AIR Reports Fourth Quarter and Full Year 2022 Results: Record Same Store NOI Growth of 14.0%; Operating Fundamentals Across All Markets Remain Strong

Fourth Quarter Blended Signed Lease Rate Growth of 10.2%; Initiating 2023 Same Store NOI Growth Guidance Range of 7.3% - 10.3%

DENVER--(BUSINESS WIRE)--Apartment Income REIT Corp. ("AIR") (NYSE: AIRC) announced today fourth quarter and full year results for 2022.

Terry Considine, Chief Executive Officer, comments: “2022 was a terrific year! Average rents in our portfolio reached a new high. Same Store NOI growth of 14% surpassed our expectations. NOI in our newly acquired properties grew even faster. We had the highest operating margins in the sector. We were the most efficient in converting rent to Free Cash Flow.”

“Acquisitions have greatly improved our portfolio. Paired trades improved both portfolio quality and rental growth rates. A good example is our fourth quarter trade of 50-year-old garden apartments in the outer suburbs of Boston for an essentially new midrise building in dynamic Miami Beach. We invest in locations that are attractive to high quality residents and have some protection from competitive new supply.”

“Keith and his Ops team achieved fourth quarter operating margins above 76% with controllable operating expenses down 10 basis points for the full year, an impressive result during the highest inflation of the past 40 years.”

“We have excellent prospects for 2023, and plan for more of the same: Keith will continue to select the best residents, and work hard to satisfy and retain them. John and Josh on his team will look for acquisitions whose returns, magnified by the AIR Edge, will be highly accretive to AIR's cost of capital. And Paul will keep score, maintaining a safe balance sheet with low leverage, long duration, limited interest rate exposure, and abundant liquidity.”

Paul Beldin, Chief Financial Officer, comments further: “2022 was highly productive. We lowered leverage, extended its duration, and reduced by 90% our exposure to higher rates, from $1.5 billion to $150 million. We placed our inaugural corporate bond and earned a Moody's investment grade rating. We now have access to all capital sources in the debt markets.”

“We have no debt maturities until the second quarter of 2025. Fourth quarter leverage to EBITDAre of 6.05x was $25 million above target due to the timing of share repurchases and the closing of a property sale.”

“The strength of our balance sheet enabled us to buy back 8 million shares, 5% of outstanding stock, at a substantial discount to its underlying value.”

“In 2023, we expect continued momentum with Same Store Revenue growth of 7.0% to 9.0%, Same Store Expense growth of 5.0% to 6.5%, and Same Store NOI growth of 7.3% to 10.3%.”

“Acquisitions play an important part. The Class of 2021, now in our Same Store portfolio, adds 100 basis points to 2023 Same Store NOI growth. Outside Same Store, we have an acquisition portfolio including the Classes of 2022 and 2023 with annualized NOI growth rates greater than 20%.”

“We expect Net Leverage to Adjusted EBITDAre between 5.0x to 6.0x. We expect Net G&A to be less than 15 basis points of Gross Asset Value. At the bottom line, we expect 2023 Pro Forma FFO per share to be between $2.35 and $2.47, approximately 10% higher than 2022 Pro Forma Run Rate FFO per share of $2.19, which excludes contribution from the Aimco note repayment received in 2022.”

Financial Results: Fourth Quarter Pro Forma FFO Per Share

	FOURTH QUARTER								YEAR-TO-DATE
(all items per common share – diluted)	2022		2021			Variance			2022		2021		Variance
Net income	$	2.17	$	2.36			(8.1	%)	$	5.81	$	2.89		101.0	%
NAREIT FFO	$	0.58	$	(0.11	)	nm			$	2.17	$	1.11		95.5	%
Pro forma adjustments		0.01		0.67			(98.5	%)		0.24		1.03		(76.7	%)
Pro forma FFO	$	0.59	$	0.56			5.4	%	$	2.41	$	2.14		12.6	%

Operating Results: Same Store NOI Up 4.2% Sequentially

The table below includes the operating results of the 58 AIR properties that meet our definition of Same Store. Same Store properties generated approximately 86% of AIR’s year-to-date 2022 rental revenue.

