Apartment Income REIT Corp. (“AIR”) (NYSE: AIRC) announced today
fourth quarter and full year results for 2021.
Chief Executive Officer Terry Considine comments: “AIR had a
solid fourth quarter, completing a good year. Full year 2021 Same
Store revenue and NOI were better by 330 and 510 basis points,
respectively, than our initial guidance.”
“Our properties are well occupied with January 2022 average
daily occupancy at an all-time high of 98.4%.”
“Asking rents today average approximately $2,600 and are above
pre-COVID levels in seven of our eight core markets.”
“During the fourth quarter and through January, we sold $1.4
billion of properties. Another $267 million of properties are under
contract and expected to close this quarter. Pro forma for January
sales and the sale of properties under contract, leverage to
EBITDAre was 5.3x at December 31st.”
“AIR’s corporate culture structure remains strong. During 2021,
AIR was named a Denver Top Workplace for the ninth consecutive
year, and in 2022 was named a National Top Workplace. Our team,
strengthened through the previously announced additions of John
McGrath and Joshua Minix, was further bolstered when Matthew
O’Grady joined as Senior Vice-President, Capital Markets. The AIR
board was refreshed with the election of Tom Bohjalian, Kristin
Finney-Cooke, and Maggie Paláu Hernández. Average director tenure
is now three years.”
“In 2021, AIR's first year, we completed the strategic goals of
the separation. This year, our simple and efficient business model,
with best-in-class property operations, low G&A costs, and low
leverage positions us well for strong internal and external growth.
In 2022, we will seek to allocate capital particularly to
properties that will benefit from AIR's operating acumen, which we
expect will generate NOI growth in excess of market rates and drive
attractive, long-term internal rates of return.”
Chief Financial Officer Paul Beldin adds: “Full year 2021 Pro
forma FFO of $2.14 per share was 8%, or $0.16, greater than the
midpoint of our initial guidance.”
“Fourth Quarter Pro forma FFO of $0.56 per share was equal to
the midpoint of guidance due to better than anticipated Same Store
operations, offset by higher legal and other costs. For the
quarter, revenue and NOI grew sequentially by 1.7% and 3.5%,
respectively. Same Store operating results exceeded pre-COVID
levels, with fourth quarter 2021 revenue 1.3% above first quarter
2020.”
“In 2022, we expect Same Store revenue growth of 8.9% to 9.9%,
Same Store expense growth of 2.0% to 3.0%, and Same Store NOI
growth of 11.0% to 13.0%. We also expect 2022 FFO per share to be
$2.36 to $2.44, representing 12% growth at the midpoint. We expect
year-end leverage to EBITDAre of approximately 5.5x, G&A costs,
as a percentage of GAV, to decline, and plan for at least $500
million of acquisitions.”
Chairman of the Board Tom Keltner added: “I want to offer the
Board’s and my perspectives. We are delighted to be joined by three
new, capable, and diverse colleagues: Tom, Kristin, and Maggie.
They have embraced their duties and are excellent contributors. I
want also to comment on the excellent results reported by Terry and
Paul. They and the entire management team did a great job
accomplishing the specific goals set by the Board: a focus on
best-in-class operations, as measured by NOI growth and financial
margins; disciplined capital allocation providing accretive growth;
low G&A costs; and reduced leverage.”
“We are particularly grateful that Terry insisted on defining
rigorously what constitutes G&A and meeting that higher
standard, even forfeiting $2.5 million of compensation so that the
company was able to meet the target without cutting back on other
staffing objectives.”
Financial Results: Fourth Quarter Pro
Forma FFO Per Share
2021
(all items per common share – diluted)
FOURTH QUARTER
THIRD QUARTER
YEAR-TO-DATE
Net income (loss)
$
2.37
$
0.06
$
2.89
NAREIT Funds From Operations
(FFO)
$
(0.11
)
$
0.47
$
1.11
Pro forma adjustments*
$
0.67
$
0.09
$
1.03
Pro forma Funds From Operations (Pro
forma FFO)
$
0.56
$
0.56
$
2.14
*Fourth quarter and year to date Pro forma adjustments include
$105 million and $148 million, or $0.67 and $0.96 per share,
respectively, of debt extinguishment costs from the prepayment of
debt. For the full year, approximately 60% of the prepayment
penalty reflects the mark-to-market on the debt and accelerates
future interest expense. The remaining 40%, or $60 million, is an
investment in higher future earnings, a $5.6 billion increase in
our pool of unencumbered properties and increased financial
flexibility. Please refer to Supplemental Schedule 1 for a complete
listing of Pro forma adjustments.
