AIR Reports Third Quarter 2021 Results, Raises Full Year FFO Guidance, and Announces $1.7B of Property Sales Closed, Under Contract, In Negotiation

Rhea-AI Summary

Apartment Income REIT Corp. (AIRC) reported a strong third quarter 2021, with FFO per share at $0.56, exceeding guidance by $0.03. The company raised its full year Same Store Revenue, NOI, and FFO guidance, anticipating NOI growth of 1.1% and FFO per share of $2.14. With $1.7 billion in property sales and acquisitions, AIRC aims to reduce net leverage to EBITDAre to 5.3:1. The CEO noted increased customer demand and rising rents. Additionally, a quarterly dividend of $0.44 per share was declared for November 30, 2021, further demonstrating financial health.

Positive

• FFO per share of $0.56, exceeding guidance by $0.03.
• Increased full year Same Store Revenue, NOI, and FFO guidance.
• $1.7 billion in property sales and acquisitions to improve portfolio.
• Net leverage to EBITDAre expected to decrease to 5.3:1.
• Quarterly dividend of $0.44 per share declared.

Negative

• FFO dilution of $0.01 per share due to deleveraging activities.
• Decrease in year-to-date net income to $0.48 from previous $0.56.
• Same Store Revenue decreased by 0.8% year-to-date.

DENVER--(BUSINESS WIRE)-- Apartment Income REIT Corp. (“AIR”) (NYSE: AIRC) announced today third quarter results for 2021; an increase to full year Same Store Revenue, NOI, and FFO guidance; $1.7 billion of property sales closed, under contract, or in negotiation with proceeds to be used to reduce year-end net leverage to EBITDAre to 5.3:1, and the acquisition of a four property portfolio in Washington, D.C. for $510 million.

Chief Executive Officer Terry Considine comments: “It is a good time for the multi-family business. Customer demand has recovered, and rents are at or above long-term trendlines. Our property operations team continues to excel: raising rents, increasing occupancy, and, notwithstanding inflationary times, reducing costs.”

“Fueled by increasing rents and low interest rates, property values have appreciated above their pre-COVID levels. We decided that it was an opportune time to sell properties selectively to improve our portfolio, harvest gains, and reduce leverage. The current yield on the $1.7 billion total is 4.36% and the expected sales prices average 15% above pre-COVID values. $1.1 billion will be used to repay debt with a weighted-average interest expense of 3.72%."

"The net of property sales, property acquisitions, debt refinancing, and de-levering to our target of 5.5:1 will result in FFO dilution of $0.01 per share per annum. De-levering further to 5.3:1 will result in additional dilution of $0.01 per share per quarter until the $380 million of borrowing capacity is reinvested."

“We used $382 million of sales proceeds plus $128 million of operating partnership units to acquire for $510 million a four-property portfolio in or near to Washington, D.C. Compared to the properties sold in the paired trade, we expect to earn a somewhat higher return during 2022 and to increase longer-term returns by 50% through select capital investments and the value created by our operating platform."

“The result of $1.7 billion of sales and $750 million of property purchases will be a portfolio with higher quality, faster growth, and less exposure to regulatory risk.”

“We strengthened our senior management team when John McGrath rejoined us as EVP Strategy and Capital Markets and again when Joshua Minix joined as an EVP, and with John, co-Chief Investment Officer.”

“During the third quarter, we also nominated three new directors: Tom Bohjalian, Kristin Finney-Cooke, and Maggie Paláu-Hernández. Their remarkable accomplishments are included in the proxy statement filed earlier this week. After their election, the AIR board will be refreshed, and continue to be diverse and highly capable.”

“AIR is less than one year old. In the past 10 months, the hard work of the entire AIR team, guided by the engaged AIR Board led by Chairman Tom Keltner has accomplished our initial goals and positioned the company for accretive growth.”

Chief Financial Officer Paul Beldin adds: “Third quarter FFO of $0.56 per share was $0.03 above the midpoint of our guidance range due to better than anticipated Same Store results. For the quarter, revenue and NOI grew sequentially by 5.4% and 7.9%, respectively.”