	FOURTH QUARTER												FULL YEAR
	Year-over-Year							Sequential					Year-over-Year
($ in millions) *	2022		2021		Variance			3rd Qtr.		Variance			2022		2021		Variance
Revenue, before utility reimbursements	$	141.5	$	128.7		9.9	%	$	138.9		1.8	%	$	544.5	$	494.3		10.2	%
Expenses, net of utility reimbursements		33.8		33.9		(0.1	%)		35.7		(5.2	%)		139.6		139.0		0.4	%
Net operating income (NOI)	$	107.6	$	94.9		13.5	%	$	103.3		4.2	%	$	404.9	$	355.3		14.0	%

*Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 6.

Fourth quarter 2022 Same Store NOI margin was 76.1%, up 240 basis points from the fourth quarter of 2021. Same Store NOI margin benefited from Residential Rental Income growth of 9.7% and a decline of 10 basis points in controllable operating expenses.

Components of Same Store Revenue Growth – The table below summarizes the change in the components of our Same Store Revenue growth.

	FOURTH QUARTER						YEAR-TO-DATE
Same Store Revenue Components	Year-over-Year			Sequential			Year-over-Year
Residential Rents		10.7	%		1.8	%		8.4	%
Average Daily Occupancy		(1.0	%)		1.2	%		0.7	%
Residential Rental Income		9.7	%		3.0	%		9.1	%
Bad Debt, net of recoveries		(0.5	%)		(0.3	%)		0.7	%
Late Fees and Other		0.4	%		(0.8	%)		0.3	%
Residential Revenue		9.6	%		1.9	%		10.1	%
Commercial Revenue		0.3	%		(0.1	%)		0.1	%
Same Store Revenue Growth		9.9	%		1.8	%		10.2	%

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 either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal.

The table below depicts 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.

	FOURTH QUARTER			YEAR-TO-DATE			2022			2023
	2022	2021*	Variance	2022	2021*	Variance	Oct	Nov	Dec	Jan
Transacted Leases*
Renewal rent changes	9.5%	11.9%	(2.4%)	11.0%	5.8%	5.2%	11.0%	8.6%	5.2%	11.1%
New lease rent changes	11.4%	15.4%	(4.0%)	16.2%	3.7%	12.5%	13.4%	11.4%	8.0%	11.0%
Weighted-average rent changes	11.1%	14.5%	(3.4%)	13.8%	4.6%	9.2%	12.9%	11.0%	7.8%	11.1%
Signed Leases*
Renewal rent changes	8.7%	11.5%	(2.8%)	10.9%	6.0%	4.9%	10.3%	10.0%	7.5%	8.9%
New lease rent changes	10.6%	14.6%	(4.0%)	16.1%	4.4%	11.7%	11.6%	10.5%	9.4%	9.7%
Weighted-average rent changes	10.2%	13.9%	(3.7%)	13.6%	5.1%	8.5%	11.4%	10.4%	8.8%	9.4%
Average Daily Occupancy	97.1%	98.1%	(1.0%)	97.0%	96.3%	0.7%	96.7%	97.1%	97.4%	97.5%

*Amounts are based on our current Same Store population and represent AIR's share. Prior to 2022, these amounts were reported on a non-ownership adjusted basis. Amounts may differ from those previously reported.

Same Store Markets – Consumer demand remained strong through the quarter, with signed new lease rates up 10.6% from the prior leases and renewals up 8.7%, resulting in a weighted-average increase of 10.2%. We saw a sequential increase in ADO of 120 basis points to 97.1% as the third quarter includes higher frictional vacancy consistent with the higher move out volume that is typical during the summer leasing season. Year-to-date ADO of 97.0% was 70 bps higher than in the prior year. We anticipate maintaining occupancy above 97% through the first quarter before summer leasing activity begins.

Acquisition Portfolio – The acquisition portfolio is comprised of five properties acquired in 2021, four properties acquired in 2022, and Southgate Towers, which was our first acquisition of 2023. These acquisitions represent 17% of AIR GAV. We target a 30% allocation to the high-growth Acquisition Portfolio.

At those properties acquired in 2021, representing 8% of AIR GAV, leasing continues to exceed expectations with signed blended lease rates up 17.3% in the fourth quarter. Revenue growth in the fourth quarter, which was the first reporting period with a year-over-year comparison, was more than 50% above the 2022 Same Store portfolio. These properties are included in AIR's Same Store portfolio in 2023, and are expected to increase the rate of Same Store NOI growth by approximately 100 basis points.

