AIR Communities Reports Fourth Quarter 2023 Results

Rhea-AI Summary

Apartment Income REIT Corp. (AIRC) reported strong financial results for Q4 and full year 2023, with an emphasis on growth in Same Store Revenue, Net Operating Income, and Free Cash Flow. The company also announced a focus on steady growth in unlevered FCF for 2024, with potential risks in insurance and real estate taxes, and potential upsides in operational initiatives and paired trades.

Positive

• Full year Same Store Revenue, Net Operating Income, and Free Cash Flow up 7.9%, 9.3%, and 9.5% respectively
• Run-Rate FFO and AFFO per share increased 7.8% and 7.7% respectively for the full year
• Recurring operations have generated Run-Rate FFO and AFFO per share CAGRs of 9.5% and 10.7% respectively since 2021
• Potential risks in insurance, real estate taxes, and amounts of transaction-related income
• 2.0% to 5.6% range in expected Same Store NOI growth, 3.8% at the midpoint
• Run-Rate FFO per share between $2.33 and $2.43, up 0.8% (at the midpoint) over 2023
• Year-end Net Leverage to Adjusted EBITDAre of approximately 6.0x, with fluctuations for intra-quarter transaction activity

Negative

• Net (loss) income decreased by 105.1% in Q4 2023 compared to Q4 2022
• NAREIT Funds From Operations (FFO) decreased by 20.7% in Q4 2023 compared to Q4 2022
• Pro forma FFO decreased by 41.7% in 2023 compared to 2022
• Net Leverage to Adjusted EBITDAre increased from 6.05x in 2023 to 6.1x in Q4 2023

Insights

Financial Analyst

The financial performance of Apartment Income REIT Corp. (AIR) in the fourth quarter and full year 2023 reflects a robust operational year with significant growth in Same Store Revenue, Net Operating Income (NOI) and Free Cash Flow (FCF), all showing increases of 7.9%, 9.3% and 9.5% respectively. The company's focus on cost control is evident with controllable expenses rising only 20 basis points, contributing to all-time high margins for Same Store NOI and FCF.

From a financial perspective, AIR's share repurchase program is notable, with 2.1 million shares bought back in Q4 at an average price of $34.39. This activity suggests management's confidence in the intrinsic value of the stock, as share buybacks are often seen as a positive signal to the market. Additionally, the pro forma Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) metrics, which are key indicators of REIT performance, have shown increases on a Run-Rate basis. However, the flat year-over-year Pro forma FFO may warrant attention as it indicates a stabilization rather than growth in this metric.

The 2024 guidance provided by AIR includes a continued focus on unlevered FCF growth with a cautious note on potential risks such as insurance, real estate taxes and transaction-related income. The guidance range for Same Store NOI and FCF growth is narrower than the full year 2023 performance, indicating a more conservative outlook. Investors should monitor whether the operational initiatives and paired trades can counterbalance the increased interest expenses and other potential headwinds.

Real Estate Market Analyst

Apartment Income REIT Corp.'s strategic operational improvements and portfolio enhancement through co-investments have positioned the company favorably within its peer group. The increase in resident retention by 100 basis points to 62.3% is a strong indicator of customer satisfaction and operational efficiency. This is particularly important in the real estate market, where tenant turnover can significantly impact operational costs and profitability.

The diversified acquisition portfolio and the company's ability to maintain a low Net Leverage to Adjusted EBITDAre ratio, which approximates 33%, underscores a conservative balance sheet approach. This is particularly relevant given the volatility in the real estate market and the broader economy.

Investors should note the impact of class-specific property performances, such as the Class of 2022's tax revaluation in Florida, which may influence overall expense figures. The 2024 outlook mentions potential supply impacts in specific geographic areas which could affect future revenue growth and market dynamics. A keen eye on these local market conditions will be necessary to assess AIR's performance in those areas.

Risk Management Analyst

AIR's financial results and 2024 guidance suggest a prudent approach to risk management, with a focus on maintaining a safe balance sheet and a low level of net leverage. The company's hedging strategy to fix interest rates on revolving credit facility borrowings and term loan borrowings aligns with this conservative approach, especially in an environment where interest rates are expected to fluctuate.

However, AIR has identified potential risks in insurance, real estate taxes and transaction-related income, which could impact future performance. The company's proactive identification of these risks allows for strategic planning and mitigation efforts. The increase in insurance expenses by 41.3% year-over-year is a significant jump and could signal a trend that may affect future profitability if not adequately managed.

