Apartment me REIT (AIRC) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter FFO was $0.58 per share, up 13.7% year-over-year, adjusted for a non-recurring benefit from the Aimco note prepayment [24] - Revenue increased by 8.8% year-over-year, while expenses rose by 4.1%, leading to a net operating income (NOI) increase of 10.6% [13][24] - AIR's operating margin reached 74.2%, up 120 basis points from 2022, marking the highest second quarter margin in the company's history [13] Business Line Data and Key Metrics Changes - Same-store and acquisition portfolios contributed to property NOI growth at low double digits [6] - The AIR Edge model resulted in revenue growth of 19% and NOI growth of 30.5% for acquisitions from 2021, outperforming the same-store portfolio [14] - Customer retention rates reached a record 62%, with only 38% turnover in the past 12 months [12] Market Data and Key Metrics Changes - New lease rates increased by 6% and renewals by 7%, leading to a blended average increase of 6.5% [12] - The company noted that rental rates and inflation are dropping rapidly, with some new lease rents being negative [9] - The occupancy rate was reported at 94.6%, with expectations of a 2% increase by the end of the third quarter [15] Company Strategy and Development Direction - AIR aims to acquire properties at distressed prices due to a slowdown in transaction markets, leveraging abundant equity capital [10] - The company is focused on disciplined capital allocation, targeting high-quality properties that can benefit from the AIR Edge [21] - The Board is recommending amendments to strengthen shareholder rights, reflecting a shareholder-centric approach [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate challenges and capitalize on opportunities in the current market [21] - The normalization of the operating environment post-COVID is expected to enhance the effectiveness of AIR's operational strategies [16] - Management anticipates continued growth in property NOI and a strong leasing season in the second half of the year [27] Other Important Information - AIR has approximately $2.3 billion in available liquidity, significantly above the peer average [24] - The company declared a quarterly cash dividend of $0.45 per share, reflecting a yield of over 5% based on the current share price [29] Q&A Session Summary Question: Sequential increase in FFO growth - Management clarified that the sequential growth is primarily driven by incremental property NOI contributions from both same-store and acquisition portfolios [32] Question: Bad debt levels in California - Management noted that bad debt is being managed effectively, with many delinquent residents having left the portfolio, contributing to improved occupancy levels [37] Question: Contribution of fees to FFO - Management confirmed that the anticipated contribution of fees from services provided to third parties was included in the annual plan, with a breakdown of sustainable versus episodic contributions [44][46] Question: Lease rate assumptions for the second half of the year - Management indicated that blended lease rate assumptions for the second half are expected to be in the mid-four to five range to achieve revenue guidance [48]