, property taxes, and insurance; and
$517.8 million of available capacity to borrow under our revolving credit facility after consideration of letters of credit.

Additional liquidity may also be provided through property debt financing at properties unencumbered by debt and proceeds from our notes receivable from Aimco. 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.

Uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners, and acquisitions of apartment communities. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to meet our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and refinancings. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, including apartment community acquisitions, through primarily non-recourse, long-term borrowings, the issuance of equity securities (including OP Units), the sale of apartment communities, and cash generated from operations. Additionally, we expect to meet our liquidity requirements associated with our debt maturities.

Leverage and Capital Resources

The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and financing is

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readily available. Any adverse changes in the lending environment could negatively affect our liquidity. We believe we have mitigated much of this exposure by reducing our short and intermediate-term maturity risk through refinancing such loans with long-dated debt. However, if financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

Historically, our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt. As of September 30, 2021, approximately 66.1% of our total leverage consisted of property-level, non-recourse, long-dated, amortizing debt. As of September 30, 2021, approximately 99.4% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 8.7 years. On average, 1.8% of our unpaid principal balances will mature each year from 2021 through 2023.

The following table summarizes the payments due under our debt commitments, excluding debt issuance costs, as of September 30, 2021 (in thousands):

 

 

Total

 

 

Remaining 2021

 

 

1-3 Years
(2022-2023)

 

 

3-5 Years
(2024-2025)

 

 

More than Five
Years (2026 and
Thereafter)

 

Non-recourse property debt (1)

 

$

3,027,991

 

 

$

12,910

 

 

$

268,165

 

 

$

463,278

 

 

$

2,283,638

 

Revolving credit facility borrowings (2)

 

 

78,200

 

 

 

 

 

 

 

 

 

78,200

 

 

 

 

Term loans (3)

 

 

1,150,000

 

 

 

 

 

 

350,000

 

 

 

600,000

 

 

 

200,000

 

   Total

 

$

4,256,191

 

 

$

12,910

 

 

$

618,165

 

 

$

1,141,478

 

 

$

2,483,638

 

(1)
Includes scheduled principal amortization and maturity payments.
(2)
Includes outstanding borrowings on our revolving credit facility assuming repayment at the contractual maturity date.
(3)
Includes outstanding borrowings on our term loans assuming exercise of extension options.

As of September 30, 2021, our preferred equity, which includes outstanding preferred OP Units and outstanding perpetual preferred stock, represented approximately 2.1% of our total leverage. Preferred OP Units are redeemable at the holder’s option and our preferred stock is redeemable by AIR on or after December 15, 2025. For illustrative purposes, we compute the weighted-average maturity of our preferred OP Units assuming a 10-year maturity and our preferred stock assuming it is called at the expiration of the no-call period.

The combination of non-recourse property-level debt, borrowings under our revolving credit facility, our term loans, our preferred OP Units, and our redeemable noncontrolling interests in a consolidated real estate partnership comprise our total leverage. The weighted-average remaining term to maturity for our total leverage was 7.1 years as of September 30, 2021.

Under our revolving credit facility we have agreed to maintain certain financial covenants, as well as other covenants customary for similar credit arrangements. The financial covenants we are required to maintain include a Maximum Leverage ratio of no greater than 0.60 to 1.00; a Fixed Charge Coverage Ratio of greater than 1.5x, a Maximum Secured Indebtedness to Total Assets ratio of no greater than 0.45 to 1.00 through March 31, 2023, and 0.40 to 1.00 thereafter, and a Maximum Unsecured Leverage ratio no greater than 0.60 to 1.00. We were in compliance with these covenants as of September 30, 2021 and expect to remain in compliance during the next 12 months.

We like the discipline of financing a portion of our real estate investments through the use of fixed-rate, amortizing, non-recourse property debt, as the amortization gradually reduces our leverage and reduces our refunding risk, and the fixed-rate provides a hedge against increases in interest rates, and the non-recourse feature avoids entity risk.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing and financing activities, which are presented in our condensed consolidated statements of cash flows in Item 1 of this report.

Operating Activities

For the nine months ended September 30, 2021, net cash provided by operating activities was $232.7 million. Our operating cash flow is affected primarily by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities. Cash provided by operating activities for the nine months ended September 30, 2021, decreased by $33.1 million compared to the same period in 2020. The decrease was due primarily to lower contribution from our apartment communities, which were negatively impacted by lower residential rental rates and increased bad debt expense, offset partially by higher ADO and a recovery in commercial rents.

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Investing Activities

For the nine months ended September 30, 2021, our net cash used in investing activities of $250.6 million consisted primarily of purchases of real estate and capital expenditures, offset partially by the maturation of debt investments.