"For the third time this year, we are increasing our full year Same Store and FFO per share expectations. At the mid-point, we expect NOI growth of 1.1% and FFO per share of $2.14. More importantly, the strong finish to peak leasing season will provide a boost to 2022 revenue and NOI growth."

Financial Results: Third Quarter Pro Forma FFO Per Share

		2021
(all items per common share - diluted)		THIRD QUARTER				SECOND QUARTER				YEAR-TO-DATE
Net income (loss)		$	0.06			$	(0.12	)		$	0.48
NAREIT Funds From Operations (FFO)		$	0.47			$	0.28			$	1.22
Pro forma adjustments		$	0.09			$	0.24			$	0.36
Pro forma Funds From Operations (Pro forma FFO)		$	0.56			$	0.52			$	1.58

AIR Operating Results: Third Quarter Same Store Revenue Up 5.4% Sequentially

The table below includes the operating results of the 92 properties of AIR that meet our Same Store definition. These properties contribute approximately 98% of AIR’s GAAP revenue.

	THIRD QUARTER					YEAR-TO-DATE
	Year-over-Year			Sequential		Year-over-Year
($ in millions) *	2021	2020	Variance	2nd Qtr.	Variance	2021	2020	Variance
Revenue, before utility reimbursements	$162.5	$153.4	6.0%	$154.2	5.4%	$469.7	$473.4	(0.8%)
Expenses, net of utility reimbursements	44.9	45.1	(0.4%)	45.1	(0.6%)	134.0	130.8	2.5%
Net operating income (NOI)	$117.7	$108.3	8.6%	$109.0	7.9%	$335.7	$342.6	(2.0%)

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

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

		THIRD QUARTER								YEAR-TO-DATE
Same Store Revenue Components		Year-over-Year				Sequential				Year-over-Year
Residential Rents			0.4	%			2.0	%			(0.9	%)
Average Daily Occupancy			3.3	%			1.2	%			0.6	%
Residential Net Rental Income			3.7	%			3.2	%			(0.3	%)
Bad Debt			0.4	%			0.7	%			(0.6	%)
Late Fees and Other			0.2	%			0.5	%			(0.3	%)
Residential Revenue			4.3	%			4.4	%			(1.2	%)
Commercial Revenue			1.7	%			1.0	%			0.4	%
Same Store Revenue Growth			6.0	%			5.4	%			(0.8	%)

Same Store Rental Rates – We measure changes in rental rates by comparing, on a lease-by-lease basis, the effective rate on a newly executed lease to the effective rate on the expiring lease for that same apartment. A newly executed lease is classified either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal.

The table below details changes in lease rates, as well as the weighted-average (blended) lease rates for leases executed in the respective period. Transacted leases are those that became effective during a reporting period and are therefore the best measure of immediate effect on current revenues. Signed leases are those executed during a reporting period and are therefore the best measure of current activity.

	THIRD QUARTER									YEAR-TO-DATE									2021
	2021			2020			Variance			2021			2020			Variance			Jul			Aug			Sept			Oct*
Transacted Leases
Renewal rent changes		7.1	%		2.5	%		4.6	%		4.9	%		3.9	%		1.0	%		5.7	%		7.1	%		9.7	%		11.6	%
New lease rent changes		8.0	%		(8.1	%)		16.1	%		1.6	%		(4.8	%)		6.4	%		5.8	%		8.0	%		12.3	%		14.0	%
Weighted-average rent changes		7.6	%		(3.3	%)		10.9	%		3.1	%		(0.6	%)		3.7	%		5.7	%		7.6	%		11.1	%		13.2	%
Signed Leases
Renewal rent changes		8.8	%		1.8	%		7.0	%		5.3	%		3.7	%		1.6	%		8.0	%		9.4	%		11.0	%		14.1	%
New lease rent changes		11.0	%		(9.6	%)		20.6	%		2.8	%		(5.3	%)		8.1	%		9.2	%		11.7	%		14.4	%		13.5	%
Weighted-average rent changes		10.0	%		(5.8	%)		15.8	%		3.9	%		(1.0	%)		4.9	%		8.6	%		10.7	%		13.4	%		13.6	%
Average Daily Occupancy		96.6	%		93.3	%		3.3	%		95.8	%		95.2	%		0.6	%		95.8	%		96.6	%		97.4	%		97.8	%

*October leasing results are preliminary and as of October 27, 2021.