Investors should consider the company's risk profile in light of these factors, as well as the broader economic indicators that could influence the real estate sector, such as interest rate changes and economic growth rates.

DENVER--(BUSINESS WIRE)-- Apartment Income REIT Corp. ("AIR") (NYSE: AIRC) announced today results for the fourth quarter and full year 2023.

Terry Considine, Chief Executive Officer, comments: “AIR's operating performance in 2023 was excellent… the highest in our peer group. We improved our portfolio with co-investment from two of the most respected global property investors. In 2024, we will continue to focus on driving predictable growth in recurring free cash flow… attracting high quality residents, and retaining them with great service from productive and caring teammates. As ever, we expect to improve… in operations, portfolio quality, operating scale, operating margins and quality of earnings, all with a safe balance sheet… and a focus on higher free cash flow and NAV growth per share.”

• Full year Same Store Revenue, Net Operating Income (“NOI”), and Free Cash Flow (“FCF”) up 7.9%, 9.3%, and 9.5%, respectively
  • Transacted blended lease rate growth up 5.6%
  • Resident retention up 100 bps in the year to 62.3%
  • Controllable expenses up only 20 bps
  • Full year Same Store NOI and FCF margins of 74.5% and 68.4%, up to all-time highs
• Run-Rate FFO and AFFO per share increased 7.8% and 7.7%, respectively, for the full year
  • Recurring operations have generated Run-Rate FFO and AFFO per share CAGRs of 9.5% and 10.7%, respectively, since 2021
• Pro forma FFO of $2.41 per share, meeting the mid-point of 2023 guidance
• 2.1 million shares ($71 million) repurchased in the fourth quarter at an average $34.39 per share
  • 13.4 million outstanding shares and OP units (8% of total) repurchased since year-end 2021
• 2024 guidance:
  • Continued focus on steady growth in unlevered FCF
    • Partial offsets result from increased interest expense
    • Q3 2023 paired trades accretive to FCF and accretive to Run-Rate FFO before year-end
    • Potential risks in insurance, real estate taxes, and amounts of transaction-related income
    • Potential upsides in operational initiatives and paired trades, magnified by joint ventures
  • 2.0% to 5.6% range in expected Same Store NOI growth, 3.8% at the midpoint
  • 2.3% to 6.3% range in expected Same Store FCF growth, 4.3% at the midpoint
  • Run-Rate FFO per share between $2.33 and $2.43, up 0.8% (at the midpoint) over 2023 Run-Rate FFO per share of $2.36
  • Run-Rate AFFO per share between $2.07 and $2.17, up 1.4% (at the midpoint) over 2023 Run-Rate AFFO per share of $2.09
  • Year-end Net Leverage to Adjusted EBITDAre of approximately 6.0x, with fluctuations for intra-quarter transaction activity; at this level, Net Leverage approximates 33%, a low level for the AIR business model with no exposure to construction, second mortgage lending, or short-term rentals.

Fourth Quarter and 2023 Full Year Results:

	FOURTH QUARTER								YEAR-TO-DATE
		2023			2022		Variance			2023			2022		Variance
Net (loss) income	$	(0.11)		$	2.17		(105.1) %		$	4.27		$	5.81		(26.5%)
NAREIT Funds From Operations (FFO)	$	0.46		$	0.58		(20.7%)		$	2.27		$	2.17		4.6%
Pro forma adjustments*		0.18			0.01		nm			0.14			0.24		(41.7) %
Pro forma Funds From Operations (Pro forma FFO)	$	0.64		$	0.59		8.5%		$	2.41		$	2.41		flat
Nonrecurring contributions**		—			—		flat			(0.05)			(0.22)		(77.3) %
Run-Rate FFO	$	0.64		$	0.59		8.5%		$	2.36		$	2.19		7.8%
Capital replacements		(0.06)			(0.07)		(14.3%)			(0.27)			(0.25)		8.0%
Run-Rate Adjusted Funds From Operations (AFFO)	$	0.58		$	0.52		11.5%		$	2.09		$	1.94		7.7%

*In the fourth quarter of 2023 and 2022, $0.10 and $0.02, respectively, of our Pro forma adjustments are non-cash items. Please see Supplement Schedule 1 for further information regarding the Pro forma adjustments.