Capital additions totaled $126.3 million and $226.2 million during the nine months ended September 30, 2021 and 2020, respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.

We categorize capital spending for communities in our portfolio broadly into four primary categories:

capital replacements, which do not increase the useful life of an asset from its original purchase condition. Capital replacements represent capital additions made to replace the portion of our investment in acquired apartment communities consumed during our period of ownership;
capital improvements, which represent capital additions made to replace the portion of acquired apartment communities consumed prior to our period of ownership;
capital enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in more durable, longer-lived materials designed to reduce costs, and do not significantly disrupt property operations; and
other additions, which represent capital additions: (i) contemplated in the underwriting of our recently acquired communities; (ii) prior to the Separation, costs intended to enhance the value of the apartment community through the ability to generate higher average rental rates, and may include costs related to entitlement, which enhance the value of a community through increased density, and costs related to renovation of exteriors, common areas, or apartment homes; (iii) construction and related capitalized costs associated with the ground-up development of apartment communities prior to the Separation; and (iv) capitalized costs incurred in connection with the restoration of an apartment community after a casualty event. We expect these amounts to be significantly reduced under our business model. After the Separation, certain properties are leased to Aimco for redevelopment and development.

We exclude the amounts of capital spending related to apartment communities sold or classified as held for sale at the end of the period from the foregoing measures. We have also excluded from these measures indirect capitalized costs, which are not yet allocated to communities with capital additions, and their related capital spending categories.

A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying condensed consolidated statements of cash flows, are presented below (in thousands):

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Capital replacements

 

$

23,980

 

 

$

23,173

 

Capital improvements

 

 

6,717

 

 

 

7,816

 

Capital enhancements

 

 

82,586

 

 

 

19,163

 

Other capital expenditures

 

 

13,045

 

 

 

176,075

 

   Total capital additions

 

$

126,328

 

 

$

226,227

 

Plus: additions related to apartment communities sold

 

 

2,036

 

 

 

20,144

 

   Consolidated capital additions

 

$

128,364

 

 

$

246,371

 

Plus: net change in accrued capital spending from continuing operations

 

 

2,513

 

 

 

10,581

 

Total capital expenditures from continuing operations per
condensed consolidated statement of cash flows

 

$

130,877

 

 

$

256,952

 

For the nine months ended September 30, 2021 and 2020, we capitalized $1.8 million and $8.6 million of interest costs, respectively, and $12.3 million and $24.4 million of other direct and indirect costs, respectively.

Other capital expenditures decreased by $163.0 million for the nine months ended September 30, 2021, compared to 2020, due primarily to increased spend incurred in 2020 related to the redevelopment and development of properties that have subsequently been leased to Aimco effective January 1, 2021.

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Financing Activities

For the nine months ended September 30, 2021, net cash provided by financing activities was $41.5 million. Our financing cash flow is affected primarily by principal repayments on non-recourse property debt, proceeds from and repayments of our term loans, and the payment of dividends. Cash provided by financing activities for the nine months ended September 30, 2021 decreased by $139.4 million compared to the same period in 2020. The decrease was due primarily to higher principal repayments on non-recourse debt, the repayment of our previous term loan, and repayments on our credit facility, offset partially by proceeds from the April closing of the credit facility and the issuance of Common Stock in a private placement for $342.2 million, net of fees.

Future Capital Needs

We expect to fund any future acquisitions and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing, and operating cash flows. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for 2021 and beyond.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2021, on a consolidated basis, we had approximately $14.5 million of variable-rate property-level debt outstanding in addition to $1.2 billion of term loans and $78.2 million of variable-rate borrowings under our revolving credit facility. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase interest expense by approximately $1.8 million and $12.4 million, respectively, on an annual basis.

As of September 30, 2021, we had approximately $97.1 million of cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates, which may offset somewhat a change in rates on our variable-rate debt discussed above.

ITEM 4. CONTROLS AND PROCEDURES

AIR

Disclosure Controls and Procedures

AIR’s management, with the participation of AIR’s chief executive officer and chief financial officer, has evaluated the effectiveness of AIR’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, AIR’s chief executive officer and chief financial officer have concluded that, as of the end of such period, AIR’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in AIR’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, AIR’s internal control over financial reporting.

The AIR Operating Partnership

Disclosure Controls and Procedures

The AIR Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of AIR, who are the equivalent of the AIR Operating Partnership’s chief executive officer and chief financial officer, respectively, has evaluated the effectiveness of the AIR Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of AIR have concluded that, as of the end of such period, the AIR Operating Partnership’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the AIR Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, the AIR Operating Partnership’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes from the risk factors in AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

AIR

Unregistered Sales of Equity Securities

From time to time, we may issue shares of Common Stock in exchange for OP Units, defined under The AIR Operating Partnership heading below. Such shares are issued based on an exchange ratio of one share for each common OP Unit. We may also issue shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the three months ended September 30, 2021, we issued 125,651 shares of Common Stock in exchange for OP Units or limited partnership interests in consolidated real estate partnerships.

