Apartment Income REIT Corp. (“AIR”) (NYSE: AIRC) today announced the closing of a new $1.4 billion credit facility, results from first quarter 2021 leasing activity, and increased 2021 guidance.
$1.4 Billion Credit Facility
On April 14, AIR closed a new $1.4 billion credit facility, providing four-to-five-year money at a current all-in cost of 1.6%. The new term loans refund the existing term loan with a current cost of 2.6%. The transaction lowers 2021 interest expense expectations by $2.5 million, increasing FFO by an equal amount or $0.015 per share. Because the use was refunding existing debt, AIR leverage remains unchanged.
Strong Recovery in Apartment Demand
The sustained improvements described below support AIR expectations that fourth quarter 2021 occupancy will return to pre-COVID levels and for a continued recovery in property operations. These expectations are further supported by positive leading indicators in AIR’s three most pandemic-affected markets of Philadelphia, Los Angeles, and the Bay Area. The expected recovery across the AIR portfolio is anticipated to provide accelerated growth in 2022 operating results.
Marketing Properties for Sale to Reduce Leverage
AIR expects to reduce leverage through the sale of properties forecasted to generate approximately $580 million in proceeds. AIR is now marketing for sale properties anticipated to generate approximately $350 million in proceeds and expects to complete the sales by late-summer. The additional $230 million in properties are expected to be sold in the fourth quarter. Based on the expected improvement in fourth quarter property income and the debt reduction described above, AIR anticipates fourth quarter leverage measured as leverage-to-EBITDA to approximate 6.3 times. AIR expects that in 2022 it will achieve its leverage-to-EBITDA target of under 6.0 times, primarily through the earn-in of 2021’s leasing activity.
Considering the benefit to FFO of increased rental income and lower interest expense together with the dilution of selling properties to reduce financial leverage, AIR narrowed and increased its 2021 FFO per share guidance from a range of $1.91 to $2.05 to a range of $1.96 to $2.06.
The Credit Facility
The facility is comprised of a $600 million revolving credit facility and $800 million of variable rate term loans. Term loan proceeds are being used to extend the maturity of AIR’s current $350 million term loan; to repay $213 million of property debt with a weighted-average interest rate of 3.7%; and to reduce borrowings on AIR’s revolving credit facility. The $213 million property debt repayment increases by over $530 million AIR’s pool of properties unencumbered by debt – making the total pool approximately $2.9 billion. The reduction of property level debt and the increase in unencumbered properties strengthen AIR’s investment grade balance sheet and enhance AIR’s ability to access the public bond market.
The $800 million of term loans are priced at a LIBOR spread of 100 basis points, with a LIBOR floor of 0.00%, 98 basis points lower than AIR’s previous term loan. Borrowing costs under the new revolving credit facility are 10 basis points lower than under AIR’s previous facility. To further AIR’s environmental, social, and governance (“ESG”) initiatives, the facility allows for an additional one basis point margin reduction if certain ESG targets are achieved. The term of the revolver ends April 14, 2025, with two six-month extension options.
The term loans mature on the following schedule:
$150 million maturing on December 15, 2023 with two one-year extension options
$300 million maturing on December 15, 2024 with a one-year extension option
$150 million maturing on December 15, 2025
$200 million maturing on April 14, 2026
The term loans were structured to maintain AIR’s balanced maturity ladder, and to also maximize flexibility through the ability to prepay freely and extend the maturity date of shorter duration loans.
The facility is held by 15 U.S. and International banks. The syndication was led by PNC Capital Markets LLC and Wells Fargo Securities, LLC and as Joint Bookrunners and Lead Arrangers. PNC Bank, National Association acts as Administrative Agent and Sustainability Agent for the Facility and Wells Fargo Bank, National Association acts as Syndication Agent. Bank of the West, Regions Capital Markets, and U.S. Bank National Association, act as Joint Lead Arrangers and Co-Syndication Agents. Bank of America, N.A., Citibank N.A, The Bank of Nova Scotia and TD Bank, N.A. are Co-Documentation Agents. J.P. Morgan Chase Bank, N.A., Peoples United Bank, N.A., Zions First National Bank, Associated Bank, National Association, Morgan Stanley Bank, N.A., and First Hawaiian Bank also participate in the Facility.
Chief Financial Officer Paul Beldin commented: “We are very pleased with the execution and great work by PNC and Wells Fargo. The syndicate was oversubscribed and includes five banks new to the AIR credit, a powerful endorsement of AIR’s focused business model with low leverage and low execution risk.”
First Quarter 2021 Leasing Results
First quarter 2021 leasing activity was better than expectations as the economic recovery continued in markets across the AIR portfolio. First quarter 2021 same store revenue decreased 5.7% from first quarter 2020 pre-COVID results, but increased 1.5% over the prior quarter, ahead of the assumptions underlying 2021 guidance provided in early February. The weighted average of signed lease changes has trended upwards for six consecutive months and became positive in March, up year-over-year by 0.4%. “Signed Leases” are those executed during a reporting period and are therefore the best measure of current activity; “Transacted Leases” are those that became effective during a reporting period and are therefore the best measure of immediate effect on current revenues.
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