**In 2023, nonrecurring contributions are swap acceleration income from refinancing floating rate debt with long-term fixed rate financing offset partially by higher-than-anticipated casualty and legal costs. In 2022, nonrecurring contributions are cash income received from prepayment of the Aimco note and property leases.

Same Store Portfolio: Operating Update

Same Store Portfolio: 63 properties; 85% of full year rental revenue

	FOURTH QUARTER																	FULL YEAR
	Year-over-Year											Sequential						Year-over-Year
($ in millions, at AIR share)		2023				2022			Variance			3rd Qtr.				Variance			2023				2022			Variance
Revenue, before utility reimbursements	$	154.3			$	145.3			6.2	%		$	151.6			1.7	%	$	600.1			$	556.3			7.9	%
Controllable operating expenses (COE)		(15.9	)			(17.2	)		(7.4	%)			(19.7	)		(19.2	%)		(72.9	)			(72.8	)		0.2	%
Utilities, net		(1.9	)			(2.2	)		(16.8	%)			(2.1	)		(10.4	%)		(8.0	)			(9.0	)		(11.4	%)
Real estate taxes		(15.2	)			(14.5	)		4.9	%			(15.6	)		(2.5	%)		(61.0	)			(57.6	)		6.0	%
Insurance		(2.9	)			(1.9	)		57.2	%			(3.0	)		(2.8	%)		(11.0	)			(7.8	)		41.3	%
Expenses, net of utility reimbursements		(35.9	)			(35.8	)		0.3	%			(40.4	)		(11.1	%)		(152.9	)			(147.1	)		4.0	%
Net operating income	$	118.4			$	109.5			8.1	%		$	111.3			6.4	%	$	447.2			$	409.2			9.3	%
Capital replacements		(8.7	)			(10.1	)		(13.7	%)			(8.2	)		6.2	%		(36.6	)			(34.2	)		7.1	%
Unlevered FCF	$	109.7			$	99.4			10.3	%		$	103.1			6.4	%	$	410.6			$	375.0			9.5	%

Components of Same Store Revenue Growth:

	FOURTH QUARTER 2023				YEAR-TO-DATE
Same Store Revenue Components	Year-over-Year		Sequential		Year-over-Year
Residential Rents	4.0	%	0.3	%	7.0	%
Average Daily Occupancy (ADO)	0.4	%	2.0	%	(0.4	%)
Residential Rental Income	4.4	%	2.3	%	6.6	%
Bad Debt, net of recoveries*	1.1	%	0.6	%	0.5	%
Other Residential Income	0.7	%	(1.1	%)	0.8	%
Residential Revenue	6.2	%	1.8	%	7.9	%
Commercial Revenue	—	%	(0.1	%)	—	%
Same Store Revenue Growth	6.2	%	1.7	%	7.9	%

*AIR fourth quarter bad debt was 90 basis points on a gross basis, and zero net of recoveries.

Rental Rates & Occupancy:

	FOURTH QUARTER						YEAR-TO-DATE						2023						2024
(amounts represent AIR share)	2023		2022		Variance		2023		2022		Variance		Oct		Nov		Dec		Jan
Transacted Leases (rate of change)
Renewals	3.7	%	10.2	%	(6.5	%)	6.8	%	11.2	%	(4.4	%)	3.8	%	3.7	%	2.7	%	4.7	%
New leases	—	%	11.0	%	(11.0	%)	4.6	%	16.3	%	(11.7	%)	1.3	%	(0.4	%)	(2.0	%)	(0.5	%)
Weighted-average	0.9	%	10.9	%	(10.0	%)	5.6	%	13.8	%	(8.2	%)	2.1	%	0.2	%	(1.6	%)	0.2	%
Signed Leases (rate of change)
Renewals	4.7	%	9.0	%	(4.3	%)	6.7	%	11.1	%	(4.4	%)	3.8	%	5.6	%	4.9	%	5.6	%
New leases	(1.1	%)	10.0	%	(11.1	%)	4.2	%	16.1	%	(11.9	%)	—	%	(2.0	%)	(2.0	%)	1.8	%
Weighted-averge	—	%	9.8	%	(9.8	%)	5.4	%	13.6	%	(8.2	%)	0.6	%	(1.0	%)	0.1	%	3.8	%
Average Daily Occupancy (ADO)	97.3	%	96.9	%	0.4	%	96.4	%	96.8	%	(0.4	%)	96.9	%	97.4	%	97.7	%	97.7	%

Capital Allocation

Acquisition Portfolio: Operating Update

AIR’s acquisitions are expected to experience a rate of NOI and FCF growth during the initial years of AIR ownership that is higher than the rate in the Same Store Portfolio as operational improvements are realized and physical upgrades are completed.

