DENVER--(BUSINESS WIRE)--Apartment Income REIT Corp. ("AIR") (NYSE: AIRC) announced today results for the third quarter of 2023.
AIR Pro forma FFO up 10.3%… beating guidance by $0.01 due to:
- Same Store Revenue up 6.8%
- Same Store NOI growth of 6.3%
- Class of 2022 NOI Growth up 20.1%
- Run-Rate FFO up 7.3%
AIR Makes Accretive Investments:
-
Paired trades:
-
$644 million of capital generated from:
- $623 million in joint venture funding of 11 properties
- $21 million in a property sale
-
$644 million of capital generated from:
-
Used capital to fund:
- $155 million to purchase two properties
- $250 million to fund an additional Core JV property, AIR share of which is 53%
- $78 million to repurchase AIR shares
- $161 million to repay debt
- 2024 neutral to NOI; accretive to recurring free cash flow
- Faster growth in recurring free cash flow
- $24 million of profitable property upgrades funded from retained cash flow
Third Quarter and YTD Run-Rate FFO Per Share Up 7.3% and 8.2%, respectively
|
THIRD QUARTER |
|
YEAR-TO-DATE |
||||||||||||||||
(all items per common share – diluted) |
2023 |
|
2022 |
Variance |
|
2023 |
|
2022 |
Variance |
||||||||||
Net income |
$ |
4.43 |
|
|
$ |
0.01 |
|
|
nm |
|
$ |
4.35 |
|
|
$ |
3.68 |
|
|
18.2% |
NAREIT Funds From Operations (FFO) |
$ |
0.70 |
|
|
$ |
0.53 |
|
|
32.1% |
|
$ |
1.81 |
|
|
$ |
1.59 |
|
|
13.8% |
Pro forma adjustments |
|
(0.06 |
) |
|
|
0.05 |
|
|
nm |
|
|
(0.05 |
) |
|
|
0.22 |
|
|
nm |
Pro forma Funds From Operations (Pro forma FFO) |
$ |
0.64 |
|
|
$ |
0.58 |
|
|
10.3% |
|
$ |
1.76 |
|
|
$ |
1.81 |
|
|
(2.8%) |
Nonrecurring contributions* |
|
(0.05 |
) |
|
|
(0.03 |
) |
|
nm |
|
|
(0.04 |
) |
|
|
(0.22 |
) |
|
nm |
Run-Rate FFO |
$ |
0.59 |
|
|
$ |
0.55 |
|
|
7.3% |
|
$ |
1.72 |
|
|
$ |
1.59 |
|
|
8.2% |
Capital replacements** |
|
(0.06 |
) |
|
|
(0.04 |
) |
|
50.0% |
|
|
(0.18 |
) |
|
|
(0.14 |
) |
|
28.6% |
Amortized leasing commissions |
|
(0.01 |
) |
|
|
(0.01 |
) |
|
—% |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
—% |
Run-Rate Adjusted Funds From Operations (AFFO) |
$ |
0.52 |
|
|
$ |
0.50 |
|
|
4.0% |
|
$ |
1.51 |
|
|
$ |
1.42 |
|
|
6.3% |
*Refer to Supplemental Schedule 1 for additional information regarding the nonrecurring contributions.
**Higher Capital Replacement investments during 2023 is due primarily to timing of replacement projects in 2023.
In the future, we anticipate that Run-Rate AFFO will have a higher rate of growth than Pro forma FFO due to AIR's reallocation of capital from older properties with above average capital replacement spending to newer properties with faster NOI growth.
Third Quarter and YTD Same Store NOI Up 6.3% and 9.7%, respectively
AIR's Same Store portfolio comprises 63 properties and provided 86% of year-to-date rental revenue.
|
THIRD QUARTER |
YEAR-TO-DATE |
||||||||||||||||||
|
Year-over-Year |
|
Sequential |
Year-over-Year |
||||||||||||||||
($ in millions)* |
2023 |
2022 |
Variance |
2nd Qtr. |
Variance |
2023 |
2022 |
Variance |
||||||||||||
Revenue, before utility reimbursements |
$ |
151.6 |
|
$ |
142.0 |
|
6.8 |
% |
|
$ |
148.2 |
|
2.3 |
% |
$ |
445.9 |
$ |
411.1 |
8.5 |
% |
Expenses, net of utility reimbursements** |
|
40.4 |
|
|
37.3 |
|
8.0 |
% |
|
|
38.3 |
|
5.3 |
% |
|
117.0 |
|
111.3 |
5.1 |
% |
Net operating income (NOI) |
$ |
111.3 |
|
$ |
104.7 |
|
6.3 |
% |
|
$ |
109.9 |
|
1.2 |
% |
$ |
328.9 |
$ |
299.7 |
9.7 |
% |
*Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 6.