AIR Operating Results: Full Year
Revenue Up 1.7%; NOI Up 1.6%
The table below includes the operating results of the 65
properties of AIR that meet our definition of Same Store. In the
fourth quarter, 27 properties were removed from the Same Store
population due to their completed or planned sale. Same Store
properties generated approximately 95% of AIR’s 2021 GAAP rental
revenue.
FOURTH QUARTER
FULL YEAR
Year-over-Year
Sequential
Year-over-Year
($ in millions) *
2021
2020
Variance
3rd Qtr.
Variance
2021
2020
Variance
Revenue, before utility reimbursements
$
136.9
$
124.6
9.9
%
$
134.6
1.7
%
$
525.4
$
516.8
1.7
%
Expenses, net of utility
reimbursements
36.1
36.4
(0.9
%)
37.2
(3.0
%)
146.4
143.6
2.0
%
Net operating income (NOI)
$
100.8
$
88.2
14.3
%
$
97.4
3.5
%
$
379.0
$
373.2
1.6
%
*Amounts are presented on a rounded basis and the sum of the
individual amounts may not foot; please refer to Supplemental
Schedule 6.
Fourth quarter 2021 NOI margins were 73.7%, up 287 basis points
from the fourth quarter of 2020. NOI margins benefited from revenue
growth and negative expense growth, due to a decline of 380 basis
points in controllable operating expenses.
Components of Same Store Revenue Growth – The table below
summarizes the change in the components of our Same Store revenue
growth.
FOURTH QUARTER
FULL YEAR
Same Store Revenue Components
Year-over-Year
Sequential
Year-over-Year
Residential Rents
3.5
%
1.7
%
(0.3
%)
Average Daily Occupancy
4.1
%
1.5
%
1.5
%
Residential Net Rental Income
7.6
%
3.2
%
1.2
%
Bad Debt
2.3
%
0.5
%
0.1
%
Late Fees and Other
(0.3
%)
(0.7
%)
(0.1
%)
Residential Revenue
9.6
%
3.0
%
1.2
%
Commercial Revenue
0.3
%
(1.3
%)
0.5
%
Same Store Revenue Growth
9.9
%
1.7
%
1.7
%
Same Store Rental Rates – We measure changes in rental
rates by comparing, on a lease-by-lease basis, the effective rate
on a newly executed lease to the effective rate on the expiring
lease for that same apartment. A newly executed lease is classified
either as a new lease, where a vacant apartment is leased to a new
customer, or as a renewal.
The table below details changes in lease rates, as well as the
weighted-average (blended) lease rates for leases executed in the
respective period. Transacted leases are those that became
effective during a reporting period and are therefore the best
measure of immediate effect on current revenues. Signed leases are
those executed during a reporting period and are therefore the best
measure of current activity.
FOURTH QUARTER
FULL YEAR
2021
2022
2021
2020*
Variance
2021
2020*
Variance
Oct*
Nov
Dec
Jan
Transacted Leases
Renewal rent changes
12.1%
0.7%
11.4%
5.3%
3.7%
1.6%
11.7%
12.5%
14.0%
10.8%
New lease rent changes
13.9%
(11.5%)
25.4%
3.2%
(6.4%)
9.6%
13.9%
15.7%
12.0%
12.4%
Weighted-average rent changes
13.5%
(9.4%)
22.9%
4.1%
(2.0%)
6.1%
13.2%
15.1%
12.2%
12.2%
Signed Leases
Renewal rent changes
11.0%
1.3%
9.7%
5.7%
3.5%
2.2%
14.2%
11.5%
10.0%
11.7%
New lease rent changes
13.5%
(11.3%)
24.8%
3.9%
(6.6%)
10.5%
14.0%
12.5%
14.0%
14.9%
Weighted-average rent changes
12.8%
(8.7%)
21.5%
4.7%
(2.2%)
6.9%
14.0%
12.3%
12.2%
13.3%
Average Daily Occupancy
98.1%
94.1%
4.0%
96.3%
94.8%
1.5%
97.8%
98.2%
98.3%
98.4%
*Transacted and signed lease rates and average daily occupancy
are based on our current Same Store population. Amounts may differ
from those previously reported.