At properties acquired in 2022, performance is consistent with our expectations, and rental rate achievement is in line with our projections.

The impact of the AIR Edge is most significant between the second and fourth year of ownership where we are able to improve the resident profile, optimize the rent roll, and make income generating improvements, which in aggregate are expected to generate an unlevered internal rate of return ("IRR") of 10% or higher, more than 200 basis points higher than AIR’s cost of capital.

Rent Collection Update

We measure residential rent collection as the dollar value of payments received as a percentage of all residential amounts owed. In the fourth quarter, residents paid, on a current basis, 98.7% of all residential revenue billed during the quarter. The remaining 1.3% of revenue was treated as bad debt. Gross bad debt, which is bad debt before any consideration of government assistance payments and payments from former residents, was 1.5% of revenue, 100 basis points of which is due to governmental protections in California and court delays in many jurisdictions. Governmental protections in California are now expected to end on March 31, 2023 and the courts across the country are continuing to catch up on a backlog of eviction cases. As a result, we anticipate that AIR's bad debt should continue to normalize throughout 2023 and trend toward our typical loss of approximately 30 basis points of revenue.

As of December 31, 2022, our proportionate share of gross residential accounts receivable was $7.6 million. After consideration of tenant security deposits and reserves for uncollectible amounts, our net exposure is below $0.1 million, which we anticipate collecting during the first quarter of 2023.

Our accounts receivable balance has decreased from $11.7 million at the beginning of the year, and the number of residents delinquent by two or more months has decreased from 1,000 at the start of 2022 to approximately 250 today, the vast majority of which are now in the collection process.

Portfolio Management

Our portfolio of apartment communities is diversified across primarily “A” and “B” price points, averaging “A-” in quality, and also across eight core markets in the United States. In the two years since the Separation, AIR has recycled approximately $4.1 billion, or 41%, of its gross asset value, all during a period of attractive pricing for multi-family properties, using $2.2 billion of gross proceeds from property sales and joint ventures to reduce leverage and to acquire $1.9 billion of acquisitions to improve the quality and expected profitability of our real estate portfolio. The $1.9 billion of acquisitions in the last two years, inclusive of the Southgate Towers, represents 17% of AIR GAV. We target a 30% allocation to this high-growth Acquisition Portfolio.

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 of an unlevered IRR of at least 200 basis points or higher on 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, as well as relentless innovation in delivering best-in-class property management.

	AIR	Aimco
	Q4 2022 or YTD 2022	Q4 2019 or 2019A	Change
Residents
Average Household Income	$227,000	$165,000	38%
Median Household Income	$158,000	$116,000	36%
CSAT Score (out of 5)	4.26	4.30	(0.04)
Portfolio
Properties	74	124	(40%)
Apartment Homes	22,200	32,598	(32%)
Average Revenue per Apartment Home	$2,747	$2,272	21%
Redevelopment and Development ($M)	$–	$230	($230)
Mezzanine Investments ($M)	$–	$280	($280)
Low G&A
Net G&A as % of GAV	<15 bps (at AIR Target)	36 bps (per GSA)	-21 bps
Balance Sheet
Net Leverage / EBITDAre	6.05x	7.6x	(1.55x)
Subsequent 24 Month Refunding (% Total Debt)*	—%	15%	(15%)
Subsequent 24 Month Repricing (% Total Debt)*	—%	15%	(15%)
Unencumbered Properties ($B)	$7.6	$2.4	$5.2

*Pro forma for the refinancing of a floating rate loan using proceeds from our fixed rate facility subsequent to year-end.

Since 2019, we have improved AIR's portfolio through reducing our exposure to regulatory risk. We have achieved this through property sales in the New York, Chicago, and California markets, as well as through a strategic joint venture in California. This has allowed AIR to reallocate capital into higher growth submarkets, such as Miami-Dade and Broward counties, now 22% of AIR GAV, both markets with limited REIT competition.