**Controllable operating expenses ("COE") increased 6.3%, the result of the timing of planned property maintenance and peak leasing season spending. Full year COE is anticipated to be flat to up 100-basis points.
Components of Same Store Revenue Growth
|
THIRD QUARTER 2023 |
YEAR-TO-DATE |
||||
Same Store Revenue Components |
Year-over-Year |
Sequential |
Year-over-Year |
|||
Residential Rents |
5.6 |
% |
2.0 |
% |
8.1 |
% |
Average Daily Occupancy |
(0.6 |
%) |
(0.2 |
%) |
(0.7 |
%) |
Residential Rental Income |
5.0 |
% |
1.8 |
% |
7.4 |
% |
Bad Debt, net of recoveries* |
0.6 |
% |
(0.1 |
%) |
0.3 |
% |
Other Residential Income |
1.2 |
% |
0.6 |
% |
0.8 |
% |
Residential Revenue |
6.8 |
% |
2.3 |
% |
8.5 |
% |
Commercial Revenue |
— |
% |
— |
% |
— |
% |
Same Store Revenue Growth |
6.8 |
% |
2.3 |
% |
8.5 |
% |
*During the third quarter, AIR recognized 99.2% of all residential revenue billed in the quarter, with the remaining 0.8% reserved as bad debt. AIR collected amounts during the third quarter with respect to revenue treated as bad debt in previous periods equal to 20-basis points of third quarter residential revenue, resulting in bad debt for the third quarter, net of the contra entry, equal to 0.6% of residential revenue.
Of the 0.8% of gross bad debt, 25-basis points was due to final move-out charges recorded during the quarter as part of eviction finalization, 25-basis points is due to court backlogs due to pandemic-related government shutdowns, and the remainder amounts represent our normal bad debt pre-COVID. The incidence of delinquency is consistent with historical averages, but the lengthening of the regulatory timeline results in higher absolute levels of bad debt compared to our pre-COVID experience.
Same Store Rental Rates & Occupancy
|
THIRD QUARTER* |
YEAR-TO-DATE |
2023 |
|||||||||||||||||
(amounts represent AIR share) |
2023 |
2022 |
Variance |
2023 |
2022 |
Variance |
July |
Aug |
Sept |
Oct*** |
||||||||||
Transacted Leases |
|
|
|
|
|
|
|
|
|
|
||||||||||
Renewal rent changes |
6.0 |
% |
11.6 |
% |
(5.6 |
%) |
6.9 |
% |
11.2 |
% |
(4.3 |
%) |
6.6 |
% |
5.6 |
% |
6.0 |
% |
3.8 |
% |
New lease rent changes |
3.6 |
% |
17.1 |
% |
(13.5 |
%) |
5.3 |
% |
17.3 |
% |
(12.0 |
%) |
4.6 |
% |
4.1 |
% |
1.2 |
% |
1.3 |
% |
Weighted-average rent changes |
4.7 |
% |
14.2 |
% |
(9.5 |
%) |
6.1 |
% |
14.1 |
% |
(8.0 |
%) |
5.5 |
% |
4.9 |
% |
3.3 |
% |
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Signed Leases |
|
|
|
|
|
|
|
|
|
|
||||||||||
Renewal rent changes |
5.6 |
% |
12.2 |
% |
(6.6 |
%) |
6.8 |
% |
11.2 |
% |
(4.4 |
%) |
5.6 |
% |
6.1 |
% |
4.6 |
% |
3.9 |
% |
New lease rent changes |
2.7 |
% |
16.6 |
% |
(13.9 |
%) |
4.9 |
% |
17.1 |
% |
(12.2 |
%) |
4.1 |
% |
2.5 |
% |
0.6 |
% |
0.9 |
% |
Weighted-average rent changes |
3.9 |
% |
14.5 |
% |
(10.6 |
%) |
5.8 |
% |
14.0 |
% |
(8.2 |
%) |
4.8 |
% |
4.1 |
% |
1.8 |
% |
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Average Daily Occupancy** |
95.3 |
% |
95.9 |
% |
(0.6 |
%) |
96.1 |
% |
96.8 |
% |
(0.7 |
%) |
94.6 |
% |
95.2 |
% |
96.0 |
% |
96.9 |
% |
*Third quarter signed lease rate growth benefited 90-basis points from capital enhancement activity.