Same Store Markets – Typically, rental rates soften in
the fourth quarter due to lower demand than in the peak months of
the second and third quarters. In 2021, that trend did not
materialize. Demand remained strong throughout the fourth quarter,
resulting in pricing remaining stable through the end of the year.
As of December 31st, effective asking rates were up 23% from the
fourth quarter of 2020. As a result, signed rates continued to be
strong, with new lease rates up 13.5% and renewals up 11.0% from
the prior leases.
Consistent with our expectations, average daily occupancy
trended upwards from 96.5% in the third quarter to 98.1% in the
fourth quarter, with January average daily occupancy reaching a
record high of 98.4%.
Rent Collection Update
We measure residential rent collection as the dollar value of
payments received as a percentage of all residential amounts owed.
In the fourth quarter, we recognized 99.1% of all residential
revenue owed during the quarter, treating the balance of 0.9% as
bad debt. 3.0% of our residents have extended delinquencies, much
of which we expect to collect either from the residents (based on
their high credit scores) or from rent relief programs established
by the State of California. 97.0% of our residents pay rent timely
with bad debt under 30 basis points of revenue, a level still
somewhat elevated from our historical experience.
As of December 31, 2021, our proportionate share of gross
residential accounts receivable was $11.1 million. After
consideration of tenant security deposits and reserves for
uncollectible amounts, our net exposure is $0.9 million, an amount
expected to be collected during the first quarter of 2022.
Of the $11.1 million of uncollected accounts receivable, 78%
relates to California residents. During the quarter, we received
$3.7 million from California’s rent relief program. We await the
state’s response to an additional $2.2 million of rent relief
requests made. We are working with residents to file an additional
$3.9 million of claims.
We remain cautiously optimistic that this program will allow us
to recover rents uncollected in 2020 or 2021. We expect bad debt
expense to decline with the end of emergency ordinances that
suspend contractual remedies for non-payment of rent.
Portfolio Management and
Quality
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. During 2021, we exited the Chicago and New York
markets, and, subsequent to year-end, reduced our exposure to
California. We added to our portfolio in Florida through a $223
million acquisition, and improved the quality of our Washington,
D.C. portfolio through acquiring four properties, whose NOI growth
we expect will exceed market NOI growth by more than 10% during
each of the next two years. Our 2021 portfolio management
activities increased our average rents by approximately $150 per
home, and reduced the portfolio's average age by one year. Our
current portfolio is of a higher quality, is expected to require
lower recurring capital replacement spending, and has a greater
allocation to states with greater economic growth and a more
reliable rule of law.
Transactions
Acquisitions
As previously announced, during the fourth quarter, we acquired
for ~$510 million a portfolio of four properties located in the
Washington, D.C. area, with 1,383 apartment homes, 84,000 square
feet of office and commercial space, and two vacant land parcels
suitable for development of 498 additional apartment homes, valued
at approximately $20 million. We expect a 4.3% NOI yield in 2022.
This yield is anticipated to approach ~6% by 2024, approximately
130 basis points greater than the properties sold to fund the
acquisition, adding ~$0.04 to FFO per share. This spread is
expected to increase over time as the long-term IRR is expected to
be 9.0%, a 40% increase over the long-term IRR of holding the
properties sold.
Dispositions
During the fourth quarter, we sold 15 apartment communities
located in New York City and Washington, D.C., with 1,337 apartment
homes for gross proceeds of $472 million. Net sales proceeds from
these transactions were $432 million.
As previously announced, during the quarter, we formed a joint
venture with an affiliate of Blackstone by selling for $408 million
an 80% interest in three multi-family properties with 1,748 units
located in Virginia. AIR is the general partner with 20% ownership,
and earns various fees for providing property management and
corporate services.
After year end, we sold an additional seven apartment
communities located in San Diego, Los Angeles, and the Bay Area for
gross proceeds of $507 million. We are under contract to sell an
additional $267 million of properties located in Chicago, New York
City, and California. In aggregate, the $1.7 billion of property
sales priced at an implied NOI cap rate of 4.3%, and a free cash
flow cap rate of 4.0%; an approximate 15% premium to their
estimated 2020 fair market value, pre-COVID.
Balance Sheet
We seek to increase financial returns by using leverage with
appropriate caution. We limit risk through our balance sheet
structure, employing low leverage and primarily long-dated debt. We
maintain financial flexibility through ample unused and available
credit, holding properties with substantial value unencumbered by
property debt, maintaining an investment grade rating, and using
partners’ capital when it enhances financial returns or reduces
investment risk.