The AIR Operating Partnership

Unregistered Sales of Equity Securities

The AIR Operating Partnership did not issue any unregistered OP Units during the three months ended September 30, 2021.

Repurchases of Equity Securities

The AIR Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one year, limited partners other than AIR have the right to redeem their common OP Units for cash or, at our election, shares of AIR Common Stock on a one-for-one basis (subject to customary antidilution adjustments). During the three months ended September 30, 2021, approximately 125,651 common OP Units were redeemed in exchange for Common Stock.

The following table summarizes the AIR Operating Partnership’s repurchases, or redemptions in exchange for cash, of common OP Units.

Fiscal period

 

Total Number
of Units
Purchased

 

 

Average
Price Paid
per Unit

 

 

Total Number of Units
Purchased as Part of
Publicly Announced
Plans or Programs (1)

 

Maximum Number of
Units that May Yet Be
Purchased Under the
Plans or Programs (1)

July 1, 2021 ‒ July 31, 2021

 

 

1,294

 

 

$

48.75

 

 

N/A

 

N/A

August 1, 2021 ‒ August 31, 2021

 

 

695

 

 

$

51.24

 

 

N/A

 

N/A

September 1, 2021 ‒ September 30, 2021

 

 

4,365

 

 

$

50.55

 

 

N/A

 

N/A

Total

 

 

6,354

 

 

$

50.26

 

 

 

 

 

(1)
The terms of the AIR Operating Partnership’s Partnership Agreement do not provide for a maximum number of units that may be repurchased, and other than the express terms of its Partnership Agreement, the AIR Operating Partnership has no publicly announced plans or programs of repurchase. However, for AIR to repurchase shares of its Common Stock, the AIR Operating Partnership must make a concurrent repurchase of its common partnership units held by AIR at a price per unit that is equal to the price per share AIR pays for its Common Stock.

Dividend and Distribution Payments

As a REIT, AIR is required to distribute annually to holders of its Common Stock at least 90% of its “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income. Our credit agreement includes customary covenants, including a restriction on dividends and distributions and other restricted payments, but permits dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of AIR’s FFO for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain AIR’s REIT status.

 

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ITEM 5. OTHER INFORMATION

On October 29, 2021, AIR and AIR’s chief executive officer, Terry Considine, entered into an amendment to Mr. Considine’s employment agreement pursuant to which the term of his employment under the agreement was extended by an additional year, through December 31, 2022. Additionally, AIR and Mr. Considine agreed that the compensation earned and payable to Mr. Considine with respect to 2021 and 2022 would be reduced to assist AIR’s achievement of its goal that general and administrative expenses not exceed 0.15% of AIR’s gross asset value, as determined by AIR’s Board of Directors and Mr. Considine.

 

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ITEM 6. EXHIBITS

The following exhibits are filed with this report:

EXHIBIT NO.

 

DESCRIPTION

 

 

 

3.1

 

Amended and Restated Charter of Apartment Income REIT Corp. (Exhibit 3.1 to AIR’s Current Report on Form 8-K dated December 15, 2020, is incorporated herein by this reference)

 

 

 

3.2

 

Amended and Restated Bylaws of Apartment Income REIT Corp. (Exhibit 3.4 to AIR’s Current Report on Form 8-K dated December 15, 2020, is incorporated herein by this reference)

 

 

 

10.1

 

Seventh Amended and Restated Partnership Agreement of Apartment Income REIT, L.P. (Exhibit 10.1 to AIR’s Current Report on Form 8-K dated July 7, 2021, is incorporated herein by this reference)

 

 

 

10.2

 

Amendment dated October 29, 2021, to employment agreement between Terry Considine and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.)( Exhibit 10.1 to Aimco’s Current Report on Form 8-K dated December 21, 2017, is incorporated herein by this reference)

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Apartment Income REIT Corp.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Apartment Income REIT Corp.

 

 

 

31.3

 

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – the AIR Operating Partnership

 

 

 

31.4

 

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – the AIR Operating Partnership

 

 

 

32.1

 

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Apartment Income REIT Corp.

 

 

 

32.2

 

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – the AIR Operating Partnership

 

 

 

101

 

The following materials from AIR’s and the AIR Operating Partnership’s combined Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of comprehensive income (loss); (iv) condensed consolidated statements of equity and partners’ capital; (v) condensed consolidated statements of cash flows; and (vi) notes to condensed consolidated financial statements.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

48

 



 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

APARTMENT INCOME REIT CORP.

