Apartment Income REIT Corp. ("AIR") (NYSE: AIRC) announced today
first quarter results for 2022.
Chief Executive Officer Terry Considine comments: "AIR began the
year with strong results, the product of intentional focus on a
simple business model, comparative advantage in property
operations, low G&A costs, and a commitment to low
leverage."
"Comparing first quarter 2022 to first quarter 2021: Same Store
revenue and NOI are up 9.2% and 11.7%, respectively. NOI margins
are up 162 basis points to 72.8%. Average daily occupancy improved
by 270 basis points to 98.1%."
"We seized the opportunity to sell our lowest rated properties
at prices fueled by then historic low interest rates, generating
$1.7 billion in sales proceeds over the past eight months. We
agreed with Aimco for the prepayment of its $534 million note, plus
an estimated $23.5 million prepayment penalty, 20 months prior to
its maturity. Its collection is expected later this quarter and
will increase capital generated to $2.3 billion. We will use $1.5
billion to reduce leverage… by $300 million last year and $1.2
billion in this year alone… and to lengthen maturities at fixed
interest rates."
"Last year we used the $750 million balance of capital generated
from asset sales to purchase five properties that we expect when
added to the AIR platform will generate IRRs 200 to 300 bps higher
than those of the properties sold to fund their purchase. While it
remains 'early days', their performance has exceeded our
underwriting and demonstrates the value added by the 'AIR Edge'…
our combination of customer selection, satisfaction, and retention,
disciplined productivity to control operating costs, and high
yielding property upgrades… and we expect this portfolio to have
NOI growth 50% above that of our same store portfolio in 2022."
"We are focused on the continued systematic enhancement of our
portfolio through disciplined, accretive growth funded by 'paired
trades' for additional properties which will benefit from the AIR
Edge."
Chief Financial Officer Paul Beldin further adds: "AIR's balance
sheet was strengthened substantially and our liquidity profile was
also improved. I am pleased to report that we ended the quarter
with Net Leverage to EBITDAre of 5.7x, within on our long-term
targeted range of 5.0x to 6.0x, and 5.4x pro forma April sales
activity. In addition to the deleveraging already mentioned, we
exercised the accordion feature on our revolving credit facility,
increasing the revolver and our liquidity by $400 million to $1.0
billion."
"First quarter 2022 Pro forma FFO of $0.57 per share was $0.02
higher than the midpoint of guidance due to a $0.01 outperformance
in property operations and $0.01 of other items that may reverse
during the balance of the year."
"We now expect full year FFO between $2.37 and $2.45. Our
expectations for Same Store NOI growth have increased by 50 basis
points, adding $0.01 to FFO. The prepayment penalty income
resulting from the early collection of the Aimco loan adds interest
income of $0.14 in the second quarter, offset by lost interest
income of $0.09 in the second half of the year, for a net increase
of $0.05 per share in 2022. Lower borrowings reduce interest
expense by $0.04, while higher rates increase interest expense by
$0.09, for a net increased cost of $0.05 per share in 2022."
"Our Same Store guidance range contemplates the potential for
continued Same Store Revenue and NOI outperformance driven by
higher rental rate achievement, lower bad debt expense, and lower
property operating expenses. There is also the potential for lower
general and administrative expenses. Accordingly, we see a path
where the $0.05 of incremental interest expense is offset by these
items."
Financial Results: First Quarter Pro
Forma FFO per share
FIRST QUARTER
(all items per common share – diluted)
2022
2021
Variance
Net income
$
2.39
$
0.56
nm
NAREIT Funds From Operations
(FFO)
$
0.42
$
0.48
(12.5
%)
Pro forma adjustments
0.15
0.02
nm
Pro forma Funds From
Operations (Pro forma FFO)
$
0.57
$
0.50
14.0
%
AIR Operating Results: First Quarter
Same Store Revenue Up 1.0% Sequentially and 9.2%
Year-Over-Year
The table below includes the operating results of the 64 AIR
properties that meet our definition of Same Store. Same Store
properties generated approximately 91% of AIR’s 2022 rental
revenue.
FIRST QUARTER
Year-over-Year
Sequential
($ in millions) *
2022
2021
Variance
4th Qtr.
Variance
Revenue, before utility reimbursements
$
138.1
$
126.4
9.2
%
$
136.8
1.0
%
Expenses, net of utility
reimbursements
37.5
36.4
3.1
%
36.3
3.2
%
Net operating income (NOI)
$
100.6
$
90.1
11.7
%
$
100.4
0.2
%
*Amounts are presented on a rounded basis
and the sum of the individual amounts may not foot; please refer to
Supplemental Schedule 6.