Components of Leverage
Our leverage includes our share of long-term, non-recourse
property debt encumbering our apartment communities, together with
outstanding borrowings under our revolving credit facility, our
term loans, and our preferred equity.
AS OF DECEMBER 31,
2021
($ in millions)*
Amount
% of Total
Weighted-Avg. Maturity
(Yrs.)
AIR share of long-term, non-recourse
property debt, continuing portfolio
$
1,909
54
%
8.7
AIR share of long-term, non-recourse
property debt of properties expected to be sold
84
2
%
10.0
Term loans
1,150
33
%
3.1
Outstanding borrowings on revolving credit
facility
304
9
%
4.3
Preferred equity**
81
2
%
9.9
Total Leverage
$
3,529
100
%
6.6
Cash and restricted cash
(81
)
Notes receivable from Aimco***
(534
)
Net Leverage
$
2,914
6.6
Leverage reduction funded by January
property sales
(499
)
Net Leverage, Pro forma for January
sales
$
2,416
6.4
Incremental leverage reduction funded by
property sales during the balance of the first quarter
(261
)
Net Leverage, Pro forma for first
quarter property sales
$
2,155
6.5
*Amounts are presented on a rounded basis and the sum of the
individual amounts may not foot; please refer to Supplemental
Schedule 5.
** AIR’s Preferred equity is perpetual in nature; however, for
illustrative purposes, we have computed the weighted-average
maturity of our preferred OP Units assuming a 10-year maturity and
preferred stock assuming it is called at the expiration of the
no-call period.
*** We have notes receivable from Aimco with an aggregate
principal amount of $534 million. The notes will mature on January
31, 2024, and are secured by a pool of properties owned by Aimco.
We consider the notes a reduction of leverage as we expect proceeds
to be used to repay loan amounts currently outstanding.
Leverage Reduction – Complete
We target Net Leverage to Adjusted EBITDAre at 5.5x, with a
range between 5.0x and 6.0x.
Pro forma for January sales activity, Net Leverage to Adjusted
EBITDAre is 5.8x. Pro forma for additional first quarter sales
activity, Net Leverage to Adjusted EBITDAre is further reduced by
0.5x of a turn to 5.3x.
Liquidity
We use our revolving credit facility for working capital and
other short-term purposes and to secure letters of credit. At
December 31, 2021, our share of cash and restricted cash was $81
million and we had the capacity to borrow up to $285 million under
our revolving credit facility, bringing total liquidity to $366
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 December 31, 2021 and excluding properties sold and expected to
sell during the first quarter, we held unencumbered communities
with an estimated fair market value of approximately $8.4 billion;
triple the amount from December 31, 2020.
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. Pro forma for
anticipated first quarter property sales, we anticipate that our
share of property debt will approximate Moody's targets.
Dividend
As planned, AIR's refreshed tax basis resulted in a tax
efficient dividend paid to shareholders. In 2021, AIR's dividend of
$1.74 per share was one-third taxable as capital gains, and
two-thirds tax-free return of capital, increasing its after-tax
yield to taxable investors.
On February 1, 2022, our Board of Directors declared a quarterly
cash dividend of $0.45 per share of AIR Common Stock. This amount
is payable on February 25, 2022, to stockholders of record on
February 17, 2022.
In setting AIR's 2022 dividend, our Board of Directors
anticipates targeting a dividend level of approximately 75% of full
year FFO per share. We further expect that the after-tax dividend
will continue to benefit from AIR's refreshed tax basis.
Corporate Responsibility Update
Corporate responsibility is a longstanding priority. We strive
for transparency, and continuous improvement, as measured by GRESB.
We are aligned with the UN Sustainable Development Goals. In 2021,
we improved our GRESB scores over 2020 by 21%, including a perfect
score in the ‘social’ metrics and a near perfect score in
Governance. We have established targets for energy, water, and
greenhouse gas reductions, embarked on environmental certifications
for our properties, and are implementing resilience strategies
including physical and climate risk assessments of the
portfolio.
Our team is a critical part of our success. AIR has been named a
Denver Top Workplace for nine consecutive years, and in 2022 was
named a National Top Workplaces winner.