**Average Daily Occupancy ("ADO") reached a low point in July due to normal seasonality and related frictional vacancy. ADO in October 2023 is better than in October 2022 and is anticipated to increase further during the balance of the fourth quarter.
***October leasing rates are preliminary and are as of October 31st. The 180-basis point decline in signed new leases from the third quarter to October is seasonal and similar to the 2022 decline.
Acquisition Portfolio Performance
Approximately 20% of AIR’s capital is invested in acquisitions made since 2021. Acquisition properties experience a rate of NOI growth during the first few years of AIR management that is much higher than the same store portfolio rate. Two-thirds of these investments were made prior to July 2022; therefore, comparative information is available. These properties' year-over-year NOI growth was up 17.4%, increasing year-over-year NOI growth rate of the total Acquisition and Same Store portfolios by 170 basis points to 7.2%.
|
|
|
Sequential Variance |
Year-Over-Year Variance |
||
Year |
Properties |
% of GAV |
NOI |
Rev |
Exp |
NOI |
Same Store excluding Class of 2021 |
58 |
74.7% |
1.3% |
6.4% |
8.9% |
5.5% |
Class of 2021* |
5 |
7.7% |
1.1% |
10.3% |
—% |
15.2% |
Class of 2022 |
4 |
6.2% |
5.6% |
9.9% |
(6.0%) |
20.1% |
Other Real Estate** |
4 |
5.6% |
27.2% |
|
|
|
Class of 2023*** |
4 |
5.8% |
nm |
|
|
|
Total Portfolio |
75 |
100% |
4.4% |
|
|
|
*Acquisitions from 2021 are included in, and contribute to, Same Store Portfolio metrics.
**Due to the timing of our transactions in 2022, Other Real Estate year-over-year metrics are not meaningful.
***Due to the timing of our transactions in 2023, Class of 2023 sequential metrics are not meaningful.
Please refer to Supplemental Schedule 2 for additional information regarding the third quarter and year-to-date performance of the Acquisition properties.
Third Quarter 2023 Paired Trades
As previously announced, AIR contributed to the Core JV a 47% interest in 10 properties in exchange for $505 million of gross proceeds. AIR also completed its strategic exit from New York City through the sale of a property for $21 million in gross proceeds.
In turn, AIR improved its portfolio through reinvesting $287 million in three new properties. In comparison to the property interests sold, the acquired properties:
- have 11% higher average rents at $2,751 per month;
- were constructed in the last two years (in contrast to 26 years for the interests sold); and
- require annual capital replacement spending that is $2,600 per unit lower than the interests sold.
On a forward basis, the Year 1 NOI Yield, Free Cash Flow Yield, and unlevered internal rate of return ("IRR"), our acquisitions and dispositions are estimated to be:
Third Quarter Paired Trades: Sources and Uses and Relative Cost of Capital |
|||||||||||||||
($ in millions) |
GAV |
Year 1 NOI |
Year 1 FCF |
Unlevered IRR |
|||||||||||
Joint Ventures & Dispositions |
$ |
525.7 |
|
$ |
(30.6 |
) |
5.8 |
% |
$ |
(25.6 |
) |
4.9 |
% |
8.1 |
% |
Acquisitions |
|
(287.0 |
) |
|
15.4 |
|
5.4 |
% |
|
15.1 |
|
5.3 |
% |
10.4 |
% |
Net Sources & Uses |
$ |
238.7 |
|
|
|
|
|
|
|||||||
Cost of Capital Comparison (%) |
|
|
(0.4 |
%) |
|
0.4 |
% |
2.3 |
% |
||||||
AIR used the remaining proceeds to:
- repurchase 2.2 million shares for $77.8 million (reflecting an average price of $34.57 per share, and a forward NOI yield of approximately 6.3%).