First quarter 2022 NOI margins were 72.8%, up 162 basis points
from the first quarter of 2021. NOI margins benefited from
year-over-year rental rate growth of 5.0% and a 270 basis point
increase in average daily occupancy.
Components of Same Store Revenue Growth – The table below
summarizes the change in the components of our Same Store revenue
growth.
FIRST QUARTER
Same Store Revenue Components
Year-over-Year
Sequential
Residential Rents
5.0
%
0.9
%
Average Daily Occupancy
2.8
%
—
%
Residential Rental
Income
7.8
%
0.9
%
Bad Debt
0.6
%
(0.4
%)
Late Fees and Other
0.3
%
0.2
%
Residential Revenue
8.7
%
0.7
%
Commercial Revenue
0.5
%
0.3
%
Same Store Revenue
Growth
9.2
%
1.0
%
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.
FIRST QUARTER
2022
2022
2021
Variance
Jan
Feb
March
April
Transacted Leases*
Renewal rent changes
11.8
%
0.5
%
11.3
%
10.2
%
12.1
%
11.9
%
12.0
%
New lease rent changes
16.1
%
(8.1
%)
24.2
%
13.2
%
14.8
%
18.8
%
21.4
%
Weighted-average rent changes
14.2
%
(4.8
%)
19.0
%
12.7
%
14.0
%
14.8
%
16.0
%
Signed Leases*
Renewal rent changes
11.3
%
2.3
%
9.0
%
12.2
%
11.4
%
10.8
%
10.3
%
New lease rent changes
17.8
%
(5.4
%)
23.2
%
14.7
%
18.2
%
19.3
%
18.8
%
Weighted-average rent changes
14.1
%
(1.6
%)
15.7
%
13.5
%
13.7
%
14.6
%
14.9
%
Average Daily Occupancy
98.1
%
95.4
%
2.7
%
98.4
%
98.3
%
97.7
%
97.4
%
*Amounts are based on our current Same
Store population and represent AIR's share, whereas previously
these were reported on a non-ownership adjusted basis. Amounts may
differ from those previously reported.
Same Store Markets – AIR enjoyed stronger than typical
consumer demand across all markets in the first quarter. Signed new
lease rates were up 17.8% from the prior lease, with renewals up
11.3%, resulting in a weighted-average increase of 14.1%. Occupancy
was high throughout the quarter, averaging 98.1%. With limited
availability, demand remained strong with volume above 2020's
pre-COVID levels.
Consistent with our expectations, average daily occupancy
declined sequentially in March and April as we began to experience
higher frictional vacancy associated with the increased turnover of
peak leasing season.
2021 Acquisition Performance – In sourcing acquisitions,
AIR seeks to identify properties that will benefit from AIR’s
operating acumen, or the “AIR Edge.” These acquisitions are
typically expected to deliver unlevered IRRs of 200 basis points or
more than AIR’s stabilized Same Store portfolio. In today’s market,
we target IRRs greater than 8%. In a typical acquisition, the
acquired property will experience NOI growth at market rates for 6
to 12 months, as the property is integrated onto AIR’s platform
with AIR customer selection, satisfaction, and retention, cost
control, capital enhancements, and good neighbor policies. During
the following two to four years, NOI growth is expected to exceed
the market growth rate by two or three times.
AIR acquired five properties in 2021, at a cost of ~$730
million, with an expected first year yield of 4.3% and a long-term
unlevered IRR of approximately 9%. During the quarter, ADO
increased by 40 basis points related to these properties, and we
signed 275 new and renewal leases at rates 23% above expiring
leases.
Based on performance to date, we now expect the first year yield
to be 4.5%, 20 basis points above underwriting.
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 first quarter, we recognized 98.8% of all residential
revenue owed during the quarter, treating the balance of 1.2% 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 their bad debt under 30 basis points of revenue, a level
somewhat elevated from our historical experience.
As of March 31, 2022, our proportionate share of gross
residential accounts receivable was $11.9 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 second quarter of 2022.
Of the $11.9 million of uncollected accounts receivable, 75%
relates to California residents. During the quarter, we received
$1.9 million from California’s rent relief program.
We remain cautiously optimistic that we will be able to recover
previously uncollected rents. We await the state’s response to an
additional $1.5 million of rent relief requests made. Additionally,
with the recent modification to the California eviction moratorium,
collections from past due residents in April were $1.4 million
higher than average monthly collections in the first quarter of
2022.