2022 Outlook
We expect 2022 Pro forma FFO per share in the range of $2.36 to
$2.44. At the guidance range midpoint, projected growth in 2022 FFO
of $0.26, or 12%, reflects:
- $0.29 per share growth from Same Store operations
- $0.14 per share net contribution from properties acquired in
2021 and those contemplated in 2022 guidance
- $0.30 per share reduction in interest expense resulting from
debt payoffs; offset partially by
- ($0.45) per share dilution from property sales, and
- ($0.02) per share dilution from other items, net.
Our guidance ranges are based on the following components:
FULL YEAR 2022
FULL YEAR 2021
($ Amounts represent AIR Share)
Net Income (loss) per share (1)
$(0.33) to $(0.20)
$2.89
Pro forma FFO per share
$2.36 to $2.44
$2.14
Pro forma FFO per share at the
mid-point
$2.40
Same Store Operating Components of
NAREIT FFO
Revenue change compared to prior year
(2)
8.9% to 9.9%
1.7%
Expense change compared to prior year
(3)
3.0% to 2.0%
2.0%
NOI change compared to prior year
11.0% to 13.0%
1.6%
Offsite Costs
General and administrative expenses, as
defined below (4)
~$17M
$20M
Other Earnings
Lease income (5)
~$30M
$27M
Value of property acquisitions
~$500M
$726M
Proceeds from dispositions of real estate,
net
~$774M
$880M
AIR Share of Capital
Investments
Capital Enhancements
$90M to $110M
$80M
Balance Sheet
Year-end Net Leverage to Adjusted EBITDAre
(5)
~5.5x
5.3x
(1) Does not include gains from anticipated 2022 property
sales.
(2) Same Store Revenue is anticipated to grow by 9.4% at the
midpoint. This growth is primarily comprised of:
- 1.1% ADO growth, which assumes ADO consistent with our second
half 2021 result of 97.3%;
- 6.0% rate growth based on the year-end 2021 rent roll and
embedded loss-to-lease; and
- 2.3% from other factors, including incremental market rate
growth and lower bad debt expense.
(3) Same Store Expenses are anticipated to increase by 2.5% at
the midpoint. Controllable operating expenses are expected to be
flat, consistent with 2021's results. Since 2008, AIR's
controllable operating expenses have declined at an average annual
rate of 10 basis points.
(4) For the purposes of this presentation, General and
Administrative expenses are defined as follows:
- All costs that are reported as G&A expenses in our
consolidated statements of operations, in accordance with GAAP. In
2021, AIR’s G&A expense was reduced by a $5.8 million payment
from Aimco. AIR anticipates the same reimbursement in 2022.
- Plus Property management costs more than 3% of property
revenues, to eliminate any distortion from allocation of costs
- Less Asset management fees earned from joint ventures, as asset
management fees are paid by joint venture partners in reimbursement
of G&A services provided by AIR
- Effective in 2022, G&A includes the deprecation of
capitalized costs of non-real estate assets. Previously, these
costs were presented separately as "depreciation and amortization
related to non-real estate assets" in Supplemental Schedule
2a.
- If G&A expenses exceed 15 basis points of GAV, our CEO has
agreed to subordinate his compensation, if necessary, to meet this
metric. Our CEO’s compensation was subordinated by $2.5 million in
2021. Future subordination is not expected to be necessary in 2022
and in future years.
(5) Presented net of FFO and Pro forma FFO adjustments.
In the first quarter of 2022, AIR anticipates Pro forma FFO
between $0.53 and $0.57 per share.
AIR Strategic Objectives
We created AIR to be the most efficient and effective way to
invest in U.S. multi-family real estate, due to its simplified
business model and diversified portfolio of stabilized apartment
communities. The Board has set the following strategic objectives
on a go forward basis:
- Pursue a simple, efficient, and predictable business model with
a low risk premium
- Maintain a high quality and diversified portfolio of stabilized
multi-family properties
- Continuously improve on our best in class property operations
platform to generate above market organic growth
- Maintain an efficient cost structure with G&A less than or
equal to 15 basis points of Gross Asset Value
- Maintain a flexible, low levered balance sheet so that AIR is
well positioned to access the public bond market when doing so
makes sense
- Enhance portfolio quality through disciplined approach to
capital allocation; targeting highly accretive opportunities on a
leverage neutral basis
- Develop private capital partnerships as an alternative source
of equity capital for accretive growth
- Continued commitment to corporate responsibility with
transparent and measurable goals
Earnings Conference Call
Information
Live Conference Call:
Conference Call Replay:
Thursday, February 10, 2022 at 1:00 p.m.