We estimate real estate values declined in 2022 by approximately 10% to 12% on average, the result of approximately 90 to 150 basis points of NOI cap rate expansion with about half the impact offset by strong NOI growth in the year. As a paired trade investor, AIR is agnostic as 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 new 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 and subsequent to the end of the quarter, AIR acquired Southgate Towers, a 495-unit luxury apartment community located in the South Beach neighborhood of Miami Beach for $298 million. AIR's presence in South Beach, a submarket with limited supply, now comprises 1,630 apartment homes between Flamingo Towers and Southgate Towers. This transaction is consistent with AIR's paired trade strategy where we look to achieve, on new acquisitions, unlevered IRRs of 200 basis points or higher relative to our cost of capital, driven by the implementation of the AIR Edge. AIR funded the transaction with proceeds from the New England portfolio sale discussed below, the assumption of $101.2 million of 4.15% in place financing maturing in 2036, and the issuance of $22.4 million of Operating Partnership Units (“OP Units”). To neutralize the issuance of OP Units, in November and December AIR repurchased an equal number of shares of common stock.

Dispositions

During the fourth quarter, we sold six properties totaling 1,314 units in the New England region for a gross sales price of $495 million, representing a trailing twelve-month NOI cap rate of 4.5%. Since the end of 2020, AIR has completed $2.2 billion of property sales and joint venture transactions at prices averaging 17% above internal estimates of GAV as measured in Q1 2020.

Capital Allocation – Share Repurchases

During the fourth quarter, AIR repurchased 3.9 million shares for $145 million, at an average price of $37.06 per share.

For the year, we repurchased an aggregate of 8.0 million shares at an average price of $39.49 for $317 million. We are authorized by AIR's Board of Directors to repurchase up to an additional $183 million of shares. We consider share buybacks as part of a balanced investment program.

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 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 encumbering our apartment communities, together with outstanding borrowings under our revolving credit facility, our term loans, unsecured notes payable, and preferred equity.

	DECEMBER 31, 2022
($ in millions)*	Amount			Weighted-Avg. Maturity (Yrs.)		Weighted-Avg. Term Before Repricing (Yrs.)
Fixed rate loans payable	$	1,467			8.8		8.8
Floating rate loans payable**		138			3.1		3.1
AIR share of long-term, non-recourse property debt		1,604			8.3		8.3
Term loans		800			3.0		4.5
Unsecured notes payable		400			7.5		7.5
Outstanding borrowings on revolving credit facility		462			3.3		3.3
Preferred equity***		79			9.8		9.8
Total Leverage	$	3,346			6.3		6.8
Cash and restricted cash		(287	)
Net Leverage	$	3,058
Net Leverage to Adjusted EBITDAre****	6.05x

* Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 5.

** Includes one loan with an interest rate cap at 5.35% and a second floating rate loan that was refinanced in January 2023.

*** 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.

**** Due to the timing of accretive share repurchases in the fourth quarter, net leverage to adjusted EBITDAre is temporarily elevated.

Subsequent to year-end, and on a leverage neutral basis, AIR borrowed $320 million using 10-year fixed rate financing, bearing interest at 4.9%. Proceeds were used to refinance a floating rate loan and reduce borrowings by $230 million on our revolving credit facility. This transaction reduced floating rate debt not subject to interest rate caps or swaps to 4%, or $150 million, and increased our weighted-average maturity by nine months. Pro forma for this transaction, AIR has no debt maturing before the second quarter of 2025.

Liquidity

We use our revolving credit facility for working capital and other short-term purposes, and to secure letters of credit. At December 31, 2022, our share of cash and restricted cash, excluding amounts related to tenant security deposits, was $287 million and we had the capacity to borrow up to $527 million on our revolving credit facility, bringing total liquidity to $814 million.

We manage our financial flexibility by maintaining an investment grade rating from S&P and Moody's, from which AIR was awarded a first-time investment grade Baa2 issuer rating in the fourth quarter, and holding communities that are unencumbered by property debt. As of December 31, 2022, we held unencumbered apartment communities with an estimated fair market value of approximately $7.6 billion, almost triple the amount as of December 31, 2020. AIR's two investment grade ratings provide the company access to all debt capital market sources.