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 the first quarter of 2022, we exited the
Chicago market and reduced our exposure to California.
Transactions
Acquisitions
We did not acquire any apartment communities in the first
quarter. During the balance of the year we anticipate acquiring
approximately $500 million of properties, where the "AIR Edge" is
expected to provide IRRs above 8%, and 200 basis points above our
cost of capital.
Dispositions
During the first quarter, we sold eight apartment communities
located in Chicago and various cities in California, with 1,332
apartment homes, for gross proceeds of $578 million at a NOI cap
rate of 4.5%. Net sales proceeds, after transaction costs and
repayment of debt at the sold properties, from these transactions
were $460 million. The NOI cap rate reflects AIR’s low property tax
basis in the seven California properties sold. Adjusting for market
rate real estate taxes, the NOI cap rate is 3.7%.
Subsequent to quarter end, we sold an additional three apartment
communities located in California for gross proceeds of $161
million. Net proceeds, after transaction costs, were $159 million.
Our NOI cap rate of 4.8% reflects AIR’s low property tax basis in
these properties. Adjusting for market rate real estate taxes, the
NOI cap rate is 3.9%.
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 March 31, 2022, AIR had $1.5 billion of floating rate
debt. Of this amount:
- $534 million is expected to be repaid with proceeds from the
Aimco note;
- $159 million is expected to be repaid with proceeds from April
property sales;
- $400 million is expected to be repaid from the proceeds of a
second quarter private placement of a ten year debenture. To
protect against future increases in interest rates, we entered into
a $400 million treasury hedge, locking the interest rate on the ten
year treasury at 2.39%. The all-in cost of the private placement is
estimated to be approximately 4.10%; and
- $400 million was hedged in April by the placement of floating
to fixed rate swaps at an all-in cost of 3.99% and a
weighted-average duration of 4.5 years.
AIR’s leverage, pro forma the above actions is:
MARCH 31, 2022
PRO FORMA ADJUSTMENTS
PRO FORMA MARCH 31,
2022
($ in thousands)
Fixed rate loans payable
$
1,481,336
$
—
$
1,481,336
Floating rate loans payable, to be
hedged
167,500
(167,500
)
—
Floating rate loans payable, hedged
—
167,500
167,500
Non-recourse property
debt
1,648,836
—
1,648,836
Term loan to be repaid with proceeds from
Aimco note
350,000
(350,000
)
—
Term loan to be repaid with proceeds from
new fixed rate bond offering
400,000
(400,000
)
—
Term loan to be hedged/repaid
400,000
(400,000
)
—
Floating rate term
loans
1,150,000
(1,150,000
)
—
Floating revolving credit facility
borrowings
177,000
(177,000
)
(1
)
—
Term loans now hedged
—
232,500
232,500
New fixed rate bond offering
—
400,000
400,000
Preferred equity
81,354
—
81,354
Total Leverage
3,057,190
(694,500
)
2,362,690
Cash and restricted cash
(88,860
)
(22,000
)
(1
)
(110,860
)
Leverage, net of cash and
restricted cash
$
2,968,330
$
(716,500
)
$
2,251,830
Floating rate leverage %, net of cash
47
%
—
%
Fixed rate leverage %, net of cash
53
%
100
%
Total
100
%
100
%
Weighted average maturity
6.3 years
8.2 years
Weighted average interest rate
2.7
%
3.5
%
Gross Leverage to Adjusted EBITDAre
6.5x
5.4x
Net Leverage to Adjusted EBITDAre
5.7x
5.4x
(1)
Amount represents the application of the
net proceeds from April property sales, Aimco note proceeds and
related prepayment penalty in excess of the term loan
repayments.
The result is a stronger and more flexible balance sheet with
limited repricing risk and a better maturity profile.
Since AIR's separation from Aimco, and pro forma for the above,
AIR has:
- Reduced gross leverage by $1.5 billion.
- Brought gross and net leverage to parity and reduced Leverage
to EBITDAre to 5.4x.
- Increased the pool of unencumbered properties to $7.9 billion,
up $5.1 billion, or 180%, from $2.8 billion 15 months ago.
- Reduced refunding and repricing risk through balanced ladders
for debt maturity and repricing. Only $146 million, or 6%, of our
pro forma debt reprices through the end of 2024.