ET
Replay available until March 10, 2022
Domestic Dial-In Number:
1-844-200-6205
Domestic Dial-In Number:
1-866-813-9403
International Dial-In Number:
1-929-526-1599
International Dial-In Number:
+44-204-525-0658
Passcode: 495964
Passcode: 717755
Live webcast and replay:
investors.aircommunities.com
Supplemental Information
The full text of this Earnings Release and the Supplemental
Information referenced in this release is available on AIR’s
website at investors.aircommunities.com.
Glossary & Reconciliations of
Non-GAAP Financial and Operating Measures
Financial and operating measures found in this Earnings Release
and the Supplemental Information include certain financial measures
used by AIR management that are measures not defined under
accounting principles generally accepted in the United States
(“GAAP”). Certain AIR terms and Non-GAAP measures are defined in
the Glossary in the Supplemental Information and Non-GAAP measures
reconciled to the most comparable GAAP measures.
About AIR
AIR is a real estate investment trust focused on the ownership
and management of quality apartment communities located in the
largest markets in the United States. AIR is one of the country’s
largest owners and operators of apartments, with 84 communities in
12 states and the District of Columbia. AIR common shares are
traded on the New York Stock Exchange under the ticker symbol AIRC,
and are included in the S&P 400. For more information about
AIR, please visit our website at www.aircommunities.com.
Forward-looking
Statements
This Earnings Release and Supplemental Information contain
forward-looking statements within the meaning of the federal
securities laws, including, without limitation, statements
regarding projected results and specifically forecasts of 2022
results, including but not limited to: NAREIT FFO, Pro forma FFO
and selected components thereof; expectations regarding consumer
demand, growth in revenue and strength of other performance metrics
and models; expectations regarding acquisitions as well as sales
and joint ventures and the use of proceeds thereof; and AIR
liquidity and leverage metrics. We caution investors not to place
undue reliance on any such forward-looking statements.
These forward-looking statements are based on management’s
current expectations, estimates and assumptions and subject to
risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements, including, but not
limited to: the effects of the coronavirus pandemic on AIR’s
business and on the global and U.S. economies generally, and the
ongoing, dynamic and uncertain nature and duration of the pandemic,
all of which heightens the impact of the other risks and factors
described herein; real estate and operating risks, including
fluctuations in real estate values and the general economic climate
in the markets in which we operate and competition for residents in
such markets; national and local economic conditions, including
inflation, the pace of job growth and the level of unemployment;
the amount, location and quality of competitive new housing supply;
the timing and effects of acquisitions and dispositions; changes in
operating costs, including energy costs; negative economic
conditions in our geographies of operation; loss of key personnel;
AIR’s ability to maintain current or meet projected occupancy,
rental rate and property operating results; expectations regarding
sales of apartment communities and the use of proceeds thereof;
insurance risks, including the cost of insurance, and natural
disasters and severe weather such as hurricanes; financing risks,
including the availability and cost of financing; the risk that
cash flows from operations may be insufficient to meet required
payments of principal and interest; the risk that earnings may not
be sufficient to maintain compliance with debt covenants, including
financial coverage ratios; legal and regulatory risks, including
costs associated with prosecuting or defending claims and any
adverse outcomes; the terms of laws and governmental regulations
that affect us and interpretations of those laws and regulations;
possible environmental liabilities, including costs, fines or
penalties that may be incurred due to necessary remediation of
contamination of apartment communities presently or previously
owned by AIR; our relationship with Aimco after the business
separation; the ability and willingness of the parties to the
business separation to meet and/or perform their obligations under
the related contractual arrangements and any of their obligations
to indemnify, defend and hold the other party harmless from and
against various claims, litigation and liabilities; and the ability
to achieve the expected benefits from the business separation.
Other risks and uncertainties are described in filings by AIR with
the Securities and Exchange Commission (“SEC”), including the
section entitled “Risk Factors” in Item 1A of AIR’s Annual Report
on Form 10-K for the year ended December 31, 2020, and subsequent
filings with the SEC.
In addition, AIR’s current and continuing qualification as a
real estate investment trust involves the application of highly
technical and complex provisions of the Internal Revenue Code of
1986, as amended (the “Code”), and depends on AIR’s ability to meet
the various requirements imposed by the Code, through actual
operating results, distribution levels and diversity of stock
ownership.