- reduce leverage, with an average interest cost of 6.1%, by approximately $161 million.
The net results of the Q3 Paired Trades are expected to be neutral to FFO in 2024 and accretive beginning in 2025. The paired trades are expected to be accretive to AFFO in both 2024 and thereafter.
Balance Sheet & Liquidity
During the quarter, AIR refinanced $154 million of borrowings on AIR's revolving credit facility and $325 million of term loans maturing in 2023 and 2024 (before consideration of higher priced extension options), with new fixed rate property debt. The new debt has a weighted-average life of 5.3 years and a weighted-average interest rate of 5.2%; 30-basis points greater than the short-term debt repaid.
Today, AIR has:
-
Near-term exposure to rising interest rates limited to:
- $79 million on our share of the Virginia JV debt due to the maturity in January 2024 of the in-place interest rate cap; plus
- $26 million on our revolving credit facility
- No debt maturities until the second quarter of 2025;
- Available liquidity of $2.1 billion;
- $5.3 billion of properties unencumbered by non-recourse debt; and
- Limited refunding risk with the ability to fund all maturities through 2027 from cash on hand, and a 10-year commitment to make $1 billion of property loans with up to 10-year maturities.
At year-end, AIR anticipates Net Leverage to Adjusted EBITDAre to be below 6.0x; consistent with its target range of 5.0x to 6.0x. As of September 30, 2023, AIR's leverage is temporarily elevated due to the timing of third quarter acquisitions.
For additional information regarding the composition of AIR's leverage, please see Supplemental Schedule 5.
Dividend
On October 30, 2023, the AIR Board of Directors declared a quarterly cash dividend of $0.45 per share of Common Stock, payable on November 30, 2023 to shareholders of record on November 17, 2023. In setting the 2023 dividend rate, the Board of Directors targeted a 75% payout ratio of Pro forma FFO, in 2023 equivalent to approximately 86% of Run-Rate AFFO.
GRESB
During the third quarter of 2023, AIR received a Global Real Estate Sustainability Benchmark ("GRESB") score of 82 out of 100, placing AIR in the top 20% of residential companies in the Americas.
2023 Outlook
AIR narrows its 2023 Pro forma FFO per share expectations, maintaining the $2.41 midpoint. Our guidance ranges are shown below:
|
YEAR-TO-DATE
|
FULL YEAR
|
PREVIOUS
|
($ amounts represent AIR share) |
|
|
|
Net income per share |
$4.35 |
$4.30 to $4.40 |
$0.66 to $0.76 |
Pro forma FFO per share |
$1.76 |
$2.39 to $2.43 |
$2.38 to $2.44 |
Pro forma FFO per share at the midpoint |
|
$2.41 |
$2.41 |
Run-Rate FFO per share |
$1.72 |
$2.34 to $2.38 |
N/A |
|
|
|
|
Same Store Operating Components |
|
|
|
Revenue change compared to prior year (1) |
8.5% |
7.8% to 8.6% |
7.8% to 8.6% |
Expense change compared to prior year |
5.1% |
5.0% to 5.6% |
5.0% to 5.6% |
NOI change compared to prior year |
9.7% |
8.6% to 9.8% |
8.6% to 9.8% |
|
|
|
|
Transactional Activity |
|
|
|
Proceeds from dispositions of real estate |
$54M |
$54M |
$54M |
Proceeds from joint venture transactions |
$599M |
$599M |
$599M |
|
|
|
|
AIR Share of Capital Enhancements |
|
|
|
Capital Enhancements (2) |
$64M |
$70M to $80M |
$80M to $90M |
|
|
|
|
Balance Sheet |
|
|
|
Net Leverage to Adjusted EBITDAre |
6.3x |
≤6.0x |
≤6.0x |
(1) |
AIR uses retained cash flow from operations to fund Capital Enhancements that contribute an estimated 75-basis points to the 2023 Same Store revenue growth rate. |
|
(2) |
In response to slowing levels of rental rate growth, AIR strategically adjusted production on certain kitchen and bath programs, reducing full year capital enhancement investment by $10 million at the midpoint. |
In the fourth quarter of 2023, AIR anticipates Pro forma FFO between $0.63 and $0.67 per share.
Appendix A – Early Views On 2024 and Supply Commentary
AIR is well positioned for growth in 2024 supported by (i) 2023 results and (ii) 2024 opportunities, (iii) each levered by a low-risk, fixed rate balance sheet.
