- Rental Rates Up 8.6%
- Revenue Up 10.1%
- Controllable Operating Expenses Down 0.2%
- Year-Over-Year NOI Up 12.7%
Apartment Income REIT Corp. (“AIR”) (NYSE: AIRC) announced today
results for first quarter 2023.
Terry Considine, Chief Executive Officer, comments: “AIR’s first
quarter results were on plan.
“In our Same Store portfolio, revenue was up 10.1%; expenses
were up 3.3%; and Net Operating Income was up 12.7%. Profitability
leads all peers: margin widened to 73.9%; conversion of revenue to
Free Cash Flow improved to 66.2%; and controllable operating
expenses were down 20-basis points. Rental rate increases in Signed
New Leases, a key forward indicator, remain strong.
“In our Acquisition portfolio, results improved at a still
faster clip.
Considine added: “These remarkable results have many causes.
Some are:
- Customers stay with us longer, reducing turnover and related
costs
- Our long-tenured service teams are highly and increasingly
productive
- Process improvements, including enhanced technology and digital
transformation
- The cumulative effect of a relentless focus on root causes
- Customers have high incomes and are willing to pay higher rents
for further improvements to their apartment homes
“Notwithstanding a turbulent economy and competitive markets,
our forecast for the balance of the year is for more of the
same”.
Paul Beldin, Chief Financial Officer, comments further: “AIR’s
balance sheet is well positioned for today’s unpredictable capital
markets. AIR has $1.8 billion of liquidity, with sufficient
committed credit to repay all debt that comes due during the next
six years. Interest rate risk during the next two years is limited
to our floating rate debt: 4% of net leverage. A change of
100-basis points impacts bottom line by less than a penny per
share.
“Net Leverage to Adjusted EBITDAre is elevated by borrowings to
fund the acquisition of Southgate Towers and by seasonal
fluctuations in property operating expenses and offsite costs.
Proceeds from planned property sales will be used to reduce
outstanding debt. The earn-in of current rental rates will lead to
increased property income. The ratio of leverage to income is
expected to decline over the balance of the year to 5.9x.
“First quarter 2023 Pro forma FFO of $0.55 per share was equal
to the midpoint of our guidance due to outperformance in Same Store
operations, offset by higher than anticipated casualty losses.
“Rent growth remains strong, although lower than the prior year
due to slowing of the rate of inflation.
“Looking forward we are narrowing the range of our expectations
for 2023 Pro forma FFO per share by $0.02 per share, while
maintaining the $2.41 midpoint”.
Financial Results: First Quarter Pro
Forma FFO Per Share
FIRST QUARTER
(all items per common share – diluted)
2023
2022
Variance
Net (loss) income
$
(0.08
)
$
2.39
(103.3
%)
NAREIT Funds From Operations
(FFO)
$
0.49
$
0.42
16.7
%
Pro forma adjustments
0.06
0.15
(60.0
%)
Pro forma Funds From Operations (Pro
forma FFO)
$
0.55
$
0.57
(3.5
%)
Operating Results: Same Store NOI Up
12.7% Year-Over-Year
The table below includes the operating results of the 63 AIR
properties that meet our definition of Same Store. Same Store
properties generated approximately 85% of AIR’s first quarter 2023
rental revenue.
FIRST QUARTER
Year-over-Year
Sequential
($ in millions) *
2023
2022
Variance
4th Qtr.
Variance
Revenue, before utility reimbursements
$
157.9
$
143.5
10.1
%
$
156.8
0.7
%
Expenses, net of utility
reimbursements
41.2
39.9
3.3
%
38.5
7.1
%
Net operating income (NOI)
$
116.7
$
103.5
12.7
%
$
118.3
(1.4
%)
*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 2023 Same Store NOI margin was 73.9%, up 170-basis
points from the first quarter of 2022, benefiting from a 10.0%
increase in residential rents due to: fewer apartments available to
rent as a result of increased retention; the increased income of
our customer base; the effectiveness of our leasing teams; and
dynamic capital allocation, including the fast-growing Southeast
Florida market and durable property upgrades that command
substantial rent premiums.