These forward-looking statements reflect management’s judgment
as of this date, and AIR assumes no obligation to revise or update
them to reflect future events or circumstances. This earnings
release does not constitute an offer of securities for sale.
Consolidated Statements of
Operations
(in thousands, except per share data)
(unaudited)
The separation resulted in Aimco being
presented as the predecessor for AIR’s financial statements. This
presentation is in accordance with GAAP and is due primarily to the
relative significance of AIR’s business as compared to Aimco before
the separation. The financial results prior to the separation on
December 15, 2020, include the financial results of AIR’s
predecessor, and the financial results attributable to the
apartment communities retained by Aimco in the separation are
presented as discontinued operations.
Three Months Ended
Year Ended
December 31,
December 31,
2021
2020
2021
2020
REVENUES
Rental and other property revenues (1)
$
191,950
$
173,746
$
733,483
$
719,556
Other revenues
2,380
—
7,370
—
Total revenues
194,330
173,746
740,853
719,556
OPERATING EXPENSES
Property operating expenses (1)
64,801
67,753
268,101
263,093
Depreciation and amortization
87,550
81,284
319,742
320,943
General and administrative expenses
(2)
3,075
9,589
18,585
32,320
Provision for real estate impairment
loss
—
47,281
—
47,281
Other expenses, net
18,013
50,691
27,220
73,860
Total operating expenses
173,439
256,598
633,648
737,497
Interest income (3)
13,563
3,590
58,651
12,374
Interest expense
(29,272
)
(34,308
)
(129,467
)
(147,035
)
Loss on extinguishment of debt
(111,857
)
(396
)
(156,707
)
(13,324
)
Gain on derecognition of leased properties
and dispositions of real estate
500,349
71,889
594,861
119,215
Income (loss) from unconsolidated real
estate partnerships
(565
)
—
(565
)
—
Mezzanine investment income, net (4)
—
7,023
—
27,576
Income (loss) from continuing operations
before income tax benefit (expense) and discontinued operations
393,109
(35,054
)
473,978
(19,135
)
Income tax benefit (expense)
6,016
(97,115
)
5,246
(95,437
)
Income (loss) from continuing
operations
399,125
(132,169
)
479,224
(114,572
)
Income from discontinued operations, net
of tax
—
1,459
—
11,228
Net income (loss)
399,125
(130,710
)
479,224
(103,344
)
Noncontrolling interests:
Net (income) loss attributable to
noncontrolling interests in consolidated real estate
partnerships
(174
)
645
3,243
798
Net income attributable to preferred
noncontrolling interests in AIR OP
(1,603
)
(1,604
)
(6,413
)
(7,019
)
Net (income) loss attributable to common
noncontrolling interests in AIR OP
(24,467
)
6,572
(28,433
)
5,438
Net (income) loss attributable to
noncontrolling interests
(26,244
)
5,613
(31,603
)
(783
)
Net income (loss) attributable to AIR
372,881
(125,097
)
447,621
(104,127
)
Net income attributable to AIR preferred
stockholders
(45
)
—
(181
)
—
Net income attributable to participating
securities
(167
)
(77
)
(316
)
(202
)
Net income (loss) attributable to AIR
common stockholders
$
372,669
$
(125,174
)
$
447,124
$
(104,329
)
Earnings (loss) per common share –
basic
Net income (loss) attributable to AIR
common stockholders per share – basic
$
2.38
$
(0.96
)
$
2.90
$
(0.85
)
Earnings (loss) per common share –
diluted
Net income (loss) attributable to AIR
common stockholders per share – diluted
$
2.37
$
(0.96
)
$
2.89
$
(0.85
)
Weighted-average common shares
outstanding – basic (5)
156,673
129,911
154,135
122,446
Weighted-average common shares
outstanding – diluted (5)
157,062
129,911
154,503
122,446
(1)
Rental and other property revenues for the three months and year
ended December 31, 2021, is inclusive of $16.9 million and $73.6
million, respectively, of revenues related to sold properties.
Property operating expenses for the three months and year ended
December 31, 2021, is inclusive of $4.7 million and $22.7 million,
respectively, of expenses related to sold properties. Rental and
other property revenues for the three months and year ended
December 31, 2020, is inclusive of $18.9 million and $82.2 million,
respectively, of revenues related to sold properties. Property
operating expenses for the three months and year ended December 31,
2020, is inclusive of $6.3 million and $26.1 million, respectively,
of expenses related to sold properties.