			Fourth Quarter Year-Over-Year Variance
Year	Properties	% of GAV	Rev	Exp	NOI
Same Store excluding Class of 2021	58	75.2%	6.3%	1.0%	7.9%
Class of 2021*	5	6.8%	5.7%	(5.7%)	10.7%
Class of 2022**	4	5.9%	7.0%	6.0%	7.4%
Other Real Estate**	4	5.4%	5.7%	(16.0%)	15.1%
Class of 2023	4	5.8%
Class of 2024	1	0.9%
Total Portfolio	76	100.0%

*Class of 2021 acquisitions are included in, and contributed 20-basis points to, reported Same Store NOI growth metrics.

**Class of 2022 expenses increased in the quarter primarily as a result of a tax revaluation in Florida, offset by continued improvement in controllable expenses across the Class. Favorable expenses in Other Real Estate reflect AIR’s optimization of controllable expenses. Both portfolios continue to perform in line with expectations.

Acquisitions

• AIR made no acquisitions in the fourth quarter

• In January 2024, AIR acquired an apartment community located in Raleigh, North Carolina with 384 apartment homes for $86.5 million; we expect a 5.7% forward NOI cap rate at stabilization in the third quarter of 2024, and an unlevered IRR of >10%

Share Repurchases

• 2.1 million shares repurchased in the fourth quarter at an average price of $34.39 per share for $71.2 million, representing an estimated NOI cap rate of 6.5%

• Outstanding shares and OP units reduced by 4.8 million (3%) in the full year, and 13.4 million (8%) inclusive of share repurchases since year-end 2021

Balance Sheet Update

• Fourth quarter Net Leverage to Adjusted EBITDAre of 6.1x was 0.1x greater than previously anticipated due to opportunistic fourth quarter share repurchases

• Available liquidity was $1.9 billion at year-end, with no debt maturities in 2024

• Subsequent to December 31, 2023 we entered into interest rate hedges to fix 100% of the currently outstanding revolving credit facility borrowings at 4.9% and 100% of our term loan borrowings at 3.9%, thereby reducing floating rate leverage at year-end from 3.5% to zero

Portfolio & Financial Highlights

	FY 2023	FY 2022	Variance	Variance (%)
Portfolio Metrics
New Residents
Average household income ($)	$237,000	$238,000	($1,000)	flat
Median household income ($)	$170,000	$163,000	$7,000	4%
Rent-to-income %	19.0%	18.9%	0.1%	flat
Average FICO	723	727	(4)	(0.6%)
Existing Residents
Customer Satisfaction (CSAT)*	4.28	4.23	0.05	1%
TTM Retention (%)	62.3%	61.3%	1.0%	2%
# Properties	75	74	1	1%
# Apartment homes	21,674	22,200	(526)	(2%)
Average monthly revenue per apartment home ($)	$2,913	$2,648	$265	10%
Gross asset value ($B)**	$9.8B	$10.9B	($1.1B)	(10%)
Assets under management ($B)**	$11.9B	$12.4B	($0.5B)	(4%)
Balance Sheet
Total shares, units, and dilutive equivalents (in thousands)	154,636	159,164	(4,528)	(3%)
Total leverage ($M)
Recourse debt ($ / %)	$990M / 30%	$1,662M / 50%	($672M)	(40%)
Property debt ($ / %)	$2,299M / 68%	$1,604M / 48%	$695M	43%
Preferred equity ($ / %)	$79M / 2%	$79M / 2%	—	flat
Total leverage ($)	$3,368M	$3,345M	$23M	1%
Net leverage ($)	$3,263M	$3,058M	$205M	7%
Leverage metrics
Net leverage / Adjusted EBITDAre (x)	6.1x	6.05x	0.05x	1%
Mark-to-Market Value ($M)	$201M	$217M	($16M)	(7%)
Weighted Average Interest Rate (%)	4.3%	4.1%	0.2%	5%
Weighted Average Maturity (years)	6.5	6.3	0.2	3%
Unencumbered Properties ($B)**	$4.9B	$7.6B	($2.7B)	(36%)