Components of Same Store Revenue Growth – The table below
summarizes the change in the components of our Same Store Revenue
growth.
FIRST QUARTER 2023
Same Store Revenue Components
Year-over-Year
Sequential
Residential Rents
10.0
%
0.3
%
Average Daily Occupancy
(0.4
%)
0.5
%
Residential Rental Income
9.6
%
0.8
%
Bad Debt, net of recoveries
0.1
%
(0.1
%)
Late Fees and Other
0.5
%
(2.3
%)
Residential Revenue
10.2
%
(1.6
%)
Commercial Revenue
(0.1
%)
2.3
%
Same Store Revenue Growth
10.1
%
0.7
%
Same Store Rental Rates – Changes in rental rates are
measured 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 the same apartment. A newly executed lease is
classified as a “new lease,” where an apartment is leased to a new
customer, or as a “renewal”.
The table below shows 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 pricing and an important driver of future
results.
FIRST QUARTER
2023
(amounts represent AIR share)*
2023
2022
Variance
Jan
Feb
Mar
Apr**
Transacted Leases
Renewal rent changes
8.7%
12.6%
(3.9%)
13.4%
9.3%
8.1%
8.6%
New lease rent changes
9.8%
16.8%
(7.0%)
11.5%
10.1%
8.4%
8.4%
Weighted-average rent changes
9.5%
14.9%
(5.4%)
11.7%
9.9%
8.2%
8.5%
Signed Leases
Renewal rent changes
8.4%
12.1%
(3.7%)
9.2%
8.4%
8.2%
7.8%
New lease rent changes
8.7%
17.3%
(8.6%)
9.5%
9.1%
8.0%
8.1%
Weighted-average rent changes
8.6%
14.8%
(6.2%)
9.4%
8.8%
8.1%
8.0%
Average Daily Occupancy
97.5%
97.9%
(0.4%)
97.4%
97.6%
97.3%
96.4%
*Amounts are based on our current Same Store population and may
differ from those previously reported.
**April leasing results are preliminary and as of April 30,
2023. The 90-basis point sequential decline in Average Daily
Occupancy (“ADO”) from March to April was consistent with
expectations, as we plan for higher frictional vacancy during the
six month leasing season.
First quarter lease rates were consistent with the assumptions
of our annual plan, and reflect a slowing pace of growth due to
lower inflation. ADO declined 40 basis points year-over-year and
while demand was lower than 2022’s record breaking levels it was
consistent with our expectations and in-line with historical norms.
AIR’s signed new leases and renewals were up 8.7% and 8.4%,
respectively. Blended rates were up 8.6%, inclusive of a 20-basis
point benefit from the class of 2021, a 90-basis point benefit from
revenue enhancing investments in capital improvements, and a
110-basis point benefit due to our allocation to the Southeast
Florida market.
Inflation – In recent years, apartment investors
benefited from declining cap rates, low cost of leverage, and
inflation. As inflation eases and interest and cap rates normalize,
investment results may be expected to be more influenced by such
operational metrics as resident retention and cost control.
Recent Acquisitions – Recent acquisitions include ten
properties acquired in 2021, 2022, and 2023. In aggregate, these
acquisitions represent approximately 17% of AIR GAV. Operating
results are improving significantly due to the AIR Edge. The
changes made by AIR to improve the resident profile, optimize the
rent roll, reduce costs, and make other income generating
improvements. These changes are typically iterative with results
lagging until earned in as leases expire and new leases made. The
impacts of the AIR Edge are generally most significant between the
second and fourth year of ownership, during which time
profitability increases much faster than in Same Store. This
outperformance contributes substantially to our ability to meet our
investment targets of unlevered internal rates of return (“IRR”)
above 10%, and more than 200-basis points above AIR’s cost of
capital.
The five properties acquired in 2021 represent 8% of GAV and are
now included in the Same Store portfolio. In the first quarter,
revenues increased 16.3% and expenses declined by 2.3%, providing
27.3% NOI growth. These results contributed an incremental 60-basis
points to Same Store revenue growth, a negative 80-basis points to
Same Store expense growth, and 130-basis points to Same Store NOI
growth.