Rental and other property revenues and
property operating expenses for the year ended December 31, 2021,
are inclusive of $21.7 million of revenues and $5.6 million of
expenses, respectively, related to the third party share of
properties included Washington, D.C. joint venture. Rental and
other property revenues for the three months and year ended
December 31, 2020, is inclusive of $7.1 million and $28.5 million,
respectively, of revenues related to the third party share of
properties included in the Washington, D.C. joint venture. Property
operating expenses for the three months and year ended December 31,
2020, is inclusive of $1.8 million and $7.4 million, respectively,
of expenses related to the third party share of properties included
in the Washington, D.C. joint venture.
(2)
In setting our G&A benchmark of 15 bps of Gross Asset Value,
we consider platform fees earned on our California joint venture as
a reduction of general and administrative expenses. In accordance
with GAAP, general and administrative expenses are shown gross of
these platform fees and they are instead included in the
determination of net income (loss) attributable to noncontrolling
interests in consolidated real estate partnerships.
(3)
Interest income for the three months and year ended December 31,
2021, includes $7.0 million and $27.8 million, respectively, of
income associated with our notes receivable from Aimco, and $6.6
million and $26.0 million, respectively, of interest income
associated with properties leased to Aimco.
(4)
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 has not occurred. During the three months and year
ended December 31, 2020, we recognized $7.0 million and $27.6
million of income, respectively, in connection with the mezzanine
loan. For the year ended December 31, 2021, the mezzanine
investment income was entirely offset by an expense to recognize
the requirement that this income be contributed to Aimco.
(5)
During the fourth quarter of 2020, Aimco completed a reverse
stock split and a special dividend paid primarily in stock. For
stock splits, GAAP requires the restatement of weighted-average
shares as if the reverse stock split occurred at the beginning of
the period presented, while shares issued in the special dividend
are included in weighted-average shares outstanding from the date
issued. If the special dividend and reverse stock split were
treated similarly for GAAP, shares outstanding for the three months
and year ended December 31, 2020, would be 148,570 and 148,532,
respectively.
Consolidated Balance Sheets
(in thousands) (unaudited)
December 31,
December 31,
2021
2020
Assets
Real estate
$
6,885,081
$
7,468,864
Accumulated depreciation
(2,284,793
)
(2,455,505
)
Net real estate
4,600,288
5,013,359
Cash and cash equivalents
67,320
44,214
Restricted cash
25,441
29,266
Notes receivable from Aimco
534,127
534,127
Leased real estate assets
466,355
—
Goodwill
32,286
32,286
Other assets (1)
568,051
576,026
Assets held for sale
146,492
—
Total Assets
$
6,440,360
$
6,229,278
Liabilities and Equity
Non-recourse property debt
$
2,305,756
$
3,646,093
Debt issue costs
(11,017
)
(17,857
)
Non-recourse property debt, net
2,294,739
3,628,236
Term loans, net
1,144,547
349,164
Revolving credit facility borrowings
304,000
265,600
Accrued liabilities and other (1)
592,774
598,736
Liabilities related to assets held for
sale
85,775
—
Total Liabilities
4,421,835
4,841,736
Preferred noncontrolling interests in AIR
OP
79,370
79,449
Equity:
Perpetual preferred stock
2,129
2,000
Class A Common Stock
1,570
1,489
Additional paid-in capital
3,763,105
3,432,121
Accumulated other comprehensive income
—
3,039
Distributions in excess of earnings
(1,953,779
)
(2,131,798
)
Total AIR equity
1,813,025
1,306,851
Noncontrolling interests in consolidated
real estate partnerships
(70,883
)
(61,943
)
Common noncontrolling interests in AIR
OP
197,013
63,185
Total Equity
1,939,155
1,308,093
Total Liabilities and Equity
$
6,440,360
$
6,229,278
(1) Other assets includes the Parkmerced mezzanine investment
and the fair value of an associated interest rate swap option, and
accrued liabilities and other includes the offsetting liabilities.
The benefits and risks of ownership of both the Parkmerced
mezzanine investment and the interest rate swap option have been
transferred to Aimco, but legal transfer has not occurred.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220209006102/en/
Beth Hagan (303) 757-8101 investors@aircommunities.com
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