Same Store Markets – Market conditions continued to be strong in the third quarter, exceeding our expectations from the beginning of the year, and our revised expectations after a strong second quarter. The trend of strengthening lease growth rates continued through the third quarter, as weighted-average signed lease changes have trended upwards for 12 consecutive months.

As anticipated, occupancy increased sharply as we completed peak leasing season, with average daily occupancy increasing from 95.4% in the second quarter to 96.6% in the third quarter, including 97.4% in September.

In addition to average daily occupancy, we also use “leased percentage” as a metric predictive of future occupancy. “Leased percentage” is defined as occupied apartments plus apartments leased but not yet occupied and less apartments occupied where the resident has given notice of intent to vacate the apartment. During the quarter, the percentage of apartment homes currently leased increased from 93.1% to 97.5%. Our leased percentage is now 600 basis points ahead of 2020 and 300 basis points ahead of the third quarter of 2019. As a result, we see occupancy remaining at or above current levels through the first quarter of 2022.

Rent Collection Update

We measure residential rent collection as the amount of payments received as a percentage of all residential amounts owed. In the third quarter, we recognized 98.6% of all residential revenue owed during the quarter, treating the balance of 1.4% as bad debt. 2.8% of our residents have extended delinquencies, much of which we expect to collect from the residents based on their high credit scores or to be reimbursed by the State of California. 97.2% of our residents pay rent timely with bad debt under 30 basis points of revenue, a level still somewhat elevated from our historic experience.

As of September 30, 2021, our proportionate share of gross residential accounts receivable was $13.3 million. After consideration of tenant security deposits and reserves for uncollectible amounts, our net exposure is $1.3 million, an amount expected to be collected during the fourth quarter.

73% of the $13.3 million of uncollected accounts receivable relate to California residents. During the quarter, we received $2.7 million from California’s rent relief program. We await the state’s response to an additional $5.2 million of rent relief requests made. We are working with residents to file an additional $3.6 million of claims.

We remain cautiously optimistic that this program will allow us to recover rents uncollected in 2020 or 2021. We expect bad debt expense to decline with the end of emergency ordinances that suspend contractual remedies for non-payment of rent.

Portfolio Management

Our portfolio of apartment communities is diversified across primarily “A” and “B” price points, averaging “B/B+” in quality, and is also diversified across several of the largest markets in the United States. After the properties being sold and the properties acquired this year, our portfolio will be higher quality, require lower recurring capital replacement spending, and have a greater allocation to states with greater economic growth and a more reliable rule of law.

Transactions

Dispositions

During the third quarter, we sold one apartment community located in Elmhurst, Illinois, with 58 apartment homes at a price of $40 million. Net sales proceeds from this transaction were $39.9 million.

AIR is under contract to sell four Washington, D.C. area communities with 976 apartment homes and 11 properties in New York City for total consideration of approximately $470 million, all of which are expected to close in the fourth quarter.

Subsequent to quarter end, we entered into a joint venture with an affiliate of Blackstone to sell, for approximately $408 million, an 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with 20% ownership, and earns various fees for providing property management and corporate services.

Additionally, we are in contract negotiations on additional $800 million of properties located primarily in select markets in California.

In aggregate, the completed and under contract sales are expected to generate gross proceeds of approximately $1.7 billion and are valued at an implied NOI cap rate of 4.36%, based on forecasted 2021 NOI and inclusive of fees expected to be earned from the joint venture. The communities are being sold at a 15% premium to their estimated 2020 fair market value, pre-COVID.

