Apartment Income REIT Corp. ("AIR" or the "Company") (NYSE: AIRC) announced today results for the second quarter of 2023.
During the second quarter, the Company:
- Delivered Pro forma FFO per share of $0.58, reflecting 13.7% year-over-year growth (adjusting for prior contribution of the Aimco note prepayment) and beating the midpoint of guidance by $0.01 per share;
- Delivered Same Store NOI growth of 10.6%;
- Formed two joint ventures to recapitalize 11 properties valued at $1.2 billion, with nine of 11 properties now closed and the remaining two expected to close by year-end;
- Used proceeds from the joint ventures to reduce Net Leverage to Adjusted EBITDAre to 5.9x on a pro forma basis, within AIR’s targeted range;
- Expects to use the balance of proceeds to purchase properties, now in advanced negotiations, with current returns neutral to 2023 FFO and $0.01 accretive to 2024 FFO, with long-term unlevered IRRs in excess of 10%;
- Raises Same Store Revenue and NOI guidance by 20 and 40-basis points, respectively, at their midpoints;
- Narrows the guidance range for 2023 Pro forma FFO per share to $2.38 to $2.44 while maintaining $2.41 as the midpoint, which is unchanged due to higher than anticipated casualty losses. The $2.41 midpoint represents a 10% growth versus 2022 Run-Rate FFO per share of $2.19; and
- Expects Pro forma FFO per share between $0.61 and $0.65 in the third quarter, and between $1.26 and $1.32 in the second half of 2023, driven primarily by property operations increasing its first half contribution by $20.4 million, or $0.13 of FFO per share.
With more than 80% of 2023 leasing now complete, the Company expects the earn-in to Same Store Revenue growth in 2024 in the low-to-mid 2% range. With largely fixed operating expenses, low G&A, and fixed interest rates, 2024 growth in NOI – from both Same Store and Acquisition portfolios – is expected to translate directly to growth in Pro forma FFO per share.
Financial Results: Second Quarter Run-Rate FFO Per Share Up 13.7%
In the second quarter of 2022, with the support of shareholders, AIR accepted prepayment of the Aimco note, which contributed $0.15 to 2022 Pro forma FFO per share. This makes 2022 not comparable to 2023. Adjusting for this event, second quarter FFO of $0.58 per share is 13.7% higher in 2023 than in 2022.
SECOND QUARTER | YEAR-TO-DATE | ||||||||||||||||||
(all items per common share – diluted) | 2023 | 2022 | Variance | 2023 | 2022 | Variance | |||||||||||||
Net (loss) income | $ | (0.01 | ) | $ | 1.26 | nm | $ | (0.09 | ) | $ | 3.66 | nm | |||||||
NAREIT Funds From Operations (FFO) | $ | 0.62 | $ | 0.64 | (3.1%) | $ | 1.11 | $ | 1.06 | 4.7% | |||||||||
Pro forma adjustments | (0.04 | ) | 0.02 | nm | 0.01 | 0.17 | nm | ||||||||||||
Pro forma Funds From Operations (Pro forma FFO) | $ | 0.58 | $ | 0.66 | (12.1%) | $ | 1.12 | $ | 1.23 | (8.9%) | |||||||||
Contribution from Aimco note | — | (0.15 | ) | nm | — | (0.19 | ) | nm | |||||||||||
Run-Rate FFO | $ | 0.58 | $ | 0.51 | 13.7% | $ | 1.12 | $ | 1.04 | 7.7% | |||||||||
Operating Results: Second Quarter Same Store NOI Up 10.6% YoY and 11.6% YTD
AIR's Same Store portfolio comprises 63 properties and provided 85% of year-to-date rental revenue.
SECOND QUARTER | YEAR-TO-DATE | |||||||||||||||||||
Year-over-Year | Sequential | Year-over-Year | ||||||||||||||||||
($ in millions) * | 2023 | 2022 | Variance | 1st Qtr. | Variance | 2023 | 2022 | Variance | ||||||||||||
Revenue, before utility reimbursements | $ | 158.8 | $ | 146.0 | 8.8 | % | $ | 156.6 | 1.5 | % | $ | 315.4 | $ | 288.2 | 9.4 | % | ||||
Expenses, net of utility reimbursements | 41.0 | 39.4 | 4.1 | % | 40.8 | 0.4 | % | 81.8 | 78.9 | 3.7 | % | |||||||||
Net operating income (NOI) | 117.8 | 106.6 | 10.6 | % | 115.7 | 1.8 | % | 233.5 | 209.3 | 11.6 | % | |||||||||
*Amounts are presented on a rounded basis and the sum of the individual amounts may not foot; please refer to Supplemental Schedule 6. |
Second quarter 2023 Same Store NOI margin was 74.2%, up 120-basis points year-over-year and an AIR record for the second quarter, the result of:
- 8.8% growth in Residential Rents, and
- Sustained cost control with controllable expenses increasing only 100 basis points.
Components of Same Store Revenue Growth
SECOND QUARTER 2023 | YEAR-TO-DATE | |||||
Same Store Revenue Components | Year-over-Year | Sequential | Year-over-Year | |||
Residential Rents | 8.8 | % | 1.3 | % | 9.4 | % |
Average Daily Occupancy | (1.1 | %) | (1.9 | %) | (0.7 | %) |
Residential Rental Income | 7.7 | % | (0.6 | %) | 8.7 | % |
Bad Debt, net of recoveries | — | % | 0.7 | % | 0.1 | % |
Other Residential Income | 1.0 | % | 1.1 | % | 0.6 | % |
Residential Revenue | 8.7 | % | 1.2 | % | 9.4 | % |
Commercial Revenue | 0.1 | % | 0.3 | % | — | % |
Same Store Revenue Growth | 8.8 | % | 1.5 | % | 9.4 | % |
Same Store Rental Rates & Occupancy
SECOND QUARTER | YEAR-TO-DATE | 2023 | ||||||||||||||||||
(amounts represent AIR share)* | 2023 | 2022 | Variance | 2023 | 2022 | Variance | April | May | June | July** | ||||||||||
Transacted Leases | ||||||||||||||||||||
Renewal rent changes | 8.0 | % | 11.5 | % | (3.5 | %) | 8.2 | % | 11.7 | % | (3.5 | %) | 8.6 | % | 8.2 | % | 7.7 | % | 6.7 | % |
New lease rent changes | 6.6 | % | 18.8 | % | (12.2 | %) | 7.5 | % | 18.2 | % | (10.7 | %) | 8.4 | % | 6.6 | % | 5.7 | % | 5.1 | % |
Weighted-average rent changes | 7.4 | % | 14.6 | % | (7.2 | %) | 7.8 | % | 14.7 | % | (6.9 | %) | 8.5 | % | 7.4 | % | 6.7 | % | 5.8 | % |
Signed Leases | ||||||||||||||||||||
Renewal rent changes | 7.0 | % | 11.2 | % | (4.2 | %) | 7.4 | % | 11.4 | % | (4.0 | %) | 7.8 | % | 7.5 | % | 6.1 | % | 5.7 | % |
New lease rent changes | 6.0 | % | 18.1 | % | (12.1 | %) | 6.6 | % | 17.9 | % | (11.3 | %) | 7.6 | % | 5.5 | % | 5.3 | % | 4.7 | % |
Weighted-average rent changes | 6.5 | % | 14.3 | % | (7.8 | %) | 7.0 | % | 14.4 | % | (7.4 | %) | 7.7 | % | 6.5 | % | 5.7 | % | 5.1 | % |
Average Daily Occupancy | 95.5 | % | 96.6 | % | (1.1 | |||||||||||||||