Dividend and Equity Capital Markets

On January 31, 2023, our Board of Directors declared a quarterly cash dividend of $0.45 per share of Common Stock. This amount is payable on February 28, 2023, to shareholders of record on February 17, 2023. On an annualized basis, the dividend represents $1.80 per share, reflecting a dividend yield of approximately 4.6% based on AIR's closing share price on February 8, 2023. In setting AIR's 2022 dividend, our Board of Directors targeted a dividend level of approximately 75% of full year FFO per share.

As planned, AIR's refreshed tax basis is resulting in a tax-efficient dividend being paid to stockholders. 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 by comparison to peer shares whose dividends are taxed at higher rates. For example, AIR’s dividend characteristics in 2022 compare to a peer average of approximately 19% at capital gains rates and 71% at ordinary income rates, with 10% treated as return of capital. As a result, an investor would retain approximately 39% more of its dividend on an after tax basis through AIR’s common shares as compared to the peer average.

Corporate Governance and Responsibility Update

During the year, AIR met directly with holders of more than 70% of its outstanding common shares. Through a series of lunches, dinners, video meetings, conferences, property tours, in-person meetings, and calls, select Board members and Management discussed a variety of topics, such as governance, investment strategy, operations, and corporate responsibility, including CEO succession planning and Environmental, Social, and Governance ("ESG").

Our commitment to strong corporate governance was further demonstrated in the fourth quarter, where AIR’s Board determined to amend AIR's charter to reduce to a simple majority vote the threshold to amend our bylaws, which will be voted on at our next annual meeting. Our commitment extends not just to maintaining open lines of communication with shareholders, but also to improving as best practices in governance evolve. This direct shareholder engagement yielded positive results with the outcome of our annual meeting as shareholders overwhelmingly supported our directors, as well as "say on pay" where AIR had the highest support among peers.

Strong progress was made by AIR in 2022 in advancing its commitments to responsibility beyond governance, which is detailed in AIR’s newly launched corporate responsibility website and our annual corporate responsibility report. Some highlights of 2022 include:

• Publishing of goals and targets consistent with the UN Sustainability Goals, with an additional commitment to transparent, data-driven disclosures consistent with the Sustainability Accounting and Standards Board (“SASB”), which guides the disclosure of financially material sustainability information by companies to their investors. The standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each industry.
• A GRESB score of 78, which includes a perfect social responsibility score, a near perfect score in corporate governance, and an “A” for both public disclosure and alignment with the Task Force for Climate-Related Financial Disclosures (“TCFD”), which informs investors as to which companies are most at risk from climate change, best prepared, and taking action.
• Being named a Kingsley Elite Five, second overall and first among publicly traded peers. To earn the award, a property’s resident satisfaction must exceed The Kingsley Index™, which is the most comprehensive performance benchmarking database in the real estate industry, and represents over six million prospects and residents surveyed annually.
• Received a 2022 Top Workplaces USA Award for the second consecutive year and named a 2022 Healthiest Employer in Colorado. Both awards are based solely on employee feedback gathered through a third-party survey. The anonymous Top Workplaces USA survey measures 15 culture drivers that are critical to the success of any organization, including alignment, execution, connection, and more.

2023 Outlook

We expect 2023 Pro forma FFO per share in the range of $2.35 to $2.47. At the guidance range midpoint, projected 2023 FFO per share is 10% higher than 2022 Run Rate FFO per share of $2.19, which excludes contribution from the Aimco note repayment received in 2022. The $0.22 of net growth is comprised of:

• $0.24 per share from Same Store NOI growth of 8.8%, inclusive of an approximate 100 basis point benefit due to the inclusion of the faster growing Class of 2021 properties;
• $0.06 per share of incremental contribution from non-same store properties, net of dilution from property sales;
• ($0.18) per share from higher interest expense:
  • ($0.04) per share due to the earn-in of our 2022 balance sheet restructuring
  • ($0.08) due to leverage used to fund 2022 and 2023 acquisitions and Capital Enhancements
  • ($0.06) due to leverage used to fund 2022 share repurchases, and
• $0.08 per share benefit from 2022 share repurchases
• $0.02 per share of other items.