Acquisitions

Subsequent to quarter end, we acquired a portfolio of four properties located in the Washington, D.C. area, with 1,400 apartment homes and 84,000 square feet of office and commercial space, for an expected purchase price of approximately $510 million. The communities acquired are:

• Vaughan Place, located in Washington, D.C., with 389 apartment homes and 52,000 square feet of office and commercial space. Sixteen of these homes remain subject to the Tenant Opportunity to Purchase Act ("TOPA"); if not ultimately acquired, our purchase price will be reduced by approximately $6.4 million;
• Residences at Capital Crescent Trail, located in Bethesda, MD, with 258 apartment homes;
• North Park, located in Chevy Chase, MD, with 310 apartment homes;
• Huntington Gateway, located in Alexandria, VA, with 443 apartment homes and 32,000 square feet of office and commercial space; and
• Two vacant land parcels adjacent to the Residences at Capital Crescent Trail, suitable for development of 498 additional apartment homes, and valued at approximately $20 million. AIR does not expect to undertake the development of these parcels but rather expects to sell or lease the land to a third-party developer.

The acquisition was initially funded with $259 million of existing property debt, an expected issuance of $128 million in OP Units, and $122 million borrowed on the AIR revolving credit facility. On a permanent basis, AIR expects to fund the acquisition with approximately 75% equity and 25% debt.

The paired trade of selling communities in New York and locations in the suburban Washington, D.C. area to acquire these four communities is expected to be somewhat accretive to FFO per share in 2022.

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, primarily long-dated debt; and we build financial flexibility by maintaining ample unused and available credit; holding properties with substantial value unencumbered by property debt; maintaining an investment grade rating; and using partners’ capital when it enhances financial returns or reduces investment risk.

Components of Leverage

Our leverage includes our share of long-term, non-recourse property debt encumbering our apartment communities, together with outstanding borrowings under our revolving credit facility, our term loans, and our preferred equity.

		AS OF SEPTEMBER 30, 2021
($ in millions)*		Amount				% of Total				Weighted-Avg. Maturity (Yrs.)
AIR share of long-term, non-recourse property debt		$	2,551				66	%			8.7
Term loans			1,150				30	%			3.4
Outstanding borrowings on revolving credit facility			78				2	%			4.5
Preferred equity**			81				2	%			9.9
Total Leverage		$	3,861				100	%			7.1
Cash and restricted cash			(80	)
Notes receivable from Aimco***			(534	)
Net Leverage		$	3,247

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

** AIR’s Preferred equity is perpetual in nature; however, for illustrative purposes, we have computed the weighted-average maturity of our preferred OP Units assuming a 10-year maturity and preferred stock assuming it is called at the expiration of the no-call period.

*** We have notes receivable from Aimco with an aggregate principal amount of $534 million. The notes will mature on January 31, 2024, and are secured by a pool of properties owned by Aimco. We consider the notes a reduction of leverage as we expect proceeds to be used to repay loan amounts currently outstanding.

Leverage Reduction – On Track

We target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x.

The net proceeds from the sales activity and property acquisitions described above, and our debt refinancing is expected to result in the following:

	Sources & Uses			Estimated Yield	FFO Impact
Estimated gross proceeds	$	1,715,000		4.36%	$	(74,774	)
Transaction costs (~2% of gross proceeds) and transfer taxes (~0.5%) of gross proceeds		(43,500	)
Prepayment penalties on debt repaid to facilitate sales		(31,500	)
Prepayment penalties on other debt prepaid (1)		(148,408	)
Net Proceeds		1,491,592				(74,774	)
Acquisition equity funded through paired trades (2)		434,500		5.20%		22,594
Property debt repaid		1,057,091		3.72%		39,324
Property debt refinancing (3)		—				3,648
Uses of Net Proceeds		1,491,591				65,566
Net FFO impact before investment of incremental proceeds						(9,208	)
Investment of incremental proceeds (4)						7,220
Net FFO impact after investment of incremental proceeds						(1,988	)
Net FFO impact per share before investment of incremental proceeds					$	(0.05	)
Net FFO impact per share after investment of incremental proceeds					$	(0.01	)

(1)		Of the $148 million of estimated prepayment penalties approximately $66 million relates to the mark to market on the debt and the remaining $82 million is an investment in higher future earnings; a $1.8 billion increase in our pool of unencumbered properties; increased financial flexibility; and enhanced access to public debt markets.
(2)		The unlevered yield of the 2021 property acquisitions is expected to be ~4.3%, resulting in an expected levered yield of ~5.2%.
(3)		As part of our deleveraging activities, we are refinancing approximately $275 million of high cost property debt. The effective spread on this refinancing is 130 basis points.
(4)		Assumes the investment of $380 million of incremental proceeds at 4.3%; with a debt cost of 2.4%.

