Apartment me REIT (AIRC) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for AIR and its operating partnership, including balance sheets, income, and cash flows, with notes on policies and transactions Apartment Income REIT Corp. Financial Statements Provides core financial statements for AIR, highlighting increased net income from real estate dispositions and reduced total indebtedness in Q2 2022 Apartment Income REIT Corp. Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $6,433,285 | $6,440,360 | | Total Liabilities | $4,065,130 | $4,421,835 | | Total Indebtedness | $3,368,457 | $3,743,286 | | Total AIR Equity | $2,132,449 | $1,813,025 | Apartment Income REIT Corp. Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $183,500 | $178,333 | $364,978 | $354,746 | | Gain on dispositions of real estate | $175,606 | $3,353 | $587,609 | $87,385 | | Net income (loss) attributable to AIR common stockholders | $196,722 | $(18,030) | $572,603 | $65,166 | | Net income (loss) per common share – diluted | $1.26 | $(0.12) | $3.66 | $0.43 | Apartment Income REIT Corp. Cash Flow Highlights (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $201,496 | $93,797 | | Net cash provided by (used in) investing activities | $574,667 | $(199,483) | | Net cash (used in) provided by financing activities | $(768,033) | $112,907 | Apartment Income REIT, L.P. Financial Statements Presents financial statements for AIR Operating Partnership, largely identical to AIR Corp. except for the equity section, reflecting the partnership structure - The assets and liabilities of the AIR Operating Partnership are identical to those of AIR Corp. The main difference lies in the equity section, where the AIR Operating Partnership's balance sheet shows 'Partners' capital' of $2.29 billion, while AIR Corp.'s shows 'Total equity'[30] AIR Operating Partnership Statement of Operations Highlights (in thousands, except per unit data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Total Revenues | $183,500 | $178,333 | | Net income (loss) attributable to common unitholders | $209,471 | $(18,975) | | Net income (loss) per common unit – diluted | $1.26 | $(0.12) | Notes to the Condensed Consolidated Financial Statements Provides detailed explanations and supplementary information for financial statements, covering accounting policies, major transactions, debt, leases, and segment reporting - During the three months ended June 30, 2022, the company acquired three apartment communities with 1,001 homes for a total consideration of $472.3 million[55][56] - During the six months ended June 30, 2022, the company sold twelve apartment communities with 2,050 homes for gross proceeds of $781.1 million[59] - In Q2 2022, the company reached an agreement with Aimco to cancel existing master leases at four properties for a payment of $200 million[60] - In Q2 2022, the company issued three tranches of guaranteed, senior unsecured notes totaling $400 million at a weighted-average effective interest rate of 4.3%. Total indebtedness as of June 30, 2022, was $3.37 billion[69][72] - The company operates two reportable segments: Same Store, which includes 64 stabilized apartment communities, and Other Real Estate, which includes 11 recently acquired or non-stabilized communities[95][96] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, strategic initiatives, and outlook, highlighting strong operational results, capital allocation, balance sheet improvements, liquidity, and non-GAAP measures Executive Overview Outlines AIR's strategic objectives, highlighting strong Q2 operational performance, portfolio management activities, and significant balance sheet improvements - Strategic objectives include pursuing a simple business model, maintaining a high-quality diversified portfolio, improving property operations, maintaining an efficient cost structure, and sustaining a low-leverage balance sheet[110][111] Q2 2022 Same Store Operational Highlights (YoY) | Metric | Change | | :--- | :--- | | Revenue | +11.6% | | NOI | +16.4% | | NOI Margins | 73.6% (+304 bps) | | New Lease Rents | +18.9% | | Renewal Rents | +11.1% | - The company uses a "paired trade" strategy to fund acquisitions, requiring the unlevered IRR on purchased communities to be at least 200 basis points higher than on the communities sold[119] - During Q2 2022, AIR repurchased 2.9 million shares for $125 million at an average price of $42.93 per share[125] - The company is transitioning from a secured to a primarily unsecured borrower, issuing $400 million in senior unsecured notes in Q2 2022 to repay borrowings on its revolving credit facility[127] Results of Operations Provides detailed comparative analysis of operating results, highlighting increased net income from dispositions, strong Same Store NOI growth, and boosted interest income Same Store Proportionate Property NOI Change (YoY) | Period | Revenue Change (excl. ownership changes) | NOI Change (excl. ownership