Our guidance ranges are based on the following components:

	FULL YEAR 2023	FULL YEAR 2022
($ amounts represent AIR Share)
Net (loss) income per share	($0.18) to ($0.06)	$5.81
Pro forma FFO per share	$2.35 to $2.47	$2.41
Run rate Pro forma FFO per share	$2.41	$2.19
Pro forma FFO per share at the midpoint	$2.41	$2.41
Same Store Operating Components
Revenue change compared to prior year (1)	7.0% to 9.0%	10.2%
Expense change compared to prior year	5.0% to 6.5%	0.4%
NOI change compared to prior year (2)	7.3% to 10.3%	14.0%
Other Earnings
Value of property acquisitions and cost of lease cancellations	$298M	$840M
Proceeds from dispositions of real estate, net	$50M	$1.3B
AIR Share of Capital Enhancements
Capital Enhancements	$80M to $90M	$88M
Balance Sheet
Year-End Net Leverage to Adjusted EBITDAre	≤6.0x	6.05x

(1)	At the midpoint, 2023 revenue growth is derived from the following:
	Components of Same Store Revenue Growth	Contribution
	Earn-in from 2022 Leasing Activity	5%
	Current Loss to Lease of 5%	2%
	Return on Capital Enhancements	1%
	2023 Same Store Revenue Growth at the Midpoint	8%
(2)	NOI growth is inclusive of an approximate 100 basis point benefit due to the inclusion of the faster growing Class of 2021 properties.

In the first quarter of 2023, AIR anticipates Pro forma FFO between $0.53 and $0.57 per share.

Appendix A – AIR Perspective on Macroeconomic Factors

AIR was designed with emphasis on stability, predictability, and efficiency in its business model. Through our high-quality portfolio and best-in-class property operations, what we call the AIR Edge, we expect to be able to generate stable and durable growth across economic cycles. As markets remain turbulent, AIR is either well positioned, well prepared, or both, around several macroeconomic factors impacting operating performance and cost of capital.

• Inflation – In 2022, we experienced the most significant CPI inflation in 40 years. Apartments have shown their ability to reprice their rental rates to offset inflation. Combined with the increase of demand following economic recovery from the pandemic, rent growth was substantial as evidenced in 2022 with peers averaging Same Store Revenue growth of approximately 11%. Notwithstanding a high rate of inflation, AIR's emphasis on efficiency resulted in negative 10 basis points of growth in controllable operating expense (i.e., property operating expense net of real estate taxes, insurance, and utilities) over 2022, consistent with our now 13 year track record at 10 basis points of annual negative growth. AIR also expects to maintain net G&A expense at less than 15 basis points of GAV in 2023.
  
  The result of an increasing top-line and stable expenses make for levered improvement to growth in Same Store NOI, measured at 14.0% in 2022. Inflation that is “higher for longer” will support relative outperformance by apartment owners in general, and by AIR in particular.
  
  
• Recession – Recessions can be mild and severe. The two most recent recessions were severe for the US economy, but much less so for the apartment business in general, and for AIR in particular.
  
  In general, the rate of bad debt, early termination of leases, and rates of turnover are a function of the quality of the property’s customer base at the arrival of the recession. During the fourth quarter, the average and median household income of AIR's new residents were $227,000 and $158,000, respectively, and our rent-to-income ratio was 20.1% for a household, higher than in the third quarter reflecting our mix of new business. More importantly, our residents have FICO scores that average 90 points higher than the national renter average. We do not expect a significant increase in bad debt in the event of a recession.
  
  Recessions are often localized to particular markets or industries. The recession in 2001 following the collapse of the “dot-com” economy was severe in the Bay Area technology markets, but less so, by example, in Philadelphia or Washington, D.C. The AIR portfolio is intentionally diversified across markets and submarkets with different and usually offsetting dynamics. Further, the AIR portfolio is diversified by price point with an expectation in a recession that “B” apartments gain even as “A” apartments potentially decline. AIR currently owns both “A” and “B” properties (55% and 45% of GAV, respectively), and offers apartment units at monthly price points ranging from less than $1,200 to over $20,000. Both property classes have similar average rent-to-income coverage (19% in the "A" portfolio and 22% in the "B" portfolio); however, “B” properties are likely to benefit from increased demand from customers that are more price sensitive in a recession, while “A” communities benefit from increased demand from customers “trading up” during a time of economic recovery.
  