Pro forma expected sales activity, year-end Net Leverage to EBITDAre is expected to be ~5.3x, 0.2x of a turn better than target, providing ~$380 million of capacity to fund future acquisitions.

Liquidity

We use our revolving credit facility for working capital and other short-term purposes and to secure letters of credit. At September 30, 2021, our share of cash and restricted cash was $80 million and we had the capacity to borrow up to $518 million under our revolving credit facility, bringing total liquidity to $598 million.

We manage our financial flexibility by maintaining an investment grade rating and holding communities that are unencumbered by property debt. AIR has been rated BBB by Standard & Poor’s. As of September 30, 2021, we held unencumbered communities with property debt with an estimated fair market value of approximately $4.2 billion; an increase of 50% from December 31, 2020; pro forma expected sales activity, the value of properties unencumbered by property debt is anticipated to increase to approximately $6.0 billion.

We anticipate seeking an investment grade credit rating from Moody’s. In assigning ratings, Moody’s places significant emphasis on the amount of non-recourse property debt as percentage of the undepreciated book value of a company’s assets. To achieve Moody’s required thresholds, we estimate that a Moody’s investment grade rating will require property debt to approximate $1.8 billion. Pro forma the leverage activities described above; we anticipate that our share of property debt will approximate this target level.

Dividend

On October 26, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share of AIR Common Stock. This amount is payable on November 30, 2021, to stockholders of record on November 12, 2021.

2021 Outlook

At the midpoint, we expect FFO per share to be $2.14, up $0.02 from our previous expectations due primarily to increased Same Store NOI.

Our guidance ranges are based on the following components:

		YEAR-TO-DATE SEPTEMBER 30, 2021		FULL YEAR 2021		PREVIOUS FULL YEAR 2021
($ Amounts represent AIR Share)
Net Income (loss) per share (1)		$0.48		$(0.26) to $(0.13)		$(0.13) to $0.00
Pro forma FFO per share		$1.58		$2.12 to $2.16		$2.09 to $2.15
Pro forma FFO per share at the mid-point				$2.14		$2.12
Same Store Operating Components of NAREIT FFO
Revenue change compared to prior year		(0.8%)		1.40% to 1.60%		0.50% to 1.50%
Expense change compared to prior year		2.5%		2.70% to 2.30%		3.00% to 2.50%
NOI change compared to prior year		(2.0%)		0.90% to 1.30%		(0.50%) to 1.00%
Offsite Costs
Property management expenses		$18M		~$23M		~$23M
General and administrative expenses, net of asset management income (2)		$12M		~$15M		~$15M
Other Earnings
Lease income (3)		$20M		~$27M		~$27M
Tax expense (3)		($0.6M)		~($1M)		~($1M)
Proceeds from dispositions of real estate, net of transaction costs		$39.9M		~$1.6B		~$800M
AIR Share of Capital Investments
Capital Enhancements		$77M		$90M to $100M		$65M to $75M

(1)		Does not include any gain from future property sales.
(2)		In 2021, AIR G&A is expected to be reduced by a $5.8 million payment from Aimco.
(3)		Presented net of FFO and Pro forma FFO adjustments.

In the fourth quarter, AIR anticipates Pro forma FFO between $0.54 and $0.58 per share.

AIR Strategic Objectives

We created AIR to be an efficient way to invest in U.S. multi-family real estate, due to its simplified business model and diversified portfolio of stabilized apartment communities. Upon AIR’s separation from Aimco, we identified 10 strategic objectives. The following table outlines our progress against these objectives.