Note: All metrics presented at AIR share, unless noted

*AIR targets CSAT scores (as defined within the Glossary) of 4.25 and higher. 4.0 or higher is considered world-class according to The Kingsley Index

**Please refer to the Glossary for the source of AIR's estimated gross asset value and assets under management

Historical Indexed Same Store Portfolio Performance

		CAGR
	2023	T-4 Years Since Pandemic 2020-2023	T-8 Years Mid 2010s 2016-2023	T-14 Years Post-GFC 2010-2023
Revenue	7.9%	4.2%	3.9%	4.0%
Controllable operating expenses	0.2%	(0.3%)	0.2%	(0.1%)
Total expenses	4.0%	2.0%	2.0%	1.8%
Net operating income	9.3%	5.0%	4.7%	5.1%
Unlevered FCF	9.5%	5.1%	4.9%	5.8%

2024 Outlook

• 2024 Run-Rate FFO per share of $2.38, at the midpoint, reflects 2023 Run-Rate FFO per share of $2.36 adjusted for:
  • $0.11 of incremental NOI contribution from the Same Store Portfolio; less
  • ($0.07) resulting from higher interest expense
  • ($0.01) resulting from 2023 paired trades
  • ($0.01) resulting from other items
• First quarter Run-Rate FFO per share between $0.55 and $0.59, and Run-Rate AFFO per share between $0.48 and $0.52. Run-Rate FFO per share is anticipated to decline sequentially by $0.07 at the midpoint; $0.055 of which is the result of normal seasonality related to property operating expenses; payroll taxes and the timing of G&A costs. The remaining $0.015 decline is due to the timing of short duration service income and casualty losses.
• Same Store Portfolio increased by seven properties in 2024, resulting in $64 million and $46 million of incremental Revenue and NOI, respectively, added to 2023 Same Store results
• A range of $50 million to $54 million in Other Real Estate NOI in 2024
• Third-party service income of $0.11 per share with (i) $0.06 to be earned from existing property and asset management agreements and (ii) $0.05 anticipated from future short-duration service income; an amount similar to that achieved in 2022 and 2023
• Supply impacts in line with historical experience with elevated levels observed in Costa Mesa, CA; Center City in Philadelphia; the Edgewater district of Miami; select pockets of Washington, DC; and, surrounding the Anschutz Medical Campus in Aurora, CO. Additional information can be found in AIR's 3rd Quarter Earnings Release and Supplemental.

	FULL YEAR 2024	FULL YEAR 2023	2024 VARIANCE AT THE MID-POINT
($ amounts represent AIR share)
Net income per share	($0.17) to ($0.27)	$4.27	($4.05)
Pro forma FFO per share	$2.33 to $2.43	$2.41	($0.03)
Run-Rate FFO per share	$2.33 to $2.43	$2.36	$0.02
Run-Rate AFFO per share	$2.07 to $2.17	$2.09	$0.03
Same Store operating components
Revenue change compared to prior year	2.6% to 5.0%	7.9%	(4.1%)
Expense change compared to prior year	4.8% to 2.8%	4.0%	(0.2%)
NOI change compared to prior year	2.0% to 5.6%	9.3%	(5.5%)
Interest expense, net	$145M to $150M	$136M	$11.5M
Capital allocation
Capital Enhancements	$50M to $60M	$71M	($16M)
Value of property acquisitions at AIR share	$87M	$585M	*
Share and OP unit repurchases	*	$167M	*
Proceeds from dispositions of real estate	*	$54M	*
Proceeds from joint venture transaction	*	$599M	*
Net Leverage to Adjusted EBITDAre ($45 million above target at 12/31/2023)	~6.0x	6.1x	~0.1x

*AIR anticipates being an active participant in the 2024 transaction market funding purchases with property debt, and proceeds from paired trades and co-investment by joint venture partners. We intend to pursue investments that are accretive to our cost of capital by > 200 basis points on an unlevered IRR basis. Given uncertainty surrounding the cost of capital, volume of transactions, operating plans, and timing, we are not providing guidance on the impact of transaction activity on 2024 results.