Same Store Revenue |
Same Store Revenue growth of mid-single digits, before market rate growth: |
|
|
|
+ |
2.1% to 2.5% |
|
|
+ |
10 to 20 bps |
|
|
+ |
20 to 40 bps |
|
|
+ |
30 to 70 bps |
|
|
+ |
25 to 50 bps |
|
Preliminary range before consideration of changes in market rents |
+ |
2.9% to 4.1% |
|
Same Store Expense |
Continued expense discipline based on track record of COE containment both over time and including inflationary environments |
||
Offsite Costs |
G&A, net of asset management fees, < 15 bps of GAV |
||
Balance Sheet |
Organic de-levering from EBITDA growth to ~5.5x by year-end 2024. Annual interest costs similar to AIR's weighted average rates as of Q3 2023. |
||
Capital Allocation |
Ample opportunity for > 10% unlevered IRRs through property upgrades funded by retained FCF and from leverage-neutral acquisitions, funded by paired trades and including co-investment by sovereign wealth funds |
||
Supply Commentary
There is no “national” market of supply and demand for apartments; rather, there are numerous submarkets and specific locations, each of which requires analysis both “across the street,” as well as within a reasonable radius as to where customers may consider alternatives. An analysis of AIR's portfolio below considers both. For example, 3400 Avenue of the Arts is located in Orange County where LTM permits at 1.2% of inventory suggest limited risk of future supply; however, two lease up projects in the submarket are adjacent to AIR’s property, which will likely impact rents in 2024. By contrast, Miami, with LTM permits at 4.9% of inventory, is a market where new supply is known; however, that supply which is being delivered is primarily in Edgewater, inland from the waterfront, and impacting Bay Parc and Watermarc. We assess the impact elsewhere in AIR's South Florida portfolio as limited.
Competitive new supply is familiar to AIR. In any given year, AIR's leasing plan provides for impacts of new supply across our portfolio, typically measured between 20% and 30% of NOI; a current measure at 26% is consistent with this range, and we expect absorption will continue to offset supply in our core markets.
Market |
Units @ Share |
% AIR NOI @
|
% AIR NOI
|
Commentary |
|
California |
6,400 |
37% |
3.9% |
+ |
Supply growth across California remains at <1% of inventory |
+ |
Continued strength in San Diego and LA; LA COVID bad debt impacts moving to rear view |
||||
~ |
Leasing sluggish in the Bay Area in the Peninsula / San Jose; NO properties in the City of San Francisco |
||||
South Florida |
3,812 |
20% |
5.3% |
+ |
50%+ in rent increases since 2021 still being absorbed / earned-in; rent growth positive, but slowing |
+ |
Long-term attractiveness of South Florida (e.g., weather, taxes, and rule of law) is unchanged |
||||
~ |
Insurance a challenge; but, recently built / renovated properties (Watermarc / Southgate / Flagler) achieved favorable hazard premiums due to superior construction and AIR operating processes |
||||
~ |
Supply in Edgewater (Watermarc and Bay Parc); supply in Fort Lauderdale (Flagler); 2023 deliveries largely absorbed |
||||
Washington, D.C. |
4,521 |
16% |
2.6% |
+ |
Seasonally adjusted market rents continue to increase YoY; market remains attractive (e.g., Elm acquisition) |
+ |
Moderate supply in pockets; properties not impacted on account of location and/or positioning |
||||
+ |
Opportunity if federal employees return to office |
||||
Philadelphia |
2,070 |
9% |
6.5% |
+ |
University City properties well positioned on UPenn campus; Center City properties will benefit from Comcast’s new RTO mandate in 9/2023 |
~ |
New supply plunging after pull forward from 1/1/2022 reduction in Philadelphia Tax Abatement Program value and increase in construction sales tax |
||||
Denver |
1,976 |
7% |
3.2% |
+ |
No supply risk in Boulder |
+ |
Price points in suburban properties well below those of new supply |
||||
~ |
Elevated supply around Anschutz Medical Campus, but AIR properties are “on campus,” while new supply is not |
||||
Boston |
1,284 |
7% |
2.3% |
+ |
