AIR Communities Reports Third Quarter 2023 Results

Apartment Income REIT Corp. ("AIR") (NYSE:AIRC) announced today results for the third quarter of 2023.

AIR Pro forma FFO up 10.3%… beating guidance by $0.01 due to:

• Same Store Revenue up 6.8%
• Same Store NOI growth of 6.3%
• Class of 2022 NOI Growth up 20.1%
• Run-Rate FFO up 7.3%

AIR Makes Accretive Investments:

• Paired trades:
  • $644 million of capital generated from:
    • $623 million in joint venture funding of 11 properties
    • $21 million in a property sale
• Used capital to fund:
  • $155 million to purchase two properties
  • $250 million to fund an additional Core JV property, AIR share of which is 53%
  • $78 million to repurchase AIR shares
  • $161 million to repay debt
• 2024 neutral to NOI; accretive to recurring free cash flow
• Faster growth in recurring free cash flow
• $24 million of profitable property upgrades funded from retained cash flow

Third Quarter and YTD Run-Rate FFO Per Share Up 7.3% and 8.2%, respectively

*Refer to Supplemental Schedule 1 for additional information regarding the nonrecurring contributions.

**Higher Capital Replacement investments during 2023 is due primarily to timing of replacement projects in 2023.

In the future, we anticipate that Run-Rate AFFO will have a higher rate of growth than Pro forma FFO due to AIR's reallocation of capital from older properties with above average capital replacement spending to newer properties with faster NOI growth.

Third Quarter and YTD Same Store NOI Up 6.3% and 9.7%, respectively

AIR's Same Store portfolio comprises 63 properties and provided 86% of year-to-date rental revenue.

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

**Controllable operating expenses ("COE") increased 6.3%, the result of the timing of planned property maintenance and peak leasing season spending. Full year COE is anticipated to be flat to up 100-basis points.

Components of Same Store Revenue Growth

*During the third quarter, AIR recognized 99.2% of all residential revenue billed in the quarter, with the remaining 0.8% reserved as bad debt. AIR collected amounts during the third quarter with respect to revenue treated as bad debt in previous periods equal to 20-basis points of third quarter residential revenue, resulting in bad debt for the third quarter, net of the contra entry, equal to 0.6% of residential revenue.

Of the 0.8% of gross bad debt, 25-basis points was due to final move-out charges recorded during the quarter as part of eviction finalization, 25-basis points is due to court backlogs due to pandemic-related government shutdowns, and the remainder amounts represent our normal bad debt pre-COVID. The incidence of delinquency is consistent with historical averages, but the lengthening of the regulatory timeline results in higher absolute levels of bad debt compared to our pre-COVID experience.

Same Store Rental Rates & Occupancy

*Third quarter signed lease rate growth benefited 90-basis points from capital enhancement activity.

**Average Daily Occupancy ("ADO") reached a low point in July due to normal seasonality and related frictional vacancy. ADO in October 2023 is better than in October 2022 and is anticipated to increase further during the balance of the fourth quarter.

***October leasing rates are preliminary and are as of October 31st. The 180-basis point decline in signed new leases from the third quarter to October is seasonal and similar to the 2022 decline.

Acquisition Portfolio Performance

Approximately 20% of AIR's capital is invested in acquisitions made since 2021. Acquisition properties experience a rate of NOI growth during the first few years of AIR management that is much higher than the same store portfolio rate. Two-thirds of these investments were made prior to July 2022; therefore, comparative information is available. These properties' year-over-year NOI growth was up 17.4%, increasing year-over-year NOI growth rate of the total Acquisition and Same Store portfolios by 170 basis points to 7.2%.

*Acquisitions from 2021 are included in, and contribute to, Same Store Portfolio metrics.

**Due to the timing of our transactions in 2022, Other Real Estate year-over-year metrics are not meaningful.

***Due to the timing of our transactions in 2023, Class of 2023 sequential metrics are not meaningful.

Please refer to Supplemental Schedule 2 for additional information regarding the third quarter and year-to-date performance of the Acquisition properties.

Third Quarter 2023 Paired Trades

As previously announced, AIR contributed to the Core JV a 47% interest in 10 properties in exchange for $505 million of gross proceeds. AIR also completed its strategic exit from New York City through the sale of a property for $21 million in gross proceeds.

In turn, AIR improved its portfolio through reinvesting $287 million in three new properties. In comparison to the property interests sold, the acquired properties:

• have 11% higher average rents at $2,751 per month;
• were constructed in the last two years (in contrast to 26 years for the interests sold); and
• require annual capital replacement spending that is $2,600 per unit lower than the interests sold.

On a forward basis, the Year 1 NOI Yield, Free Cash Flow Yield, and unlevered internal rate of return ("IRR"), our acquisitions and dispositions are estimated to be:

AIR used the remaining proceeds to:

• repurchase 2.2 million shares for $77.8 million (reflecting an average price of $34.57 per share, and a forward NOI yield of approximately 6.3%).
• reduce leverage, with an average interest cost of 6.1%, by approximately $161 million.