- Limited exposure to floating interest rates. AIR exposure is
zero today. Should we incur floating rate debt in the future, we
plan to limit it to less than 60% of annual revenues. We believe
increases in interest rates and rental rates are correlated and
therefore rents provide a natural hedge against rising interest
rates. Today, that limit would approximate $380 million;
representing 14% of total debt and less than 3% of gross asset
value.
Liquidity
We use our revolving credit facility for working capital, other
short-term purposes, and to secure letters of credit. At March 31,
2022, our share of cash and restricted cash was $89 million and we
had the capacity to borrow up to $412 million under our revolving
credit facility, bringing total liquidity to $501 million. We
increased liquidity by $400 million through the exercise of the
accordion feature on our revolving credit facility. After
consideration of April property sales and the exercise of the
accordion, our liquidity is more than $1.0 billion.
We manage our financial flexibility by maintaining an investment
grade rating and holding communities that are unencumbered by
property debt. AIR credit has been rated BBB by Standard &
Poor’s.
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. We have lowered the
amount of non-recourse property debt by $1.5 billion since December
31, 2020. At March 31, 2022 AIR share of non-recourse property debt
represented 19% of undepreciated book value.
Dividend and Equity Capital Markets
On April 26, 2022, our Board of Directors declared a quarterly
cash dividend of $0.45 per share of AIR Common Stock. This amount
is payable on May 31, 2022, to stockholders of record on May 20,
2022.
In setting AIR's 2022 dividend, our Board of Directors targets a
dividend level of approximately 75% of full year FFO per share.
We expect that the after-tax dividend will benefit from AIR's
refreshed tax basis. Two-thirds of the 2021 dividend was considered
return of capital while the remaining one-third was treated as
capital gains.
The Board of Directors recently authorized both a common stock
repurchase program of up to $500 million and an at-the-market
offering program of up to $500 million. To date, neither has been
used.
Corporate Responsibility Update
Corporate responsibility is a longstanding priority and a key
part of our culture. We strive for transparency, and continuous
improvement, as measured by GRESB. We are aligned with the UN
Sustainable Development Goals. 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.
AIR was recognized for our gender-balanced board by the Women’s
Leadership Foundation in Colorado and as only one of 16 public
companies in Colorado to achieve this milestone.
We are continuing our longstanding commitment to offer the AIR
Gives Opportunity Scholarship to students living in affordable
housing across the country in partnership with the National Leased
Housing Association.
Our team is a critical part of our success. In 2022 AIR was
named a National Top Workplaces winner and also a 2022 Healthiest
Employer for the third year by the Denver Business Journal.
2022 Outlook
AIR now expects full year FFO between $2.37 and $2.45 per share;
$0.01 above our expectation at the beginning of the year. The
increase is a result of:
- Increased contribution from property operations – At the
respective midpoints, we now expect Same Store Revenue and Same
Store NOI to increase by 40 basis points and 50 basis points,
accordingly, contributing an incremental $0.01 to full year
FFO.
- Deleveraging the balance sheet – We have come to an agreement
with Aimco that allows for the prepayment of its $534 million note.
In connection with the prepayment, we anticipate $23.5 million of
income from the prepayment penalty, effectively accelerating the
recognition of interest income from 2023 into 2022. AIR intends to
use proceeds from the note repayment to repay debt.
- Increasing interest rates – As of March 31, 2022, AIR had $1.5
billion of floating rate debt. Of this amount:
- $534 million is expected to be repaid with proceeds from the
Aimco note;
- $159 million is expected to be repaid with proceeds from April
property sales;
- $400 million is expected to be repaid from the proceeds of a
second quarter private placement of a ten year debenture. To
protect against future increases in interest rates, we entered into
a $400 million treasury hedge, locking the interest rate of the ten
year treasury at 2.39%. The all-in cost of the private placement is
estimated to be approximately 4.10%; and
- $400 million was hedged in April by the placement of floating
to fixed rate swaps at an all-in cost of 3.99% and a
weighted-average duration of 4.5 years.
The following table compares our beginning of the year FFO
expectations, at the midpoint, to today, reflecting the impact of
the above:
Original Expectation
Updated Expectation
Pro forma Run Rate
2021 FFO per share
$
2.14
$
2.14
$
2.14
Growth in Same Store NOI
0.29
0.30
0.30
Contribution from acquisitions
0.14
0.14
0.14
Change in leverage (1)
0.24
0.28
0.30
Change in interest rates (2)
0.06
(0.03
)
(0.05
)
Dilution from sales
(0.45
)
(0.45
)
(0.45
)
Lower interest income on the Aimco note
(3)
—
(0.09
)
(0.17
)
Prepayment penalty income on the Aimco
note (3)
—
0.14
—
Other
(0.02
)
(0.02
)
(0.02
)
2022 FFO per share at the
midpoint (4)
$
2.40
$
2.41
$
2.19
(1)
Lower leverage, funded by the repayment of
the Aimco note lowers run rate interest expense by $0.06 per share;
$0.04 of which is expected to benefit 2022 results.