Market screens for elevated supply; however, three AIR properties in Kendall Square insulated by proximity to MIT and suburban properties at price points below those of new supply |
~ |
One Canal (North Station) will be impacted by new supply in the future |
||||
Other |
1,608 |
4% |
2.4% |
~ |
Elevated supply in Atlanta (West Midtown), Minneapolis (Uptown), and Raleigh (Research Triangle; recent entry at attractive basis) |
Total |
21,671 |
100% |
26.2% |
|
|
Earnings Conference Call Information
Live Conference Call: |
Conference Call Replay: |
||
Friday, November 3, 2023 at 1:00 p.m. ET |
Replay available until February 2, 2024 |
||
Domestic Dial-In Number: 1-888-259-6580 |
Domestic Dial-In Number: 1-877-674-7070 |
||
International Dial-In Number: 1-416-764-8624 |
International Dial-In Number: 1-416-764-8692 |
||
Conference ID: 32498060 |
Passcode: 498060 |
||
Live Webcast: 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
Apartment Income REIT Corp (NYSE: AIRC) is a publicly traded, self-administered real estate investment trust (“REIT”). AIR’s portfolio comprises 75 communities totaling 26,623 apartment homes located in 10 states and the District of Columbia. AIR offers a simple, predictable business model with focus on what we call the AIR Edge, the cumulative result of our focus on resident selection, satisfaction, and retention, as well as relentless innovation in delivering best-in-class property management. The AIR Edge is a durable operating advantage in driving organic growth, as well as making possible the opportunity for excess returns for properties new to AIR’s platform. For additional information, please visit aircommunities.com.
Forward-looking Statements
This Earnings Release and Supplemental Information contain forward-looking statements within the meaning of the Federal securities laws, including, without limitation, statements regarding projected results and specifically forecasts of 2023 results, including but not limited to: NAREIT FFO, Pro forma FFO, Run-Rate FFO, Run-Rate AFFO and selected components thereof; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; expectations regarding acquisitions, as well as sales, and joint ventures and the use of proceeds thereof; and AIR liquidity and leverage metrics. We caution investors not to place undue reliance on any such forward-looking statements.
These forward-looking statements are based on management’s current expectations, estimates and assumptions and subject to risks and uncertainties, that could cause actual results to differ materially from such forward-looking statements, including, but not limited to: real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including inflation, the pace of job growth, and the level of unemployment; the amount, location, and quality of competitive new housing supply, which may be impacted by global supply chain disruptions; the timing and effects of acquisitions and dispositions; changes in operating costs, including energy costs; negative economic conditions in our geographies of operation; loss of key personnel; AIR’s ability to maintain current or meet projected occupancy, rental rate, and property operating results; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; financing risks, including interest rate changes and the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; and possible environmental liabilities, including costs, fines, or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently or previously owned by AIR. Other risks and uncertainties are described in filings by AIR with the Securities and Exchange Commission (“SEC”), including the section entitled “Risk Factors” in Item 1A of AIR’s Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent filings with the SEC.
In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and depends on our ability to meet the various requirements imposed by the Code, through actual operating results, distribution levels and diversity of stock ownership.
These forward-looking statements reflect management’s judgment as of this date, and we assume no obligation to revise or update them to reflect future events or circumstances. This earnings release does not constitute an offer of securities for sale.