changes) | Key Drivers | | :--- | :--- | :--- | :--- | | Q2 2022 | +11.6% | +16.4% | 750 bps increase in rental rates, 160 bps increase in ADO, 200 bps decrease in bad debt | | 6-Months 2022 | +10.4% | +14.1% | 620 bps increase in rental rates, 210 bps increase in ADO, 130 bps decrease in bad debt | - Interest income for the three and six months ended June 30, 2022, increased by $10.0 million and $7.5 million, respectively, primarily due to a $12.9 million prepayment penalty received from Aimco's partial note repayment[153] - The company recognized a $175.6 million gain on dispositions for the three months and $587.6 million for the six months ended June 30, 2022, which was the main driver for the increase in net income[156] Non-GAAP Measures Defines and reconciles key non-GAAP financial measures like FFO and leverage ratios, showing a notable increase in Pro forma FFO per share in Q2 2022 Pro forma FFO per Share (Diluted) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended June 30 | $0.66 | $0.52 | | Six Months Ended June 30 | $1.23 | $1.02 | - The company provides detailed reconciliations from GAAP Net Income to NAREIT FFO and Pro forma FFO, adjusting for items like real estate depreciation, gains on property sales, and other non-recurring costs[168] - The company targets a Net Leverage to Adjusted EBITDAre ratio below 6.0x. As of June 30, 2022, Proportionate Debt was calculated at $2.76 billion and Annualized Adjusted EBITDAre was $464.1 million[170][174][178] Liquidity and Capital Resources Details the company's liquidity, capital management, and cash flow, highlighting $924.5 million in liquidity, debt maturity extensions, and increased operating cash flow - As of June 30, 2022, total available liquidity was $924.5 million, which included $840.9 million of available capacity under the revolving credit facility[179] - The weighted-average remaining term to maturity for total leverage was 6.9 years with a weighted-average interest rate of 3.8%. Only 7% of debt will reprice before 2025, after considering interest rate swaps[185] - For the six months ended June 30, 2022, net cash provided by operating activities increased by $107.7 million year-over-year to $201.5 million, due to favorable working capital timing and stronger property performance[188] Capital Additions (in thousands) | Category | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Capital enhancements | $44,002 | $32,778 | | Capital replacements | $13,335 | $13,916 | | Initial capital expenditures | $12,806 | $1,763 | | Total Capital Additions | $89,659 | $54,230 | Quantitative and Qualitative Disclosures About Market Risk Outlines the company's primary market risk as interest rate risk from $1.04 billion in variable-rate debt, mitigated by swaps, with a 100 bps change impacting annual interest by $2.1 million - The company's primary market risk is interest rate risk from its variable-rate debt, which totaled approximately $1.04 billion as of June 30, 2022 ($800.0M term loans, $88.5M property debt, and $148.0M on the revolving credit facility)[195] - After considering the effect of interest rate swaps, a 100 basis point change in the floating interest rate is estimated to increase or decrease annual interest expense by $2.1 million[195] Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures for AIR and its operating partnership as of June 30, 2022, with no material changes in internal controls - Management, including the CEO and CFO, evaluated and concluded that the disclosure controls and procedures for both AIR and the AIR Operating Partnership were effective as of June 30, 2022[198][199] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2022[199][200] PART II. OTHER INFORMATION Risk Factors States no material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[202] [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) Details AIR's Q2 2022 equity activities, including repurchasing 2.9 million shares for $125 million and no unregistered sales AIR Share Repurchases (Q2 2022) | Total Shares Repurchased | Average Price Paid per Share | Total Cost | | :--- | :--- | :--- | | 2,911,761 | $42.93 | ~$125 million | - The AIR Operating Partnership redeemed 15,680 common OP units for cash during the three months ended June 30, 2022[206][207] Exhibits Provides a list of exhibits filed with Form 10-Q, including legal and financial documents, certifications, and iXBRL data files - The report includes a list of filed exhibits, such as the Note and Guarantee Agreement, amendments to the Master Leasing Agreement with Aimco, CEO/CFO certifications, and iXBRL data files[213][214] Signatures Contains formal signatures of authorized officers for Apartment Income REIT Corp. and AIR Operating Partnership, dated July 29, 2022 - The report was signed on July 29, 2022, by Paul Beldin, Executive Vice President and Chief Financial Officer, on behalf of both Apartment Income REIT Corp. and Apartment Income REIT, L.P.[217][218]