Since separation AIR has been focused on delivering on its strategic objectives:
Simple business model without complex investments or development/lease up risk.				X		Done - 97% of 2021 FFO is derived from netting three items: Property NOI, G&A and interest expense
High quality and diversified portfolio of stabilized multi-family properties.				X		Done - AIR has a high-quality portfolio that is diversified across geography and by product type.
Best in class property operations.				X		Done - For the five years ending December 2021, AIR’s cumulative SS NOI growth is expected to be best amongst the Coastal multi-family REITs and well above the multi-family average
Efficient cost structure, with the lowest G&A as a percent of total assets.				X		Done - AIR G&A expense will be equal to 15 basis points of GAV.
Predictable and diversified cash flow to support dividend payout ratio.				X		Done - AIR’s dividend payout ratio for 2021 is expected to be ~81%.
Refreshed tax basis reduces tax friction on transactions, permitting more efficient capital allocation				X		Done - With tax basis refreshed by the 2020 taxable dividend, taxable gains on the sale of $1.7B is reduced by more than $1B. As a result, no stock dividends are required to distribute taxable income.
Committed focus on ESG				X		Done - including reporting in accordance with GRESB, and AIR Board refreshment.
Strong growth from economic expansion, portfolio management, and accretive acquisitions of properties with upside from AIR operations				X		Done - $750M of completed acquisitions.
Strong, flexible balance sheet with low cost of leverage				X		Done - AIR’s net cost of leverage has declined 50 basis points since December 31, 2021
Reduce net leverage to EBITDA to ~5.5:1						On plan, expected to be complete by December 31, 2021.

Earnings Conference Call Information

Live Conference Call:	Conference Call Replay:
Friday, October 29, 2021 at 1:00 p.m. ET	Replay available until November 26, 2021
Domestic Dial-In Number: 1-844-200-6205	Domestic Dial-In Number: 1-866-813-9403
International Dial-In Number: 1-929-526-1599	International Dial-In Number: +44-204-525-0658
Passcode: 076655	Passcode: 838944
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 95 communities in 12 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 2021 and 2022 results, including but not limited to: NAREIT FFO, Pro forma FFO and selected components thereof; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; expectations regarding sales of AIR apartment communities and the use of proceeds thereof; and AIR liquidity and leverage metrics. We caution investors not to place undue reliance on any such forward-looking statements.

These forward-looking statements are based on management’s current expectations, estimates and assumptions and subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements, including, but not limited to: the effects of the coronavirus pandemic on AIR’s business and on the global and U.S. economies generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described herein; real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing and effects of acquisitions and dispositions; changes in operating costs, including energy costs; negative economic conditions in our geographies of operation; loss of key personnel; AIR’s ability to maintain current or meet projected occupancy, rental rate and property operating results; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently or previously owned by AIR; our relationship with Aimco after the business separation; the ability and willingness of the parties to the business separation to meet and/or perform their obligations under the related contractual arrangements and any of their obligations to indemnify, defend and hold the other party harmless from and against various claims, litigation and liabilities; and the ability to achieve the expected benefits from the business separation. Other risks and uncertainties are described in filings by AIR with the Securities and Exchange Commission (“SEC”), including the section entitled “Risk Factors” in Item 1A of AIR’s Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent filings with the SEC.

In addition, AIR’s 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 AIR’s 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 AIR assumes 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)