The four properties acquired in 2022 represent 6% of GAV and are
part of our Acquisition portfolio. In the first quarter, ADO
increased by 100-basis points and revenue grew by 5.5%
sequentially. The three Florida properties continue to perform in
line with underwriting. The fourth property, Willard Towers, is
located in Chevy Chase, MD. We have concluded that the strength of
the submarket supports a more transformational capital program than
originally planned. We expect this will generate an unlevered IRR
higher than previously underwritten.
Southgate Towers, acquired earlier this year, represents 3% of
GAV and is also part of our Acquisition portfolio. In the first 90
days of AIR ownership, ADO increased by 120-basis points above
underwriting, reflecting the continuing strong demand in South
Beach.
Rent Collection and Bad
Debt
We measure residential rent collection as the dollar value of
payments received and as a percent of all amounts billed for
residential uses. We establish a reserve for amounts not collected
during or immediately after the period when due unless such amounts
are otherwise secured by, for example, a security deposit or credit
worthy guarantee. Our experience has been that we collect
essentially all past due rent that is not reserved and we are
optimistic that we will also be successful in collecting a portion
of amounts currently reserved, as we have in the past.
During the first quarter, we recognized 98.3% of all residential
revenue billed in the quarter as paid currently or adequately
secured. The remaining 1.7% of revenue was reserved as gross bad
debt. Payments received during the first quarter with respect to
revenue treated as bad debt in previous periods, including payments
from residents, previous residents, guarantors, and government
programs, totaled 40-basis points of first quarter residential
revenue. Receipt of these monies reduced reserves previously
established and was recognized as a contra entry to bad debt. Bad
debt for the first quarter, net of the contra entry, was 1.3% of
residential revenue.
Of the 1.3% net bad debt, 62% (or 80-basis points) related to
rents due (i) with respect to properties in the City or County of
Los Angeles where local government afforded residents relief from
what was owed, or (ii) in other jurisdictions where courts were
operating with a backlog from the government shutdown in response
to the pandemic. 38% (or 50-basis points) reflected normal credit
issues. Los Angeles’ restrictions on landlord access to typical
creditor remedies have since been repealed, and courts across the
nation are working through existing backlogs. We expect bad debt to
normalize by year end at about 50-basis points.
As of March 31, 2023, our proportionate share of residential
accounts receivable was $6.7 million, a 10% reduction from the
start of the year. After consideration of security deposits and
reserves for uncollectible amounts, our net exposure was less than
$0.1 million. The number of residents delinquent by two or more
months was 160, a 36% reduction from approximately 250 at the start
of the year. During April, the number of residents delinquent by
two or more months declined further to 130; all of which are now in
the collection process.
Insurance Update
Insurance costs included within AIR property results include
hazard, together with health, general liability, and workers
compensation costs. Year-over-year expenses vary with experience as
AIR’s health, general liability and workers compensation coverages
are largely self-insured with caps for out of the ordinary claims.
In 2022, AIR benefited from lower than typical health care, general
liability, and workers compensation costs. As a result, our 2023
budget included an approximately 20% increase assuming that claims
revert to their longer-term trends.
Separately, we also budgeted for a significant increase in
property hazard insurance. The current market is challenging,
inflation has increased replacement costs, and insurers have
experienced substantial losses. On the other hand, AIR is valued as
a customer for the quality of our portfolio, the high credit
characteristics of our residents, our loss control including the
systematic mitigation and elimination of root causes of losses,
plus our retention of losses at routine levels, and our use of
insurance primarily for out of the ordinary claims. These qualities
make AIR a highly profitable customer; carriers received from AIR
$53 million in premiums during the past seven years…and paid only
$13.8 million in losses.
In AIR’s March 1, 2023, renewal, we continued our insurance,
broadly with the same coverages and same highly rated insurers as
in the past several years. Importantly, we maintained coverages for
full replacement costs, without material margin limits or
substantial co-insurance. We lowered our self-insured retention to
$5 million, a level $3 million above typical losses, increased
total insurable value by approximately 11%, and purchased coverage,
including Windstorm and California Quake, with limits that are
consistent with, or greater than, the 250-year probable maximum
loss. The sufficiency of this insurance is evidenced by its
acceptance by our property lenders whose repayment is entirely
dependent on the value of the property insured.
