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Table of Contents

 

t

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-39686 (Apartment Income REIT Corp.)

Commission File Number: 0-24497 (Apartment Income REIT, L.P.)

img186096408_0.jpg 

APARTMENT INCOME REIT CORP.

APARTMENT INCOME REIT, L.P.

 

(Exact name of registrant as specified in its charter)

 

Maryland (Apartment Income REIT Corp.)

 

84-1299717

Delaware (Apartment Income REIT, L.P.)

 

84-1275621

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

4582 South Ulster Street, Suite 1700

 

 

Denver, Colorado

 

80237

(Address of principal executive offices)

 

(Zip Code)

(303) 757-8101

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Class A Common Stock (Apartment Income REIT Corp.)

 

AIRC

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Apartment Income REIT Corp.: Yes  ☒ No ☐

 

Apartment Income REIT, L.P.: Yes  ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Apartment Income REIT Corp.: Yes  ☒ No ☐

 

Apartment Income REIT, L.P.: Yes  ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Apartment Income REIT Corp.:

 

Apartment Income REIT, L.P.:

 

Large accelerated filer

 

 

Accelerated filer

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Apartment Income REIT Corp.:

 

Apartment Income REIT, L.P.:

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Apartment Income REIT Corp.: Yes     No ☒

 

Apartment Income REIT, L.P.: Yes     No ☒

The number of shares of Apartment Income REIT Corp. Class A Common Stock outstanding as of November 2, 2022: 149,928,321

 

 

 


Table of Contents

 

EXPLANATORY NOTE

This filing combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2022, of Apartment Income REIT Corp. (“AIR”), Apartment Income REIT, L.P. (“AIR Operating Partnership”), and their consolidated subsidiaries. The AIR Operating Partnership’s condensed consolidated financial statements include the accounts of the AIR Operating Partnership and its consolidated subsidiaries. Except as the context otherwise requires, “we,” “our,” and “us” refer to AIR, the AIR Operating Partnership, and their consolidated subsidiaries, collectively.

AIR, a Maryland corporation, is a self-administered and self-managed real estate investment trust. AIR, through wholly-owned subsidiaries, is the general and special limited partner of the AIR Operating Partnership. As of September 30, 2022, AIR owned approximately 92.1% of the legal interest in the common partnership units of the AIR Operating Partnership (“OP Units”) and 93.8% of the economic interest in the AIR Operating Partnership. The remaining 7.9% legal interest is owned by third-party limited partners. The legal ownership percentage is based on outstanding common stock and common OP Units, including unvested restricted stock and unvested LTIP units. The economic ownership percentage includes any unvested restricted stock and unvested LTIP units to the extent they are considered participating securities, as defined by accounting principles generally accepted in the United States (“GAAP”). As the sole general partner of the AIR Operating Partnership, AIR has exclusive control of the AIR Operating Partnership’s day-to-day management.

The AIR Operating Partnership holds all of AIR’s assets and manages the daily operations of AIR’s business. Pursuant to the AIR Operating Partnership agreement, AIR is required to contribute to the AIR Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, AIR receives additional interests in the AIR Operating Partnership with terms substantially similar to the stock issued by AIR.

We believe combining the periodic reports of AIR and the AIR Operating Partnership into this single report provides the following benefits:

We present our business as a whole, in the same manner our management views and operates the business;
We eliminate duplicative disclosure and provide a more streamlined and readable presentation because a substantial portion of the disclosures apply to both AIR and the AIR Operating Partnership; and
We save time and cost through the preparation of a single combined report rather than two separate reports.

We operate AIR and the AIR Operating Partnership as one enterprise, the management of AIR directs the management and operations of the AIR Operating Partnership, and the members of the Board of Directors of AIR are identical to those of the AIR Operating Partnership’s general partner.

We believe it is important to understand the few differences between AIR and the AIR Operating Partnership in the context of how AIR and the AIR Operating Partnership operate as a consolidated company. AIR has no assets or liabilities other than its investment in the AIR Operating Partnership, which is held directly and indirectly through certain intermediate holding companies (in which all of the common stock is owned by AIR). Also, AIR is a corporation that issues publicly traded equity from time to time, whereas the AIR Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by AIR, which are contributed to the AIR Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the AIR Operating Partnership generates all remaining capital required by its business. These sources include the AIR Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.

Equity, partners’ capital, and noncontrolling interests are the main areas of difference between the condensed consolidated financial statements of AIR and those of the AIR Operating Partnership. Interests in the AIR Operating Partnership held by entities other than AIR, which we refer to as OP Units, are classified within partners’ capital in the AIR Operating Partnership’s financial statements and as noncontrolling interests in AIR’s financial statements.

To help investors understand the differences between AIR and the AIR Operating Partnership, this report provides separate condensed consolidated financial statements for AIR and the AIR Operating Partnership; a single set of condensed consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, and earnings per share or earnings per unit, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity, where appropriate.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for AIR and the AIR Operating Partnership in order to establish that the requisite certifications have been made and that AIR and the AIR Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

1


Table of Contents

 

APARTMENT INCOME REIT CORP.

APARTMENT INCOME REIT, L.P.