The separation resulted in Aimco being presented as the predecessor for AIR’s financial statements. This presentation is in accordance with GAAP and is due primarily to the relative significance of AIR’s business as compared to Aimco before the separation. The financial results prior to the separation on December 15, 2020, include the financial results of AIR’s predecessor, and the financial results attributable to the apartment communities retained by Aimco in the separation are presented as discontinued operations.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
REVENUES
Rental and other property revenues (1)		$	190,082			$	178,123			$	541,533			$	545,809
Other revenues			1,695				—				4,990				—
Total revenues			191,777				178,123				546,523				545,809
OPERATING EXPENSES
Property operating expenses (1)			73,925				65,419				203,300				195,340
Depreciation and amortization			81,121				79,264				232,192				239,659
General and administrative expenses (2)			5,875				7,676				15,510				22,731
Other expenses, net			3,816				17,492				9,207				23,139
Total operating expenses			164,737				169,851				460,209				480,869
Interest income (3)			13,432				2,492				45,088				8,784
Interest expense, including prepayment penalties (4)			(37,203	)			(44,608	)			(145,045	)			(125,653	)
Gain on derecognition of leased properties and dispositions of real estate			7,127				—				94,512				47,295
Mezzanine investment income, net (5)			—				6,870				—				20,553
Income (loss) from continuing operations before income tax (expense) benefit and discontinued operations			10,396				(26,974	)			80,869				15,919
Income tax (expense) benefit			275				(419	)			(770	)			1,678
Income (loss) from continuing operations			10,671				(27,393	)			80,099				17,597
Income from discontinued operations, net of tax			—				2,578				—				9,769
Net income (loss)			10,671				(24,815	)			80,099				27,366
Noncontrolling interests:
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships			785				154				3,417				153
Net income attributable to preferred noncontrolling interests in AIR OP			(1,603	)			(1,687	)			(4,810	)			(5,415	)
Net (income) loss attributable to common noncontrolling interests in AIR OP			(475	)			1,341				(3,966	)			(1,134	)
Net (income) loss attributable to noncontrolling interests			(1,293	)			(192	)			(5,359	)			(6,396	)
Net income (loss) attributable to AIR			9,378				(25,007	)			74,740				20,970
Net income attributable to AIR preferred stockholders			(43	)			—				(136	)			—
Net income attributable to participating securities			(46	)			(39	)			(149	)			(125	)
Net income (loss) attributable to AIR common stockholders		$	9,289			$	(25,046	)		$	74,455			$	20,845
Earnings (loss) per common share – basic
Income (loss) from continuing operations attributable to AIR per common share		$	0.06			$	(0.23	)		$	0.49			$	0.09
Income (loss) from discontinued operations attributable to AIR per common share			—				0.02				—				0.08
Net income (loss) attributable to AIR common stockholders per share – basic		$	0.06			$	(0.21	)		$	0.49			$	0.17
Earnings (loss) per common share – diluted
Income (loss) from continuing operations attributable to AIR per common share		$	0.06			$	(0.23	)		$	0.48			$	0.09
Income (loss) from discontinued operations attributable to AIR per common share			—				0.02				—				0.08
Net income (loss) attributable to AIR common stockholders per share – diluted		$	0.06			$	(0.21	)		$	0.48			$	0.17
Weighted-average common shares outstanding – basic (6)			156,646				119,967				153,289				119,957
Weighted-average common shares outstanding – diluted (6)			157,042				119,967				153,650				120,035

Please see the following page for footnote descriptions.

Consolidated Statements of Operations (continued)