For our Same Store population, the cost of the renewal is up 40%
year-over-year and approximately $1 million, greater than
anticipated in January. This increase to budgeted expenses is
expected to be offset by lower than budgeted controllable operating
expenses and real estate taxes.
Portfolio Management
Our portfolio of apartment communities is diversified across
eight core markets in the United States and is also diversified by
price points, primarily “A” and “B”, averaging “A-” in quality.
Since the Separation at year-end 2020, AIR has sold properties for
$4.1 billion, approximately 41% of AIR’s gross asset value, and
used $2.2 billion to reduce leverage and $1.9 billion to acquire
properties that improve the quality and expected profitability of
our real estate portfolio. The $1.9 billion of acquisitions since
2021 represents 17% of AIR GAV and their incomes are growing faster
than Same Store income. (Please see “Recent Acquisitions” above.)
We expect to make further acquisitions and to increase our
allocation to higher growth properties.
AIR uses “paired trades” to fund acquisitions, basing our cost
of capital on the anticipated unlevered IRR of the communities or
joint venture interests sold. We require a spread, or accretion,
also measured by an unlevered IRR, higher by 200-basis points or
more from the communities acquired. This excess return is driven in
part by what we call the AIR Edge, the cumulative result of our
focus on resident selection, satisfaction, and retention,
continuing property upgrades, and relentless innovation in
delivering best-in-class property management.
The chart below shows changes in portfolio quality based on
customer incomes and apartment rents.
AIR
Aimco
Q1 2023
Q4 2019
Change
Residents
Average Household Income
$246,000
$165,000
49%
Median Household Income
$170,000
$116,000
47%
CSAT Score (out of 5)
4.29
4.30
(0.01)
Resident Retention
61.9%
56.8%
5.1%
Portfolio
Properties
75
124
(40%)
Apartment Homes
22,696
32,598
(30%)
Average Revenue per Apartment Home
$2,766
$2,272
22%
Redevelopment and Development ($M)
$—
$230
($230)
Mezzanine Investments ($M)
$—
$280
($280)
Over the same period, we have improved AIR’s portfolio by
reducing our exposure to regulatory risk. We have achieved this
through property sales in the New York City, Chicago, Seattle, and
California markets, as well as through a strategic joint venture in
California. This has allowed AIR to reallocate capital into states
such as Florida, with a more predictable rule of law, and into
submarkets such as Miami-Dade and Broward counties with higher
growth.
As a paired trade investor, AIR is agnostic to market changes
insofar as we buy and sell properties in the same market
conditions, with focus on gaining an accretive “spread”. As market
conditions change, AIR adjusts target returns and spreads to
reflect our changed cost of capital. Our paired trade approach is
intended to ensure that new acquisitions are accretive to earnings
in the near-term and will generate attractive spreads to unlevered
IRRs in the long-term.
Transactions
Acquisitions
As previously announced, in January, 2023 AIR acquired for $298
million, Southgate Towers, a 495-unit luxury apartment community
with 29,000 square feet of commercial space located in the South
Beach neighborhood of Miami Beach. AIR’s presence in South Beach, a
submarket with limited competitive supply, now comprises 1,630
apartment homes between Flamingo Towers and Southgate Towers. This
transaction demonstrates AIR’s use of distinctive acquisition
currencies including the cash proceeds from the fourth quarter 2022
sale of our New England portfolio, the assumption of $101.2 million
of property debt maturing in 2036 with interest at 4.15%, and the
issuance of $22.4 million of Operating Partnership Units (“OP
Units”). The acquisition is expected to provide an unlevered IRR
200-basis points or higher than our cost of capital, driven by the
implementation of the AIR Edge.
Dispositions
There were no dispositions in the first quarter of 2023.