(2)
The $800 million of now fixed rate debt
has an expected average interest rate of 4.05%; 225 basis point
above our previous expectations, increasing run rate interest
expense by $0.11; $0.09 of which will impact 2022 results.
(3)
AIR anticipated earning $0.17 in 2022 and
2023 from interest on its note from Aimco. AIR now anticipates that
the Aimco note will be repaid in the second quarter, lowering 2022
interest income by $0.09, but also providing prepayment penalty
income of $0.14.
(4)
AIR’s original guidance expectation of
$2.40 included $0.17 of interest income from the Aimco note, offset
by $0.06 of expected interest expense incurred to fund the note,
for a net contribution of $0.11. Today, AIR expects to earn an
incremental $0.05 in 2022 from the early repayment of the note.
Our guidance ranges are based on the following components:
YEAR-TO-DATE March 31,
2022
FULL YEAR 2022
PREVIOUS FULL YEAR
2022
($ Amounts represent AIR Share)
Net Income (loss) per share (1)
$2.39
$(0.33) to $(0.20)
$(0.33) to $(0.20)
Pro forma FFO per share
$0.57
$2.37 to $2.45
$2.36 to $2.44
Pro forma FFO per share at the
midpoint, before prepayment penalty
$2.27
n/a
Pro forma FFO per share at the
midpoint
$2.41
$2.40
Same Store Operating Components of
NAREIT FFO
Revenue change compared to
prior year
9.2%
9.3% to 10.3%
8.9% to 9.9%
Expense change compared to
prior year
3.1%
3.0% to 2.0%
3.0% to 2.0%
NOI change compared to prior
year
11.7%
11.5% to 13.5%
11.0% to 13.0%
Offsite Costs
General and administrative
expenses, as defined below (2)
$5M
$15M to $17M
~$17M
Other Earnings
Lease income
$7M
~$30M
~$30M
Value of property
acquisitions
—
~$500M
~$500M
Proceeds from dispositions of
real estate, net
$412M
~$809M
~$774M
AIR Share of Capital
Investments
Capital Enhancements
$13M
$90M to $110M
$90M to $110M
Balance Sheet
Net Leverage to Adjusted
EBITDAre (3)
5.4x
~5.5x
~5.5x
(1) Does not include gains from anticipated 2022 property
sales.
(2) 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,
- 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. $1.7 million of
asset management fees were earned during the quarter.
- Effective in 2022, G&A in our consolidated statements of
operations includes the depreciation of capitalized costs of
non-real estate assets applicable to corporate activities.
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 waive his compensation, if necessary, to meet this
metric. In 2021, our CEO waived $2.5 million of his
compensation.
(3) Presented net of FFO and Pro forma FFO adjustments.
In the second quarter of 2022, AIR anticipates Pro forma FFO
between $0.66 and $0.70 per share. For the second half of 2022,
which reflects no contribution from the Aimco note, and does
reflect the higher interest expense associated with fixing $800
million of previously floating rate debt, we expect FFO between
$1.13 and $1.19 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 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 a 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 our commitment to corporate responsibility with
transparent and measurable goals
Earnings Conference Call
Information
Live Conference Call:
Conference Call Replay:
Tuesday, May 3, 2022 at 1:00 p.m. ET
Replay available until July 28, 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: 233945
Passcode: 752550
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 76 communities in
11 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 COVID-19 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, 2021, and subsequent
filings with the SEC.
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.