At the midpoint, 2024 revenue growth is derived from the following:

Components of Same Store Revenue Growth	Low	Mid	High
Earn-in from 2023 Leasing Activity	2.4%	2.4%	2.4%
Average Daily Occupancy Growth	0.2%	0.4%	0.8%
Return in 2024 on Capital Enhancements	0.2%	0.5%	0.5%
Contribution from 2022 Acquisitions moving to Same Store	0.1%	0.1%	0.1%
Change in Bad Debt	(0.3)%	0.1%	0.2%
2024 Same Store Revenue Growth before consideration of market rent growth	2.6%	3.5%	4.0%
Contribution from 2024 market growth (represents market rent growth of 0%, 1%, and 3%)	—%	0.3%	1.0%
Guided 2024 Same Store Revenue Growth*	2.6%	3.8%	5.0%

* In September 2023, AIR published an early view on 2024 Same Store Revenue growth before consideration of 2024 Market growth. AIR now expects, at the midpoint, Same Store Revenue growth of 3.8%; above our previously published expectations. In addition to a 30 basis point contribution from 2024 market growth, we now anticipate incremental growth in average daily occupancy, offset by a lower contribution from the addition of the Class of 2022 to the same store pool. The lower contribution is a result of a slow down in blended lease rates at the Class of 2022 properties during the last four months of 2023 and the exclusion from the Same Store pool of one property due to property upgrades anticipated to disrupt operations. A 3.5% blended lease to lease rate will achieve the rate growth embedded in the midpoint of our revenue growth guidance. In January our signed blended rate growth was 3.8%.

Earnings Conference Call Information

Live Conference Call:			Conference Call Replay:
Friday, February 9, 2024 at 1:00 p.m. ET			Replay available until May 9, 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: 85506070			Passcode: 506070 #
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.

With respect to AIR’s expectations under “Initiating 2024 guidance” and “2024 Outlook” above, AIR is not able to provide a quantitative reconciliation of Same Store FCF growth, Run-Rate FFO per share, Run-Rate AFFO per share and Year-end Net Leverage to Adjusted EBITDAre to the most directly comparable GAAP measures without unreasonable efforts, due to the forward-looking nature of these estimates and their inherent variability and uncertainty.

About AIR

Apartment Income REIT Corp (NYSE: AIRC) is a publicly traded, self-administered real estate investment trust (“REIT”). AIR’s portfolio comprises 76 communities totaling 27,010 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 2024 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								Year Ended
	December 31, 2023				December 31, 2022				December 31, 2023				December 31, 2022
REVENUES
Rental and other property revenues (1)	$	193,216			$	205,506			$	809,875			$	764,192
Other revenues		3,143				2,368				10,161				9,531
Total revenues		196,359				207,874				820,036				773,723
OPERATING EXPENSES
Property operating expenses (1)		53,973				55,112				244,095				231,791
Property management expenses		8,419				7,879				31,737				29,473
Depreciation and amortization		78,644				97,295				342,593				350,945
General and administrative expenses (2)		6,628				5,346				25,494				24,939
Other expenses, net		11,455				3,190				25,889				9,073
Total operating expenses		159,119				168,822				669,808				646,221
Interest income		2,181				1,518				8,314				50,264
Interest expense		(33,025	)			(35,669	)			(129,654	)			(116,459	)
Loss on extinguishment of debt		—				—				(2,008	)			(23,636	)
Gain on dispositions and impairments of real estate		2,206				352,197				677,740				939,806
(Loss) gain on derivative instruments, net		(6,580	)			—				16,742				—
Loss from unconsolidated real estate partnerships		(17,381	)			(530	)			(29,648	)			(3,504	)
(Loss) income before income tax expense		(15,359	)			356,568				691,714				973,973
Income tax benefit (expense)		3,484				(2,957	)			(2,427	)			(3,923	)
Net (loss) income		(11,875	)			353,611				689,287				970,050
Noncontrolling interests:
Net income attributable to noncontrolling interests in consolidated real estate partnerships		(1,291	)			(743	)			(5,185	)			(458	)
Net income attributable to preferred noncontrolling interests in AIR OP		(1,570	)			(1,581	)			(6,280	)			(6,388	)
Net loss (income) attributable to common noncontrolling interests in AIR OP		(1,476	)			(21,719	)			(42,721	)			(58,772	)
Net income attributable to noncontrolling interests		(4,337	)			(24,043	)			(54,186	)			(65,618	)
Net (loss) income attributable to AIR		(16,212	)			329,568				635,101				904,432
Net income attributable to AIR preferred stockholders		(43	)			(44	)			(172	)			(172	)
Net income attributable to participating securities		(1	)			(245	)			(485	)			(618	)
Net (loss) income attributable to AIR common stockholders	$	(16,256	)		$	329,279			$	634,444			$	903,642
Net (loss) income attributable to AIR common stockholders per share – basic	$	(0.11	)		$	2.20			$	4.29			$	5.86
Net (loss) income attributable to AIR common stockholders per share – diluted	$	(0.11	)		$	2.17			$	4.27			$	5.81
Weighted-average common shares outstanding – basic		146,479				149,897				147,899				154,093
Weighted-average common shares outstanding – diluted		146,479				152,264				150,220				156,587