 

TABLE OF CONTENTS

 

FORM 10-Q

 

PART I. FINANCIAL INFORMATION

Page

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

 

 

Apartment Income REIT Corp.:

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Comprehensive Income

5

 

Condensed Consolidated Statements of Equity

6

 

Condensed Consolidated Statements of Cash Flows

8

 

Apartment Income REIT, L.P.:

 

 

Condensed Consolidated Balance Sheets

9

 

Condensed Consolidated Statements of Operations

10

 

Condensed Consolidated Statements of Comprehensive Income

11

 

Condensed Consolidated Statements of Partners’ Capital

12

 

Condensed Consolidated Statements of Cash Flows

14

 

Notes to the Condensed Consolidated Financial Statements of Apartment Income REIT Corp. and Apartment Income REIT, L.P.

15

 

Note 1 — Basis of Presentation and Organization

15

 

Note 2 — Summary of Significant Accounting Policies

16

 

Note 3 — Significant Transactions

17

 

Note 4 — Leases

18

 

Note 5 — Debt

19

 

Note 6 — Commitments and Contingencies

19

 

Note 7 — Earnings and Dividends per Share and per Unit

20

 

Note 8 — Fair Value Measurements

21

 

Note 9 — Variable Interest Entities

21

 

Note 10 — Business Segments

22

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

25

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

40

ITEM 4.

CONTROLS AND PROCEDURES

40

 

PART II. OTHER INFORMATION

 

ITEM 1A.

RISK FACTORS

41

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

41

ITEM 6.

EXHIBITS

43

Signatures

 

44

 

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Buildings and improvements

 

$

6,742,347

 

 

$

5,720,267

 

Land

 

 

1,296,223

 

 

 

1,164,814

 

Total real estate

 

 

8,038,570

 

 

 

6,885,081

 

Accumulated depreciation

 

 

(2,370,792

)

 

 

(2,284,793

)

Net real estate

 

 

5,667,778

 

 

 

4,600,288

 

Cash and cash equivalents

 

 

87,732

 

 

 

67,320

 

Restricted cash

 

 

26,914

 

 

 

25,441

 

Note receivable from Aimco

 

 

 

 

 

534,127

 

Leased real estate assets

 

 

 

 

 

466,355

 

Goodwill

 

 

32,286

 

 

 

32,286

 

Other assets, net

 

 

779,205

 

 

 

568,051

 

Assets held for sale

 

 

128,538

 

 

 

146,492

 

Total assets

 

$

6,722,453

 

 

$

6,440,360

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Non-recourse property debt, net

 

$

2,019,417

 

 

$

2,294,739

 

Term loans, net

 

 

796,334

 

 

 

1,144,547

 

Revolving credit facility borrowings

 

 

479,000

 

 

 

304,000

 

Unsecured notes payable, net

 

 

397,417

 

 

 

 

Total indebtedness

 

 

3,692,168

 

 

 

3,743,286

 

Accrued liabilities and other

 

 

758,441

 

 

 

592,774

 

Liabilities related to assets held for sale

 

 

472

 

 

 

85,775

 

Total liabilities

 

 

4,451,081

 

 

 

4,421,835

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred noncontrolling interests in AIR Operating Partnership

 

 

79,330

 

 

 

79,370

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Perpetual preferred stock

 

 

2,000

 

 

 

2,129

 

Common Stock, $0.01 par value, 1,021,175,000 shares authorized at September 30, 2022 and December 31, 2021, and 152,993,448 and 156,998,367 shares issued/outstanding at September 30, 2022 and December 31, 2021, respectively

 

 

1,530

 

 

 

1,570

 

Additional paid-in capital

 

 

3,583,111

 

 

 

3,763,105

 

Accumulated other comprehensive income

 

 

45,948

 

 

 

 

Distributions in excess of earnings

 

 

(1,589,409

)

 

 

(1,953,779

)

Total AIR equity

 

 

2,043,180

 

 

 

1,813,025

 

Noncontrolling interests in consolidated real estate partnerships

 

 

(76,200

)

 

 

(70,883

)

Common noncontrolling interests in AIR Operating Partnership

 

 

225,062

 

 

 

197,013

 

Total equity

 

 

2,192,042

 

 

 

1,939,155

 

Total liabilities, preferred noncontrolling interests in AIR Operating Partnership, and equity

 

$

6,722,453

 

 

$

6,440,360

 

 

 

See notes to condensed consolidated financial statements.