Balance Sheet
We seek to increase financial returns by using leverage with
appropriate caution. We limit risk through our balance sheet
structure, employing low leverage and primarily long-dated debt. We
target a Net Leverage to Adjusted EBITDAre ratio between 5.0x and
6.0x but anticipate the actual ratio will vary based on the timing
of transactions. We maintain financial flexibility through ample
unused and available credit, holding properties with substantial
value unencumbered by property debt, maintaining an investment
grade rating, and using partners’ capital when it enhances
financial returns or reduces investment risk. We seek to minimize
refunding and repricing risk.
Components of Leverage
Our leverage includes AIR’s share of long-term, non-recourse
property debt secured by our apartment communities, together with
outstanding borrowings under our revolving credit facility, term
loans, unsecured notes payable, and preferred equity.
MARCH 31, 2023
($ in millions and represent AIR
share)*
Amount
Weighted-Avg. Maturity
(Yrs.)
Weighted-Avg. Term Before
Repricing (Yrs.)
Fixed rate loans payable
$
1,844
9.1
9.1
Floating rate loans payable
79
3.8
0.8
Non-recourse property debt
1,923
8.9
8.8
Term loans
800
2.8
4.2
Unsecured notes payable
400
7.2
7.2
Revolving credit facility borrowings
245
3.0
3.2
Preferred equity**
79
9.8
9.8
Total Leverage
$
3,448
6.9
7.2
Cash and restricted cash
(97
)
Net Leverage
$
3,350
Net Leverage to Adjusted
EBITDAre***
6.8x
* 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
of our preferred stock assuming it is called at the expiration of
its no-call period.
*** AIR plans to reduce leverage to its target of < 6x by
completion of pending sales and property NOI growth.
During the three months ended March 31, 2023, and on a leverage
neutral basis, AIR borrowed $320 million using 10-year fixed rate
financing, bearing interest at 4.9%. We used the proceeds to
refinance a floating-rate loan and to reduce by $230 million
borrowings on our revolving credit facility. This transaction
reduced floating-rate debt not subject to interest rate caps or
swaps to $120 million, 4% of outstanding leverage, net of cash
on-hand, and increased our weighted-average maturity by nine
months. As a result of these transactions, AIR has no debt maturing
before the second quarter of 2025. As a result of the Fannie Mae
facility described below, AIR has established funding sources that
could be used to repay all debt maturing before 2030.
Liquidity
We use our revolving credit facility for working capital and
other short-term purposes, and to secure letters of credit. At
March 31, 2023, our share of cash and restricted cash, excluding
amounts related to tenant security deposits, was $97 million
(invested in interests in federal government obligations) and we
had the capacity to borrow up to $751 million on our $1 billion
revolving credit facility.
In April, we established a secured credit facility with Fannie
Mae that provides for up to $1 billion of committed property level
financing, on an as needed basis. This facility has minimal upfront
costs, a 10-year duration, allows for the removal and substitution
of properties, and is priced based on the Fannie Mae grid, which
usually and today is lower than public and private bond pricing.
After consideration of the secured facility, total liquidity is
approximately $1.8 billion.
We manage our financial flexibility by maintaining investment
grade ratings that enhance access to debt capital markets, and
holding communities unencumbered by property debt that provide
access to secured lenders and, in particular, the attractive
availability and pricing of Fannie Mae and Freddy Mac. As of March
31, 2023, we held apartment communities unencumbered by debt with
an estimated fair market value of approximately $7.1 billion.
Dividend and Equity Capital Markets
On April 25, 2023, our Board of Directors declared a quarterly
cash dividend of $0.45 per share of Common Stock. This amount is
payable on May 30, 2023, to shareholders of record on May 19, 2023.
In setting AIR’s 2023 dividend, our Board of Directors targeted a
dividend level of approximately 75% of full year FFO per share (83%
of expected AFFO).
We expect that the after-tax dividend will benefit from AIR's
refreshed tax basis. In 2022, approximately 86% of our dividend was
taxable at capital gain rates, with the remainder taxable at
ordinary income rates. We believe the tax characteristics of our
dividend makes our stock more attractive to taxable investors, such
as foreign investors, taxable individuals, and corporations, than
dividends paid by peer REITs whose dividends are taxed at higher
rates. For example, AIR’s dividend characteristics in 2022 compare
favorably to a peer average of approximately 19% at capital gains
rates (vs. AIR at 86%), 71% at ordinary income rates (vs. AIR at
14%), and 10% treated as return of capital. As a result, an
investor in AIR common shares would retain after tax approximately
39% more of its dividend than would be retained after tax by an
investor in the average of peer shares.