The net results of the Q3 Paired Trades are expected to be neutral to FFO in 2024 and accretive beginning in 2025. The paired trades are expected to be accretive to AFFO in both 2024 and thereafter.

Balance Sheet & Liquidity

During the quarter, AIR refinanced $154 million of borrowings on AIR's revolving credit facility and $325 million of term loans maturing in 2023 and 2024 (before consideration of higher priced extension options), with new fixed rate property debt. The new debt has a weighted-average life of 5.3 years and a weighted-average interest rate of 5.2%; 30-basis points greater than the short-term debt repaid.

Today, AIR has:

• Near-term exposure to rising interest rates limited to:
  • $79 million on our share of the Virginia JV debt due to the maturity in January 2024 of the in-place interest rate cap; plus
  • $26 million on our revolving credit facility
• No debt maturities until the second quarter of 2025;
• Available liquidity of $2.1 billion;
• $5.3 billion of properties unencumbered by non-recourse debt; and
• Limited refunding risk with the ability to fund all maturities through 2027 from cash on hand, and a 10-year commitment to make $1 billion of property loans with up to 10-year maturities.

At year-end, AIR anticipates Net Leverage to Adjusted EBITDAre to be below 6.0x; consistent with its target range of 5.0x to 6.0x. As of September 30, 2023, AIR's leverage is temporarily elevated due to the timing of third quarter acquisitions.

For additional information regarding the composition of AIR's leverage, please see Supplemental Schedule 5.

Dividend

On October 30, 2023, the AIR Board of Directors declared a quarterly cash dividend of $0.45 per share of Common Stock, payable on November 30, 2023 to shareholders of record on November 17, 2023. In setting the 2023 dividend rate, the Board of Directors targeted a 75% payout ratio of Pro forma FFO, in 2023 equivalent to approximately 86% of Run-Rate AFFO.

GRESB

During the third quarter of 2023, AIR received a Global Real Estate Sustainability Benchmark ("GRESB") score of 82 out of 100, placing AIR in the top 20% of residential companies in the Americas.

2023 Outlook

AIR narrows its 2023 Pro forma FFO per share expectations, maintaining the $2.41 midpoint. Our guidance ranges are shown below:

In the fourth quarter of 2023, AIR anticipates Pro forma FFO between $0.63 and $0.67 per share.

Appendix A – Early Views On 2024 and Supply Commentary

AIR is well positioned for growth in 2024 supported by (i) 2023 results and (ii) 2024 opportunities, (iii) each levered by a low-risk, fixed rate balance sheet.

Supply Commentary

There is no "national" market of supply and demand for apartments; rather, there are numerous submarkets and specific locations, each of which requires analysis both "across the street," as well as within a reasonable radius as to where customers may consider alternatives. An analysis of AIR's portfolio below considers both. For example, 3400 Avenue of the Arts is located in Orange County where LTM permits at 1.2% of inventory suggest limited risk of future supply; however, two lease up projects in the submarket are adjacent to AIR's property, which will likely impact rents in 2024. By contrast, Miami, with LTM permits at 4.9% of inventory, is a market where new supply is known; however, that supply which is being delivered is primarily in Edgewater, inland from the waterfront, and impacting Bay Parc and Watermarc. We assess the impact elsewhere in AIR's South Florida portfolio as limited.

Competitive new supply is familiar to AIR. In any given year, AIR's leasing plan provides for impacts of new supply across our portfolio, typically measured between 20% and 30% of NOI; a current measure at 26% is consistent with this range, and we expect absorption will continue to offset supply in our core markets.

Earnings Conference Call Information

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

Apartment Income REIT Corp (NYSE:AIRC) is a publicly traded, self-administered real estate investment trust ("REIT"). AIR's portfolio comprises 75 communities totaling 26,623 apartment homes located in 10 states and the District of Columbia. AIR offers a simple, predictable business model with focus on what we call the AIR Edge, the cumulative result of our focus on resident selection, satisfaction, and retention, as well as relentless innovation in delivering best-in-class property management. The AIR Edge is a durable operating advantage in driving organic growth, as well as making possible the opportunity for excess returns for properties new to AIR's platform. For additional information, please visit 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 2023 results, including but not limited to: NAREIT FFO, Pro forma FFO, Run-Rate FFO, Run-Rate AFFO and selected components thereof; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; expectations regarding acquisitions, as well as sales, and joint ventures 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: 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 inflation, the pace of job growth, and the level of unemployment; the amount, location, and quality of competitive new housing supply, which may be impacted by global supply chain disruptions; 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 interest rate changes and 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; and 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. 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, 2022, and subsequent filings with the SEC.

In addition, our 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 our 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 we assume 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.

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