EX-99.1 2 airc-ex99_1.htm EX-99.1 EX-99.1

 

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Page

 

 

3

 

Earnings Release

 

 

14

 

Consolidated Statements of Operations

 

 

15

 

Consolidated Balance Sheets

 

 

 

16

 

Schedule 1 – Funds From Operations Reconciliation

 

 

17

 

Schedule 2 – Funds From Operations Information

 

 

19

 

Schedule 3 – Property Net Operating Income

 

 

 

20

 

Schedule 4 – Apartment Home Summary

 

 

21

 

Schedule 5 – Capitalization and Financial Metrics

 

 

23

 

Schedule 6 – Same Store Operating Results

 

 

26

 

Schedule 7 – Portfolio Data by Market

 

 

27

 

Schedule 8 – Apartment Community Disposition and Acquisition Activity

 

 

28

 

Schedule 9 – Apartment Community Capital Additions Information

 

 

29

 

Glossary and Reconciliations of Non-GAAP Financial and Operating Measures

 

 


 

AIR Reports First Quarter 2022 Results; First Quarter FFO of $0.57 per share $0.02 above Midpoint of Guidance; Pro Forma Leverage to EBITDAre at 5.4x, within targeted range.

Denver, Colorado, May 2, 2022 – 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."

3


 

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.

4


 

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.

 

5


 

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.

6


 

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.

7


 

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.

8


 

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:
o
$534 million is expected to be repaid with proceeds from the Aimco note;
o
$159 million is expected to be repaid with proceeds from April property sales;
o
$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
o
$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.
 

9


 

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.
o
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.

 

10


 

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

11


 

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.

Contact

Beth Hagan

(303) 757-8101

investors@aircommunities.com

 

12


 

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.

 

13


 

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.

14


 

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.

15


 

Supplemental Schedule 1

 

Funds From Operations Reconciliation

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

(in thousands, except per share data) (unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net income attributable to AIR common stockholders

 

$

375,881

 

 

$

83,196

 

Adjustments:

 

 

 

 

 

 

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

 

 

81,457

 

 

 

69,495

 

Gain on derecognition of leased properties and dispositions of real estate

 

 

(412,003

)

 

 

(84,032

)

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

 

 

 

 

 

1,800

 

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

 

 

20,041

 

 

 

644

 

Amounts allocable to participating securities

 

 

208

 

 

 

7

 

NAREIT FFO attributable to AIR common stockholders

 

$

65,584

 

 

$

71,110

 

Adjustments:

 

 

 

 

 

 

Loss on extinguishment of debt (1)

 

 

23,636

 

 

 

1,010

 

Separation and transition related costs (2)

 

 

869

 

 

 

2,165

 

Non-cash straight-line rent (3)

 

 

642

 

 

 

669

 

Incremental cash received from leased properties (4)

 

 

153

 

 

 

162

 

Casualty losses and other (5)

 

 

203

 

 

 

 

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

 

 

(1,565

)

 

 

(215

)

Amounts allocable to participating securities

 

 

(13

)

 

 

(2

)

Pro Forma FFO

 

$

89,509

 

 

$

74,899

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

 

156,736

 

 

 

148,611

 

Dilutive common share equivalents

 

 

352

 

 

 

219

 

Total shares and dilutive share equivalents

 

 

157,088

 

 

 

148,830

 

 

 

 

 

 

 

 

Net income attributable to AIR per common share – diluted

 

$

2.39

 

 

$

0.56

 

NAREIT FFO per share – diluted

 

$

0.42

 

 

$

0.48

 

Pro forma FFO per share – diluted

 

$

0.57

 

 

$

0.50

 

(1)
We incurred $24 million and $1 million of debt extinguishment costs from the prepayment of debt in 2022 and 2021, respectively. In 2022, approximately 50% of the prepayment penalty reflects the mark-to-market on the debt and accelerates future interest expense. The remaining 50% is an investment in increased financial flexibility. We excluded these costs from Pro forma FFO because we believe they are not representative of future cash flows.
(2)
During 2022, we incurred consulting, placement, legal, and other transition related costs as we fully implement AIR’s business model, including projects intended to increase efficiency and reduce costs in future periods. During 2021, we incurred tax, legal and other costs in connection with the separation. We excluded these costs from Pro forma FFO because we believe they are not representative of ongoing operating performance.
(3)
In 2018, we assumed a 99-year ground lease with scheduled rent increases. Due to the terms of the lease, GAAP rent expense will exceed cash rent payments until 2076. We include the cash rent payments for this ground lease in Pro forma FFO but exclude the incremental straight-line non-cash rent expense. The rent expense for this lease is included in other expenses, net, in our consolidated statements of operations.
(4)
We have certain properties leased. Due to the terms of these leases, cash received in 2022 and 2021 exceeded GAAP income. We include the cash lease income in Pro forma FFO.
(5)
In the third quarter of 2021, we incurred casualty losses due to Hurricane Ida-induced flooding in downtown Philadelphia causing damage to our Park Towne Place apartment community, and continued to incur incremental costs related to its cleanup in 2022. We excluded these costs from Pro forma FFO because of the unusual nature of the weather event.

16


 

Supplemental Schedule 2(a)

 

Funds From Operations Information

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

(consolidated amounts, in thousands) (unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenues, before utility reimbursements

 

 

 

 

 

 

Same Store

 

$

150,799

 

 

$

146,678

 

Other Real Estate

 

 

15,644

 

 

 

1,914

 

Total revenues, before utility reimbursements

 

 

166,443

 

 

 

148,592

 

Expenses, net of utility reimbursements (1)

 

 

 

 

 

 

Same Store

 

 

40,781

 

 

 

41,563

 

Other Real Estate

 

 

6,354

 

 

 

1,364

 

Total expenses, net of utility reimbursements

 

 

47,135

 

 

 

42,927

 

Net operating income (2)

 

 

119,308

 

 

 

105,665

 

Lease income

 

 

6,534

 

 

 

6,441

 

Property management expenses, net

 

 

(5,342

)

 

 

(6,338

)

Property income

 

 

120,500

 

 

 

105,768

 

 

 

 

 

 

 

 

General and administrative expenses (3)

 

 

(5,034

)

 

 

(4,414

)

 

 

 

 

 

 

 

Interest expense

 

 

(22,107

)

 

 

(36,025

)

Loss on extinguishment of debt

 

 

(23,636

)

 

 

(1,010

)

Preferred dividends