  Our experience in the recessions of the Great Financial Crisis ("GFC") and the recent pandemic may be instructive. For the full-year 2009, AIR's Same Store Revenue and Same Store NOI declined by 2.5% and 4.2%, respectively. 2010 was flat before returning to Same Store Revenue and Same Store NOI growth of 2.8% and 5.3%, respectively, in 2011. During the pandemic, AIR's Same Store Revenue and Same Store NOI declined by 2.4% and 4.0%, respectively, in 2020, while 2021 produced 1.7% and 1.6% of Same Store Revenue and Same Store NOI growth, respectively.
  
  During the GFC, there was not the same extent of government interference with creditor remedies as was the case during the pandemic, which is still continuing. In the GFC, bad debt increased by 50 basis points before reverting to the then long-term trend in our portfolio of 60 basis points within 17 months. During the pandemic, there was extensive government interference with creditor remedies in many markets, which greatly magnified customer bad debt.
  
  In general, the year-over-year growth rate in Same Store Revenue in a future year can be considered as the sum of (i) the “earn-in” of rents on leases made in the prior year, (ii) the magnitude of loss-to-lease (gain-to-lease), the difference between leases in place at year-end and the higher (lower) rents being paid in the future year, (iii) market rent growth in the future year, and (iv) changes in average daily occupancy or bad debt.
  
  Interest Rates – AIR is only slightly exposed to Federal Reserve policies increasing interest rates. We have low leverage, about 30% of our capitalization. We also have no loans maturing until the second quarter of 2025 and only 4% in floating rate debt. The balance sheet is in excellent shape, and we continue to look at alternatives to further extend refunding and repricing risk.

Appendix B – 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 our simplified business model, diversified portfolio of stabilized apartment communities, and low leverage. The Board of Directors has set the following strategic objectives:

• 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
• Improve our best-in-class property operations platform to generate above-market organic growth
• Maintain an efficient cost structure with net G&A less than or equal to 15 basis points of Gross Asset Value
• Maintain a flexible, low levered balance sheet with access to public debt markets
• Enhance portfolio quality through a disciplined approach to capital allocation, targeting accretive opportunities on a leverage neutral basis
• Develop private capital partnerships as a source of equity capital for accretive growth
• Continue our commitment to corporate responsibility with transparent and measurable goals

Earnings Conference Call Information

Live Conference Call:	Conference Call Replay:
Friday, February 10, 2023 at 1:00 p.m. ET	Replay available until March 11, 2023
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: [phone]
Passcode: 529242	Passcode: 438470
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 75 communities in 10 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 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, 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						Year Ended
	December 31,						December 31,
	2022			2021			2022			2021
REVENUES
Rental and other property revenues (1)	$	205,506		$	191,950		$	764,192		$	733,483
Other revenues		2,368			2,380			9,531			7,370
Total revenues		207,874			194,330			773,723			740,853
OPERATING EXPENSES
Property operating expenses (1)		62,991			64,801			261,264			268,101
Depreciation and amortization		97,295			87,550			350,945			319,742
General and administrative expenses (2)		5,346			3,075			24,939			18,585
Other expenses, net		3,190			18,013			9,073			27,220
Total operating expenses		168,822			173,439			646,221			633,648
Interest income (3)		1,518			13,563			50,264			58,651
Interest expense		(35,669	)		(29,272	)		(116,459	)		(129,467	)
Loss on extinguishment of debt		—			(111,857	)		(23,636	)		(156,707	)
Gain on dispositions of real estate and derecognition of leased properties		352,197			500,349			939,806			594,861
Loss from unconsolidated real estate partnerships		(530	)		(565	)		(3,504	)		(565	)
Income before income tax (expense) benefit		356,568			393,109			973,973			473,978
Income tax (expense) benefit		(2,957	)		6,016			(3,923	)		5,246
Net income		353,611			399,125			970,050			479,224
Noncontrolling interests:
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships		(743	)		(174	)		(458	)		3,243
Net income attributable to preferred noncontrolling interests in AIR OP		(1,581	)		(1,603	)		(6,388	)		(6,413	)
Net income attributable to common noncontrolling interests in AIR OP		(21,719	)		(24,467	)		(58,772	)		(28,433	)
Net income attributable to noncontrolling interests		(24,043	)		(26,244	)		(65,618	)		(31,603	)
Net income attributable to AIR		329,568			372,881			904,432			447,621
Net income attributable to AIR preferred stockholders		(44	)		(45	)		(172	)		(181	)
Net income attributable to participating securities		(245	)		(167	)		(618	)		(316	)
Net income attributable to AIR common stockholders	$	329,279		$	372,669		$	903,642		$	447,124
Net income attributable to AIR common stockholders per share – basic	$	2.20		$	2.38		$	5.86		$	2.90
Net income attributable to AIR common stockholders per share – diluted	$	2.17		$	2.36		$	5.81		$	2.89
Weighted-average common shares outstanding – basic		149,897			156,673			154,093			154,135
Weighted-average common shares outstanding – diluted		152,264			158,515			156,587			154,503