| Consolidated Statements of Operations | |||||||||||||||
(in thousands, except per share data) (unaudited) |
|||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
||||||||
REVENUES |
|
|
|
|
|
|
|
||||||||
Rental and other property revenues (1) |
$ |
194,244 |
|
|
$ |
198,413 |
|
|
$ |
616,659 |
|
|
$ |
558,686 |
|
Other revenues |
|
3,063 |
|
|
|
2,458 |
|
|
|
7,018 |
|
|
|
7,163 |
|
Total revenues |
|
197,307 |
|
|
|
200,871 |
|
|
|
623,677 |
|
|
|
565,849 |
|
|
|
|
|
|
|
|
|
||||||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
||||||||
Property operating expenses (1) |
|
58,076 |
|
|
|
64,009 |
|
|
|
190,122 |
|
|
|
176,679 |
|
Property management expenses |
|
7,899 |
|
|
|
7,241 |
|
|
|
23,318 |
|
|
|
21,594 |
|
Depreciation and amortization |
|
79,023 |
|
|
|
90,445 |
|
|
|
263,949 |
|
|
|
253,650 |
|
General and administrative expenses (2) |
|
5,663 |
|
|
|
7,663 |
|
|
|
18,866 |
|
|
|
19,593 |
|
Other expenses, net |
|
8,110 |
|
|
|
4,941 |
|
|
|
14,434 |
|
|
|
5,883 |
|
Total operating expenses |
|
158,771 |
|
|
|
174,299 |
|
|
|
510,689 |
|
|
|
477,399 |
|
Interest income |
|
2,918 |
|
|
|
9,613 |
|
|
|
6,133 |
|
|
|
48,746 |
|
Interest expense |
|
(22,888 |
) |
|
|
(32,656 |
) |
|
|
(96,629 |
) |
|
|
(80,790 |
) |
Loss on extinguishment of debt |
|
— |
|
|
|
— |
|
|
|
(2,008 |
) |
|
|
(23,636 |
) |
Gain on dispositions and impairments of real estate |
|
692,861 |
|
|
|
— |
|
|
|
675,534 |
|
|
|
587,609 |
|
Gain on derivative instruments, net |
|
14,070 |
|
|
|
— |
|
|
|
23,322 |
|
|
|
— |
|
Loss from unconsolidated real estate partnerships |
|
(10,390 |
) |
|
|
(87 |
) |
|
|
(12,267 |
) |
|
|
(2,974 |
) |
Income before income tax expense |
|
715,107 |
|
|
|
3,442 |
|
|
|
707,073 |
|
|
|
617,405 |
|
Income tax expense |
|
(4,595 |
) |
|
|
(46 |
) |
|
|
(5,911 |
) |
|
|
(966 |
) |
Net income |
|
710,512 |
|
|
|
3,396 |
|
|
|
701,162 |
|
|
|
616,439 |
|
|
|
|
|
|
|
|
|
||||||||
Noncontrolling interests: |
|
|
|
|
|
|
|
||||||||
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships |
|
(2,525 |
) |
|
|
102 |
|
|
|
(3,894 |
) |
|
|
285 |
|
Net income attributable to preferred noncontrolling interests in AIR OP |
|
(1,570 |
) |
|
|
(1,602 |
) |
|
|
(4,710 |
) |
|
|
(4,807 |
) |
Net income attributable to common noncontrolling interests in AIR OP |
|
(42,386 |
) |
|
|
(137 |
) |
|
|
(41,245 |
) |
|
|
(37,053 |
) |
Net income attributable to noncontrolling interests |
|
(46,481 |
) |
|
|
(1,637 |
) |
|
|
(49,849 |
) |
|
|
(41,575 |
) |
Net income attributable to AIR |
|
664,031 |
|
|
|
1,759 |
|
|
|
651,313 |
|
|
|
574,864 |
|
Net income attributable to AIR preferred stockholders |
|
(44 |
) |
|
|
(43 |
) |
|
|
(129 |
) |
|
|
(128 |
) |
Net (income) loss attributable to participating securities |
|
(391 |
) |
|
|
44 |
|
|
|
(484 |
) |
|
|
(373 |
) |
Net income attributable to AIR common stockholders |
$ |
663,596 |
|
|
$ |
1,760 |
|
|
$ |
650,700 |
|
|
$ |
574,363 |
|
|
|
|
|
|
|
|
|
||||||||
Net income attributable to AIR common stockholders per share – basic |
$ |
4.50 |
|
|
$ |
0.01 |
|
|
$ |
4.39 |
|
|
$ |
3.69 |
|
Net income attributable to AIR common stockholders per share – diluted |
$ |
4.43 |
|
|
$ |
0.01 |
|
|
$ |
4.35 |
|
|
$ |
3.68 |
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding – basic |
|
147,474 |
|
|
|
153,811 |
|
|
|
148,372 |
|
|
|
155,488 |
|
Weighted-average common shares outstanding – diluted |
|
150,045 |
|
|
|
154,057 |
|
|
|
150,692 |
|
|
|
157,440 |
|