3

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues

 

$

198,413

 

 

$

190,082

 

 

$

558,686

 

 

$

541,533

 

Other revenues

 

 

2,458

 

 

 

1,695

 

 

 

7,163

 

 

 

4,990

 

Total revenues

 

 

200,871

 

 

 

191,777

 

 

 

565,849

 

 

 

546,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

71,250

 

 

 

73,925

 

 

 

198,273

 

 

 

203,300

 

Depreciation and amortization

 

 

90,445

 

 

 

81,121

 

 

 

253,650

 

 

 

232,192

 

General and administrative expenses

 

 

7,663

 

 

 

5,875

 

 

 

19,593

 

 

 

15,510

 

Other expenses, net

 

 

4,941

 

 

 

3,816

 

 

 

5,883

 

 

 

9,207

 

 

 

 

174,299

 

 

 

164,737

 

 

 

477,399

 

 

 

460,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

9,613

 

 

 

13,432

 

 

 

48,746

 

 

 

45,088

 

Interest expense

 

 

(32,656

)

 

 

(30,530

)

 

 

(80,790

)

 

 

(100,212

)

Loss on extinguishment of debt

 

 

 

 

 

(6,673

)

 

 

(23,636

)

 

 

(44,833

)

Gain on dispositions of real estate and derecognition of leased properties

 

 

 

 

 

7,127

 

 

 

587,609

 

 

 

94,512

 

Loss from unconsolidated real estate partnerships

 

 

(87

)

 

 

 

 

 

(2,974

)

 

 

 

Income before income tax (expense) benefit

 

 

3,442

 

 

 

10,396

 

 

 

617,405

 

 

 

80,869

 

Income tax (expense) benefit

 

 

(46

)

 

 

275

 

 

 

(966

)

 

 

(770

)

Net income

 

 

3,396

 

 

 

10,671

 

 

 

616,439

 

 

 

80,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests in consolidated real estate partnerships

 

 

102

 

 

 

785

 

 

 

285

 

 

 

3,417

 

Net income attributable to preferred noncontrolling interests in AIR Operating Partnership

 

 

(1,602

)

 

 

(1,603

)

 

 

(4,807

)

 

 

(4,810

)

Net income attributable to common noncontrolling interests in AIR Operating Partnership

 

 

(137

)

 

 

(475

)

 

 

(37,053

)

 

 

(3,966

)

Net income attributable to noncontrolling interests

 

 

(1,637

)

 

 

(1,293

)

 

 

(41,575

)

 

 

(5,359

)

Net income attributable to AIR

 

 

1,759

 

 

 

9,378

 

 

 

574,864

 

 

 

74,740

 

Net income attributable to AIR preferred stockholders

 

 

(43

)

 

 

(43

)

 

 

(128

)

 

 

(136

)

Net (income) loss attributable to participating securities

 

 

44

 

 

 

(46

)

 

 

(373

)

 

 

(149

)

Net income attributable to AIR common stockholders

 

$

1,760

 

 

$

9,289

 

 

$

574,363

 

 

$

74,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to AIR common stockholders per share – basic

 

$

0.01

 

 

$

0.06

 

 

$

3.69

 

 

$

0.49

 

Net income attributable to AIR common stockholders per share – diluted

 

$

0.01

 

 

$

0.06

 

 

$

3.68

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

 

153,811

 

 

 

156,646

 

 

 

155,488

 

 

 

153,289

 

Weighted-average common shares outstanding – diluted

 

 

154,057

 

 

 

157,042

 

 

 

157,440

 

 

 

153,650

 

 

See notes to condensed consolidated financial statements.

4

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

3,396

 

 

$

10,671

 

 

$

616,439

 

 

$

80,099

 

Unrealized gains on derivative instruments

 

 

34,209

 

 

 

 

 

 

47,141

 

 

 

 

Losses on derivative instruments reclassified into interest expense from accumulated other comprehensive income

 

 

731

 

 

 

 

 

 

2,720

 

 

 

 

Unrealized losses on available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(3,251

)

Other comprehensive income

 

 

38,336

 

 

 

10,671

 

 

 

666,300

 

 

 

76,848

 

Comprehensive income attributable to noncontrolling interests

 

 

(4,379

)

 

 

(1,293

)

 

 

(45,488

)

 

 

(5,147

)

Comprehensive income attributable to AIR

 

$

33,957

 

 

$

9,378

 

 

$

620,812

 

 

$

71,701

 

 

See notes to condensed consolidated financial statements.

5

 


Table of Contents

 

APARTMENT INCOME REIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended September 30, 2022 and 2021

(In thousands, except share data)

(Unaudited)

 

 

 

Perpetual Preferred Stock

 

 

Common Stock

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Noncontrolling
Interests in

 

 

Common
Noncontrolling
Interests in

 

 

 

 

 

 

Shares
Issued

 

 

Amount

 

 

Shares
Issued

 

 

Amount

 

 

Additional
Paid-
in Capital

 

 

Other
Comprehensive
Income

 

 

Distributions
 in Excess
of Earnings

 

 

Total AIR
Equity

 

 

Consolidated
Real Estate
Partnerships

 

 

AIR
Operating
Partnership

 

 

Total
Equity

 

Balances at June 30, 2021

 

 

20

 

 

$

2,000

 

 

 

156,856,952

 

 

$

1,569

 

 

$

3,773,173

 

 

$

 

 

$

(2,197,843

)

 

$

1,578,899

 

 

$

(67,531

)

 

$

60,388

 

 

$

1,571,756

 

Issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Redemption of AIR Operating Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(425

)

 

 

(425

)

Conversion of AIR Operating Partnership units

 

 

 

 

 

 

 

 

125,621

 

 

 

1

 

 

 

6,282

 

 

 

 

 

 

 

 

 

6,283