(1)	Rental and other property revenues for the three months and year ended December 31, 2022, are inclusive of $4.6 million and $38.0 million, respectively, of revenues related to sold properties. Rental and other property revenues for the three months and year ended December 31, 2021, are inclusive of $27.6 million and $114.7 million, respectively, of revenues related to sold properties. Property operating expenses for the three months and year ended December 31, 2022, are inclusive of $1.7 million and $13.0 million, respectively, of expenses related to sold properties. Property operating expenses for the three months and year ended December 31, 2021, are inclusive of $8.3 million and $36.1 million, respectively, of expenses related to sold properties.
	Rental and other property revenues and property operating expenses for the year ended December 31, 2021 are inclusive of $21.7 million of revenues and $5.6 million of expenses, respectively, related to the third-party share of properties included in the Washington, D.C. joint venture.
(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 $1.7 million and $6.9 million for the three months and year ended December 31, 2022 and were $1.4 million and $4.5 million for the three months and year ended December 31, 2021, respectively.
(3)	Interest income for the year ended December 31, 2022, includes $13.8 million of income associated with the note receivable from Aimco, which was fully repaid during the third quarter, and $17.9 million of interest income associated with leased properties, four of which were canceled during the third quarter. In addition, interest income for the year ended December 31, 2022, includes $17.4 million of prepayment penalty associated with the note repayment from Aimco. No interest income was recognized during the three months ended December 31, 2022 related to the note receivable from Aimco or the reacquired leased properties.
	Interest income for the three months and year ended December 31, 2021, includes $7.0 million and $27.8 million, respectively, of income associated with the note receivable from Aimco, and $6.6 million and $26.0 million, respectively, of interest income associated with leased properties.

Consolidated Balance Sheets
(in thousands) (unaudited)
	December 31,			December 31,
	2022			2021
Assets
Real estate	$	8,076,394		$	6,885,081
Accumulated depreciation		(2,449,883	)		(2,284,793	)
Net real estate		5,626,511			4,600,288
Cash and cash equivalents		95,797			67,320
Restricted cash		205,608			25,441
Note receivable from Aimco		—			534,127
Leased real estate assets		10,358			466,355
Goodwill		32,286			32,286
Other assets (1)		581,323			568,051
Assets held for sale		—			146,492
Total Assets	$	6,551,883		$	6,440,360
Liabilities and Equity
Non-recourse property debt	$	1,994,651		$	2,305,756
Debt issue costs		(9,221	)		(11,017	)
Non-recourse property debt, net		1,985,430			2,294,739
Term loans, net		796,713			1,144,547
Revolving credit facility borrowings		462,000			304,000
Unsecured notes payable, net		397,486			—
Accrued liabilities and other (1)		513,805			592,774
Liabilities related to assets held for sale		—			85,775
Total Liabilities		4,155,434			4,421,835
Preferred noncontrolling interests in AIR OP		77,143			79,370
Equity:
Perpetual preferred stock		2,000			2,129
Class A Common Stock		1,491			1,570
Additional paid-in capital		3,436,635			3,763,105
Accumulated other comprehensive income		43,562			—
Distributions in excess of earnings		(1,327,271	)		(1,953,779	)
Total AIR equity		2,156,417			1,813,025
Noncontrolling interests in consolidated real estate partnerships		(78,785	)		(70,883	)
Common noncontrolling interests in AIR OP		241,674			197,013
Total Equity		2,319,306			1,939,155
Total Liabilities and Equity	$	6,551,883		$	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.