(1)		Rental and other property revenues for the three and nine months ended September 30, 2021, is inclusive of $0.4 million and $1.8 million, respectively, of revenues related to sold properties. Property operating expenses for the three and nine months ended September 30, 2021, is inclusive of $0.1 million and $0.5 million, respectively, of expenses related to sold properties. Prior to the separation, Aimco sold two apartment communities in 2020. Rental and other property revenues for the three and nine months ended September 30, 2020, is inclusive of $2.4 million and $8.5 million, respectively, of revenues related to Aimco’s sold properties. Property operating expenses for the three and nine months ended September 30, 2020, is inclusive of $0.7 million and $2.6 million, respectively, of expenses related to Aimco’s sold properties.
(2)		In setting our G&A benchmark of 15 bps of total assets, we consider platform fees earned on our California joint venture as a reduction of general and administrative expenses. In accordance with GAAP, general and administrative expenses are shown gross of these platform fees and they are instead included in the determination of net income (loss) attributable to noncontrolling interests in consolidated real estate partnerships.
(3)		Interest income for the three and nine months ended September 30, 2021, includes $6.9 million and $20.8 million, respectively, of income associated with our notes receivable from Aimco, and $6.5 million and $19.4 million, respectively, of interest income associated with properties leased to Aimco.
(4)		Interest expense for the three and nine months ended September 30, 2021, includes $6.7 million and $44.9 million, respectively, of costs related to prepayment penalties from the repayment of property debt and the write-off of deferred financing costs associated with our previous credit facility.
(5)		In connection with the separation, Aimco was allocated economic ownership of the mezzanine loan investment and option to acquire a 30% equity interest in the partnership. Subsequent to the separation, all risks and rewards of ownership are Aimco’s, but legal transfer is not complete. During the three and nine months ended September 30, 2020, we recognized $6.9 million and $20.6 million of income, respectively, in connection with the mezzanine loan. For the three and nine months ended September 30, 2021, the mezzanine investment income was entirely offset by an expense to recognize the requirement that this income be contributed to Aimco.
(6)		During the fourth quarter of 2020, Aimco completed a reverse stock split and a special dividend paid primarily in stock. For stock splits, GAAP requires the restatement of weighted-average shares as if the reverse stock split occurred at the beginning of the period presented, while shares issued in the special dividend are included in weighted-average shares outstanding from the date issued. Basic and diluted weighted-average common shares outstanding were 148,544, as previously reported for the three months ended September 30, 2020. Basic and diluted weighted-average common shares outstanding were 148,532 and 148,628, respectively, as previously reported for the nine months ended September 30, 2020.

Consolidated Balance Sheets
(in thousands) (unaudited)

		September 30,				December 31,
		2021				2020
Assets
Real estate		$	7,301,327			$	7,468,864
Accumulated depreciation			(2,585,474	)			(2,455,505	)
Net real estate			4,715,853				5,013,359
Cash and cash equivalents			73,687				44,214
Restricted cash			23,440				29,266
Notes receivable from Aimco			534,127				534,127
Leased real estate assets			466,448				—
Goodwill			32,286				32,286
Other assets (1)			588,668				576,026
Total Assets		$	6,434,509			$	6,229,278
Liabilities and Equity
Non-recourse property debt		$	3,027,991			$	3,646,093
Debt issue costs			(14,078	)			(17,857	)
Non-recourse property debt, net			3,013,913				3,628,236
Term loans, net			1,143,867				349,164
Revolving credit facility borrowings			78,200				265,600
Accrued liabilities and other (1)			610,217				598,736
Total Liabilities			4,846,197				4,841,736
Preferred noncontrolling interests in AIR OP			79,377				79,449
Equity:
Perpetual preferred stock			2,000				2,000
Class A Common Stock			1,570				1,489
Additional paid-in capital			3,773,936				3,432,121
Accumulated other comprehensive income			—				3,039
Distributions in excess of earnings			(2,257,562	)			(2,131,798	)
Total AIR equity			1,519,944				1,306,851
Noncontrolling interests in consolidated real estate partnerships			(68,098	)			(61,943	)
Common noncontrolling interests in AIR OP			57,089				63,185
Total Equity			1,508,935				1,308,093
Total Liabilities and Equity		$	6,434,509			$	6,229,278

(1)

Other assets includes the Parkmerced mezzanine investment and the fair value of our 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 is not complete.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006213/en/

Beth Hagan

(303) 757-8101

investors@aircommunities.com

Source: Apartment Income REIT Corp.

FAQ

What were Apartment Income REIT Corp.'s third quarter 2021 results?

AIRC reported FFO per share of $0.56, with increased guidance for Same Store Revenue, NOI, and FFO.

How much property did AIRC sell in the third quarter of 2021?

AIRC closed $1.7 billion in property sales, contributing to portfolio optimization.

What is the expected FFO per share for AIRC in 2021?

The expected FFO per share for AIRC is set at $2.14.

What is AIRC's new dividend declaration?

AIRC declared a quarterly cash dividend of $0.44 per share, payable on November 30, 2021.

What impact will deleveraging have on AIRC's FFO?

Deleveraging activities are expected to result in FFO dilution of $0.01 per share per annum.