Corporate Responsibility Update
During the first quarter, AIR was named a Kingsley Excellence
Elite Five multifamily company and a winner of the 2023 Kingsley
Excellence Awards for customer service. Of the winners, AIR ranked
second among all operators, and first among publicly traded REITs.
AIR is committed to world-class customer service, which we deliver
through listening to, learning from, and responding to our
residents every day. We also benefit from the support of great
leadership, contributions from exceptional teammates, and a strong
culture. These strengths are confirmed by such awards as AIR's 2023
Top Workplaces USA Award (the second consecutive year), a 10 time
winner of Top Workplace in Colorado (by the Denver Post), Top
Workplace in Philadelphia (by The Philadelphia Inquirer), as well
as Built in 2023 Best Places to Work in Colorado, Los Angeles,
Miami, and Washington, DC. We take seriously our responsibility to
care for our customers, our neighbors, and each other as teammates.
We are grateful for these recognitions and consider them
confirmation of our success.
2023 Outlook
AIR reaffirms its full year Same Store Operations guidance and
has narrowed its 2023 Pro Forma FFO per share expectations by $0.02
per share, while maintaining the $2.41 midpoint:
YEAR-TO-DATE March 31,
2023
FULL YEAR 2023
($ amounts represent AIR share)
Net loss per share
$(0.08)
($0.18) to ($0.06)
Pro forma FFO per share
$0.55
$2.36 to $2.46
Pro forma FFO per share at the
midpoint
$2.41
Same Store Operating Components
Revenue change compared to prior year
10.1%
7.0% to 9.0%
Expense change compared to prior year
3.3%
5.0% to 6.5%
NOI change compared to prior year
12.7%
7.3% to 10.3%
Other Earnings
Value of property acquisitions
$298M
$298M
Proceeds from dispositions of real
estate
—
$50M
AIR Share of Capital
Enhancements
Capital Enhancements
$15M
$80M to $90M
Balance Sheet
Net Leverage to Adjusted EBITDAre
6.8x
≤6.0x
In the second quarter of 2023, AIR anticipates Pro forma FFO
between $0.55 and $0.59 per share.
Earnings Conference Call
Information
Live Conference Call:
Conference Call Replay:
Tuesday, May 2, 2023 at 1:00 p.m. ET
Replay available until July 31, 2023
Domestic Dial-In Number:
1-833-470-1428
Domestic Dial-In Number:
1-866-813-9403
International Dial-In Number: Global
Dial-In Numbers
International Dial-In Number:
+44-204-525-0658
Passcode: 749836
Passcode: 495809
Live Webcast: Webcast Link
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
Apartment Income REIT Corp (“AIR Communities”) (NYSE: AIRC) is a
publicly traded, self-administered real estate investment trust
(“REIT”). AIR’s portfolio comprises 75 communities totaling 25,797
apartment homes located in 10 states and the District of Columbia.