 

 

 

 

By:

/s/ Paul Beldin

 

 

Paul Beldin

 

 

Executive Vice President and Chief Financial Officer

 

 

(duly authorized officer and principal financial officer)

 

 

 

 

 

APARTMENT INCOME REIT, L.P.

 

 

 

 

By:

AIR-GP, Inc., its General Partner

 

 

 

 

By:

/s/ Paul Beldin

 

 

Paul Beldin

 

 

Executive Vice President and Chief Financial Officer

 

 

(duly authorized officer and principal financial officer)

 

 

 

 

Date: November 2, 2021


 


 

Exhibit 10.2

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment to the Employment Agreement (the “Amendment”) is entered into as of October 29, 2021, by and between Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.), a Delaware limited Partnership (the “Partnership”), and Terry Considine (the “Executive”) pursuant to their mutual goals to be the best-in-class, most efficient, and most shareholder friendly way to invest in multi-family properties.

RECITALS

WHEREAS, the Executive and the Company desire to amend the Employment Agreement, by and between Executive and the Partnership, dated as of December 29, 2017, as amended (the “Employment Agreement”), as provided for herein;

WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Employment Agreement; and

NOW, THEREFORE, in consideration and exchange for the foregoing, the parties hereto hereby amend the Employment Agreement as follows, effective as of the date first written above:

1.
Section 1.1 of the Employment Agreement is hereby amended and restated in its entirety as follows:

“1.1 Term of Employment. The Executive’s term of employment under this Agreement shall continue until December 31, 2022, unless further extended or earlier terminated as provided in this Agreement. The period of time between the Effective Date and the termination of the Executive’s employment under this Agreement shall be referred to herein as the “Employment Term.”

2.
A new Section 2.5 will be added to the Agreement, which will state in its entirety as follows:

“Notwithstanding the foregoing in this Section 2 or otherwise in this Agreement, with respect to compensation that pursuant to this Agreement would otherwise be earned by Executive and owed by Company with respect to 2021, the Executive and the Company agree that such compensation shall be reduced to assist the Company meet its goal that General and Administrative expenses not exceed .15% of the Company’s Gross Asset Value for 2021, as defined and determined by the Board and the Executive (the “G&A Target”).

Similarly, with respect to compensation that pursuant to this Agreement would otherwise be earned by Executive and owed by Company with respect to 2022, the Executive and the Company agree that such compensation shall be reduced to assist the Company meet its goal the G&A Target.”

3.
Except as expressly amended by this Amendment, all of the terms of the Employment Agreement shall remain in full force and effect.
4.
This Amendment may be executed in any number of counterparts, each of which shall be considered an original instrument, but all such counterparts shall together constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date and year first above written.

 


 

Apartment Income REIT, L.P.

 

By: AIR-GP, Inc., its general partner

 

 

By:

/s/ Lisa R. Cohn

Name:

Lisa R. Cohn

Title:

President and General Counsel

 

 

 

 

/s/ Terry Considine

Mr. Terry Considine

 

 


 

Exhibit 31.1

 

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Terry Considine, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Apartment Income REIT Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 2, 2021

 

 

/s/ Terry Considine

 

Terry Considine

 

Director and Chief Executive Officer

 

 


 

Exhibit 31.2

 

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Paul Beldin, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Apartment Income REIT Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 2, 2021

 

 

/s/ Paul Beldin

 

Paul Beldin

 

Executive Vice President and Chief

 

Financial Officer

 

 



 

Exhibit 31.3

 

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Terry Considine, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Apartment Income REIT, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: November 2, 2021

 

 

/s/ Terry Considine

 

Terry Considine

 

Director and Chief Executive Officer

 


 



 

Exhibit 31.4

 

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Paul Beldin, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Apartment Income REIT, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 2, 2021

 

 

/s/ Paul Beldin

 

Paul Beldin

 

Executive Vice President and Chief Financial Officer

 


 



 

Exhibit 32.1

 

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the quarterly report of Apartment Income REIT Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Terry Considine

 

Terry Considine

 

Director and Chief Executive Officer

 

November 2, 2021

 

 

/s/ Paul Beldin

 

Paul Beldin

 

Executive Vice President and Chief Financial Officer

 

November 2, 2021

 

 

 

 


 



 

Exhibit 32.2

 

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the quarterly report of Apartment Income REIT, L.P. (the “Partnership”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 

/s/ Terry Considine

 

Terry Considine

 

Director and Chief Executive Officer

 

November 2, 2021

 

 

/s/ Paul Beldin

 

Paul Beldin

 

Executive Vice President and Chief Financial Officer

 

November 2, 2021

 

 

 


 


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