These forward-looking statements reflect management’s judgment
as of this date, and we assume 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)
Three Months Ended
March 31,
2022
2021
REVENUES
Rental and other property revenues (1)
$
179,261
$
174,730
Other revenues
2,217
1,683
Total revenues
181,478
176,413
OPERATING EXPENSES
Property operating expenses (1)
63,236
64,617
Depreciation and amortization
84,549
75,280
General and administrative expenses
(2)
6,597
4,414
Other expenses, net
4,018
2,876
Total operating expenses
158,400
147,187
Interest income (3)
13,481
15,972
Interest expense
(22,107
)
(36,025
)
Loss on extinguishment of debt
(23,636
)
(1,010
)
Gain on derecognition of leased properties
and dispositions of real estate
412,003
84,032
Loss from unconsolidated real estate
partnerships
(2,014
)
—
Income before income tax
benefit (expense)
400,805
92,195
Income tax benefit (expense)
579
(3,080
)
Net income
401,384
89,115
Noncontrolling interests:
Net loss attributable to
noncontrolling interests in consolidated real estate
partnerships
564
235
Net income attributable to
preferred noncontrolling interests in AIR OP
(1,603
)
(1,604
)
Net income attributable to
common noncontrolling interests in AIR OP
(24,167
)
(4,436
)
Net income attributable to
noncontrolling interests
(25,206
)
(5,805
)
Net income attributable to
AIR
376,178
83,310
Net income attributable to AIR
preferred stockholders
(42
)
(50
)
Net income attributable to
participating securities
(255
)
(64
)
Net income attributable to
AIR common stockholders
$
375,881
$
83,196
Net income attributable to
AIR common stockholders per share – basic
$
2.40
$
0.56
Net income attributable to
AIR common stockholders per share – diluted
$
2.39
$
0.56
Weighted-average common
shares outstanding – basic
156,736
148,611
Weighted-average common
shares outstanding – diluted
157,088
148,830
(1)
Rental and other property revenues for the
three months ended March 31, 2022 and 2021, is inclusive of $5.7
million and $20.0 million, respectively, of revenues related to
sold properties. Property operating expenses for the three months
ended March 31, 2022 and 2021, is inclusive of $2.3 million and
$6.6 million, respectively, of expenses related to sold
properties.
Rental and other property revenues and
property operating expenses for the three months ended March 31,
2021, are inclusive of $7.1 million of revenues and $1.8 million of
expenses, respectively, related to the third-party share of
properties included 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 joint
ventures as a reduction of general and administrative expenses. In
accordance with GAAP, general and administrative expenses are shown
gross of these platform fees. The California joint venture is
consolidated on our balance sheet and accordingly fees earned from
this venture are included in the determination of net income (loss)
attributable to noncontrolling interests in consolidated real
estate partnerships. The Washington D.C. area joint venture is not
consolidated on our balance sheet and accordingly fees earned from
this venture are included in income from unconsolidated real estate
partnerships.
(3)
Interest income for each of the three
months ended March 31, 2022 and 2021 includes $6.9 million of
income associated with our note receivable from Aimco, and interest
income for the three months ended March 31, 2022 and 2021 includes
$6.5 million and $6.4 million, respectively, of interest income
associated with properties leased.
Consolidated Balance Sheets (in thousands)
(unaudited)
March 31,
December 31,
2022
2021
Assets
Real estate
$
6,892,257
$
6,885,081
Accumulated depreciation
(2,341,446
)
(2,284,793
)
Net real estate
4,550,811
4,600,288
Cash and cash equivalents
77,867
67,320
Restricted cash
26,044
25,441
Note receivable from Aimco
534,127
534,127
Leased real estate assets
466,203
466,355
Goodwill
32,286
32,286
Other assets (1)
601,198
568,051
Assets held for sale
14,320
146,492
Total Assets
$
6,302,856
$
6,440,360
Liabilities and Equity
Non-recourse property debt
$
2,043,649
$
2,305,756
Debt issue costs
(9,944
)
(11,017
)
Non-recourse property debt, net
2,033,705
2,294,739
Term loans, net
1,145,226
1,144,547
Revolving credit facility borrowings
177,000
304,000
Accrued liabilities and other (1)
603,308
592,774
Liabilities related to assets held for
sale
425
85,775
Total Liabilities
3,959,664
4,421,835
Preferred noncontrolling interests in AIR
OP
79,354
79,370
Equity:
Perpetual preferred stock
2,000
2,129
Class A Common Stock
1,571
1,570
Additional paid-in capital
3,762,457
3,763,105
Accumulated other comprehensive
loss
(783
)
—
Distributions in excess of
earnings
(1,648,077
)
(1,953,779
)
Total AIR equity
2,117,168
1,813,025
Noncontrolling interests in consolidated
real estate partnerships
(70,157
)
(70,883
)
Common noncontrolling interests in AIR
OP
216,827
197,013
Total Equity
2,263,838
1,939,155
Total Liabilities and
Equity
$
6,302,856
$
6,440,360
(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/20220502005767/en/
Beth Hagan (303) 757-8101 investors@aircommunities.com
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