AIR offers a simple, predictable business model with focus on what
we call the AIR Edge, the cumulative result of our focus on
resident selection, satisfaction, and retention, as well as
relentless innovation in delivering best-in-class property
management. The AIR Edge is a durable operating advantage in
driving organic growth, as well as making possible the opportunity
for excess returns for properties new to AIR’s platform. For
additional information, please visit 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 2023
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: 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, which may be impacted by global supply chain disruptions;
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 interest rate changes and 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; and 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. 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, 2022, 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,
2023
2022
REVENUES
Rental and other property revenues (1)
$
209,923
$
179,261
Other revenues
2,070
2,217
Total revenues
211,993
181,478
OPERATING EXPENSES
Property operating expenses (1)
75,453
63,236
Depreciation and amortization
95,666
84,549
General and administrative expenses
(2)
7,180
6,597
Other expenses, net
5,798
4,018
Total operating expenses
184,097
158,400
Interest income
1,525
13,481
Interest expense
(36,187
)
(22,107
)
Loss on extinguishment of debt
(2,008
)
(23,636
)
Gain on dispositions of real estate
—
412,003
Loss from unconsolidated real estate
partnerships
(1,035
)
(2,014
)
(Loss) income before income tax (expense)
benefit
(9,809
)
400,805
Income tax (expense) benefit
(139
)
579
Net (loss) income
(9,948
)
401,384
Noncontrolling interests:
Net (income) loss attributable to
noncontrolling interests in consolidated real estate
partnerships
(685
)
564
Net income attributable to preferred
noncontrolling interests in AIR OP
(1,570
)
(1,603
)
Net loss (income) attributable to common
noncontrolling interests in AIR OP
826
(24,167
)
Net income attributable to noncontrolling
interests
(1,429
)
(25,206
)
Net (loss) income attributable to AIR
(11,377
)
376,178
Net income attributable to AIR preferred
stockholders
(43
)
(42
)
Net income attributable to participating
securities
(37
)
(255
)
Net (loss) income attributable to AIR
common stockholders
$
(11,457
)
$
375,881
Net (loss) income attributable to AIR
common stockholders per share – basic
$
(0.08
)
$
2.40
Net (loss) income attributable to AIR
common stockholders per share – diluted
$
(0.08
)
$
2.39
Weighted-average common shares
outstanding – basic
148,810
156,736
Weighted-average common shares
outstanding – diluted
148,810
157,088
(1)
Rental and other property revenues for the
three months ended March 31, 2022 is inclusive of $15.0 million of
revenues related to sold properties. Property operating expenses
for the three months ended March 31, 2022 is inclusive of $5.3
million of expenses related to sold properties.
(2)
In setting our G&A benchmark of 15 bps
of Gross Asset Value, we consider asset management fees earned in
our joint ventures as a reduction of general and administrative
expenses. In accordance with GAAP, general and administrative
expenses are shown gross of these asset management fees. The
California joint venture is consolidated on our balance sheet and
accordingly, fees earned in 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 in this venture are included in loss
from unconsolidated real estate partnerships. Fees earned from
joint ventures were $1.5 million and $1.7 million for the three
months ended March 31, 2023 and 2022, respectively.
Consolidated Balance Sheets
(in thousands) (unaudited)
March 31,
December 31,
2023
2022
Assets
Real estate
$
8,415,133
$
8,076,394
Accumulated depreciation
(2,534,976
)
(2,449,883
)
Net real estate
5,880,157
5,626,511
Cash and cash equivalents
90,214
95,797
Restricted cash
24,872
205,608
Goodwill
32,286
32,286
Other assets (1)
544,818
591,681
Total Assets
$
6,572,347
$
6,551,883
Liabilities and Equity
Non-recourse property debt
$
2,312,196
$
1,994,651
Debt issue costs
(13,057
)
(9,221
)
Non-recourse property debt, net
2,299,139
1,985,430
Term loans, net
797,092
796,713
Revolving credit facility borrowings
245,000
462,000
Unsecured notes payable, net
397,577
397,486
Accrued liabilities and other (1)
521,494
513,805
Total Liabilities
4,260,302
4,155,434
Preferred noncontrolling interests in AIR
OP
77,143
77,143
Equity:
Perpetual Preferred Stock
2,000
2,000
Class A Common Stock
1,492
1,491
Additional paid-in capital
3,432,573
3,436,635
Accumulated other comprehensive income
29,070
43,562
Distributions in excess of earnings
(1,405,520
)
(1,327,271
)
Total AIR equity
2,059,615
2,156,417
Noncontrolling interests in consolidated
real estate partnerships
(79,017
)
(78,785
)
Common noncontrolling interests in AIR
OP
254,304
241,674
Total Equity
2,234,902
2,319,306
Total Liabilities and Equity
$
6,572,347
$
6,551,883
(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/20230501005560/en/
Matthew O’Grady Senior Vice President, Capital Markets (303)
691-4566 Mary Jensen Head of Investor Relations (303) 691-4349
investors@aircommunities.com
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