(1)		Rental and other property revenues for the year ended December 31, 2023 are inclusive of $4.3 million of revenues related to sold properties, and property operating expenses are inclusive of $3.1 million of expenses related to sold properties. During the three months ended December 31, 2023, there were no revenues or expenses related to sold properties in rental and other property revenues or property operating expenses. Rental and other property revenues for the three months and year ended December 31, 2022 are inclusive of $6.3 million and $44.3 million, respectively, of revenues related to sold properties. Property operating expenses for the three months and year ended December 31, 2022 are inclusive of $2.8 million and $17.5 million, respectively, of expenses related to sold properties.
(2)		In setting our G&A targets, we consider recurring service income from asset management services 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 the recurring service income earned. The California Joint Venture is consolidated on our balance sheet and accordingly, recurring service income 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, recurring service income earned in these ventures is included in other revenues. Recurring service income earned from joint ventures were $1.6 million and $6.5 million for three months and year ended December 31, 2023, respectively, and $1.7 million and $6.9 million for three months and year ended December 31, 2022, respectively.

Consolidated Balance Sheets
(in thousands) (unaudited)
	December 31, 2023				December 31, 2022
Assets
Real estate	$	7,610,567			$	8,076,394
Accumulated depreciation		(2,245,589	)			(2,449,883	)
Net real estate		5,364,978				5,626,511
Cash and cash equivalents		91,401				95,797
Restricted cash		26,090				205,608
Goodwill		32,286				32,286
Investment in unconsolidated real estate partnerships		336,077				41,860
Other assets		283,920				549,821
Total assets	$	6,134,752			$	6,551,883
Liabilities and Equity
Non-recourse property debt	$	2,236,975			$	1,994,651
Debt issue costs		(13,184	)			(9,221	)
Non-recourse property debt, net		2,223,791				1,985,430
Term loans, net		473,701				796,713
Revolving credit facility borrowings		115,000				462,000
Unsecured notes payable, net		397,852				397,486
Accrued liabilities and other		296,894				513,805
Total liabilities		3,507,238				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		1,449				1,491
Additional paid-in capital		3,284,716				3,436,635
Accumulated other comprehensive income		22,392				43,562
Distributions in excess of earnings		(958,661	)			(1,327,271	)
Total AIR equity		2,351,896				2,156,417
Noncontrolling interests in consolidated real estate partnerships		(85,973	)			(78,785	)
Common noncontrolling interests in AIR OP		284,451				241,674
Total equity		2,550,374				2,319,306
Total Liabilities and Equity	$	6,134,752			$	6,551,883

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240208086259/en/

Matthew O’Grady

Senior Vice President, Capital Markets

(303) 691-4566

investors@aircommunities.com

Source: Apartment Income REIT Corp

FAQ

What were Apartment Income REIT Corp.'s (AIRC) full year Same Store Revenue, Net Operating Income, and Free Cash Flow growth rates for 2023?

Full year Same Store Revenue, Net Operating Income, and Free Cash Flow grew by 7.9%, 9.3%, and 9.5% respectively for 2023.

What is the expected range for Same Store NOI growth in 2024?

The expected range for Same Store NOI growth in 2024 is 2.0% to 5.6%, with 3.8% at the midpoint.

What is the Year-end Net Leverage to Adjusted EBITDAre for Apartment Income REIT Corp. in 2023?

The Year-end Net Leverage to Adjusted EBITDAre for Apartment Income REIT Corp. in 2023 was approximately 6.0x, with fluctuations for intra-quarter transaction activity.

What were the changes in Net (loss) income, NAREIT Funds From Operations (FFO), and Pro forma FFO in Q4 2023 compared to Q4 2022?

Net (loss) income decreased by 105.1% in Q4 2023 compared to Q4 2022. NAREIT Funds From Operations (FFO) decreased by 20.7% in Q4 2023 compared to Q4 2022. Pro forma FFO decreased by 41.7% in 2023 compared to 2022.