| (1) | Rental and other property revenues for the three and nine months ended September 30, 2023 are inclusive of $0.9 million and $4.3 million, respectively, of revenues related to sold properties. Rental and other property revenues for the three and nine months ended September 30, 2022 are inclusive of $10.0 million and $38.0 million, respectively, of revenues related to sold properties. Property operating expenses for the three and nine months ended September 30, 2023 are inclusive of $0.7 million and $3.1 million, respectively, of expenses related to sold properties. Property operating expenses for the three and nine months ended September 30, 2022 are inclusive of $3.9 million and $14.7 million, respectively, of expenses related to sold properties. |
|
| (2) | In setting our G&A benchmark of 15 bps of Gross Asset Value, we consider asset management fees earned in our joint ventures as a reduction of general and administrative expenses. In accordance with GAAP, general and administrative expenses are shown gross of these asset management fees. The California Joint Venture is consolidated on our balance sheet and accordingly, fees earned in this venture are included in the determination of net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships. The Virginia JV, the Core JV, and the Value-Add JV are not consolidated on our balance sheet and accordingly, fees earned in these ventures are included in other revenues. Fees earned from joint ventures were $1.8 million and $4.9 million for three and nine months ended September 30, 2023, respectively, and $1.8 million and $5.2 million for three and nine months ended September 30, 2022, respectively. |
Consolidated Balance Sheets |
|||||||
(in thousands) (unaudited) |
|||||||
|
September 30, 2023 |
|
December 31, 2022 |
||||
Assets |
|
|
|
||||
Real estate |
$ |
7,576,358 |
|
|
$ |
8,076,394 |
|
Accumulated depreciation |
|
(2,173,273 |
) |
|
|
(2,449,883 |
) |
Net real estate |
|
5,403,085 |
|
|
|
5,626,511 |
|
Cash and cash equivalents |
|
106,630 |
|
|
|
95,797 |
|
Restricted cash |
|
27,540 |
|
|
|
205,608 |
|
Goodwill |
|
32,286 |
|
|
|
32,286 |
|
Investment in unconsolidated real estate partnerships |
|
352,096 |
|
|
|
41,860 |
|
Other assets (1) |
|
477,612 |
|
|
|
549,821 |
|
Total assets |
$ |
6,399,249 |
|
|
$ |
6,551,883 |
|
|
|
|
|
||||
Liabilities and Equity |
|
|
|
||||
Non-recourse property debt |
$ |
2,244,776 |
|
|
$ |
1,994,651 |
|
Debt issue costs |
|
(13,538 |
) |
|
|
(9,221 |
) |
Non-recourse property debt, net |
|
2,231,238 |
|
|
|
1,985,430 |
|
Term loans, net |
|
473,486 |
|
|
|
796,713 |
|
Revolving credit facility borrowings |
|
25,750 |
|
|
|
462,000 |
|
Unsecured notes payable, net |
|
397,760 |
|
|
|
397,486 |
|
Accrued liabilities and other (1) |
|
483,147 |
|
|
|
513,805 |
|
Total liabilities |
|
3,611,381 |
|
|
|
4,155,434 |
|
|
|
|
|
||||
Preferred noncontrolling interests in AIR OP |
|
77,140 |
|
|
|
77,143 |
|
|
|
|
|
||||
Equity: |
|
|
|
||||
Perpetual Preferred Stock |
|
2,000 |
|
|
|
2,000 |
|
Class A Common Stock |
|
1,470 |
|
|
|
1,491 |
|
Additional paid-in capital |
|
3,355,316 |
|
|
|
3,436,635 |
|
Accumulated other comprehensive income |
|
24,794 |
|
|
|
43,562 |
|
Distributions in excess of earnings |
|
(876,116 |
) |
|
|
(1,327,271 |
) |
Total AIR equity |
|
2,507,464 |
|
|
|
2,156,417 |
|
Noncontrolling interests in consolidated real estate partnerships |
|
(83,110 |
) |
|
|
(78,785 |
) |
Common noncontrolling interests in AIR OP |
|
286,374 |
|
|
|
241,674 |
|
Total equity |
|
2,710,728 |
|
|
|
2,319,306 |
|
Total Liabilities and Equity |
$ |
6,399,249 |
|
|
$ |
6,551,883 |
|
| (1) | Other assets includes the Parkmerced mezzanine investment, and accrued liabilities and other includes the offsetting liabilities. The benefits and risks of ownership of the Parkmerced mezzanine investment have been transferred to Aimco, but legal transfer has not occurred. As of September 30, 2023, the Parkmerced mezzanine investment had an offsetting $158.3 million asset and liability balance. |
