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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
Form 10-K
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
oTRANSITION 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.)
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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
incorporation or organization)
(I.R.S. Employer
Identification No.)
4582 South Ulster Street, Suite 1700
Denver, Colorado
80237
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code (303) 757-8101
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common Stock (Apartment Income REIT Corp.)AIRCNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None (Apartment Income REIT Corp.)
Partnership Common Units (Apartment Income REIT, L.P.)
(title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Apartment Income REIT Corp.: Yes x No o
Apartment Income REIT, L.P.: Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Apartment Income REIT Corp.: Yes o No x
Apartment Income REIT, L.P.: Yes o No x
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 x No o
Apartment Income REIT, L.P.: Yes x No o
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 x No o
Apartment Income REIT, L.P.: Yes x No o
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
xAccelerated fileroLarge accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyoNon-accelerated fileroSmaller reporting companyo
Emerging growth companyo Emerging growth companyo
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.: o
Apartment Income REIT, L.P.: o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Apartment Income REIT Corp.: x
Apartment Income REIT, L.P.: x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Apartment Income REIT Corp.: o
Apartment Income REIT, L.P.: o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Apartment Income REIT Corp.: o
Apartment Income REIT, L.P.: o
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 o No x
Apartment Income REIT, L.P.: Yes o No x
The aggregate market value of the voting and non-voting Common Stock of Apartment Income REIT Corp. held by non-affiliates of Apartment Income REIT Corp. was approximately $5.4 billion based upon the closing price of $36.09 on June 30, 2023.
As of February 12, 2024, there were 144,917,372 shares of Class A Common Stock outstanding.
___________________________________________________
Documents Incorporated by Reference
Portions of the definitive Proxy Statement of Apartment Income REIT Corp. to be filed in connection with the 2024 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.


EXPLANATORY NOTE
This filing combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2023, of Apartment Income REIT Corp. (“AIR”), Apartment Income REIT, L.P. (“AIR Operating Partnership”), and their consolidated subsidiaries. The AIR Operating Partnership’s 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 is a self-administered and self-managed real estate investment trust (“REIT”). AIR Operating Partnership owns substantially all of the assets and owes substantially all of the liabilities of the AIR enterprise and manages the daily operations of AIR’s business. AIR owns, through its wholly-owned subsidiaries, the general partner interest, and special limited partner interest in the AIR Operating Partnership.
As of December 31, 2023, AIR owned approximately 91.1% of the legal interest and 93.6% of the economic interest in the common partnership units of the AIR Operating Partnership, respectively. The remaining 8.9% legal interest is owned by third parties. A portion of the 8.9% owned by third parties is subject to vesting. If the vesting requirements are not met, the 8.9% ownership will be reduced to no less than 6.4%. The legal ownership percentage is based on the outstanding Class A Common Stock of AIR (“Common Stock”) and common OP Units (as defined below), 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.
As stated above, 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 with terms substantially similar to the 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 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 consolidated financial statements for AIR and the AIR Operating Partnership; a single set of 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 II, Item 9A. 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.


APARTMENT INCOME REIT CORP.
APARTMENT INCOME REIT, L.P.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2023
ItemPage


FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. This Annual Report contains information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding: the payment of dividends and distributions in the future; our ability to maintain current or meet projected occupancy, rental rate and property operating results; expectations regarding consumer demand, growth in revenue and strength of other performance metrics and models; the effect of acquisitions and dispositions; expectations regarding acquisitions as well as sales and the formation of joint ventures and the use of proceeds thereof; the availability and cost of corporate debt; our ability to comply with debt covenants; and risks related to the provision of property management services to third parties and our ability to collect property management and asset management related fees.
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, the level of unemployment, and recession; 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 the section entitled “Risk Factors” described in Item 1A of this Annual Report 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.
Certain financial and operating measures found herein and used by management are not defined under GAAP. These measures are defined and reconciled to the most directly comparable GAAP measures under the Non-GAAP Measures heading and include: NAREIT Funds from Operations, Pro forma Funds from Operations, Run-Rate Funds from Operations, Run-Rate Adjusted Funds from Operations, and the measures used to compute our leverage ratios.
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PART I
ITEM 1. BUSINESS
The Company
AIR is a self-administered and self-managed real estate investment trust. AIR owns, through its wholly-owned subsidiaries, the general partner interest and special limited partner interest in AIR Operating Partnership. The AIR Operating Partnership owns all of the assets and owes all of the liabilities of the AIR enterprise and manages the daily operations of AIR’s business. The AIR Operating Partnership conducts all of the business of AIR, which is focused on the ownership of stabilized multi-family properties located in top markets including eight important geographic concentrations: Boston; Philadelphia; Washington, D.C.; Miami; Denver; the San Francisco Bay Area; Los Angeles; and San Diego. Please refer to Note 16 to the consolidated financial statements in Item 8 for discussion regarding our segments.
Business Overview
Our business activities are defined by a commitment to our core values of integrity, respect, collaboration, performance, and a focus on our customers. These values and our corporate mission, “to consistently provide quality apartment homes in a respectful environment delivered by a team of people who care,” shape our culture. In all of our interactions with residents, teammates, business partners, lenders, and equity holders, we aim to be the best owner and operator of apartment communities, inspired by a talented team committed to exceptional customer service, strong financial performance, and outstanding corporate citizenship.
We created AIR to be the most efficient and effective way to invest in U.S. multi-family real estate, due to our simple business model, diversified portfolio of stabilized apartment communities, and low leverage. The Board of Directors has set the following strategic objectives:
Pursue a simple, efficient, and predictable business model with a low-risk premium.
Maintain a high quality and diversified portfolio of stabilized multi-family properties.
Continuously improve our best-in-class property operations platform, the “AIR Edge,” to generate above-market organic growth.
Maintain an efficient cost structure.
Maintain a flexible, low levered balance sheet with access to multiple sources of debt capital.
Enhance portfolio quality through a disciplined approach to capital allocation, targeting accretive opportunities on a leverage neutral basis.
Form private capital partnerships as a source of equity capital for accretive growth.
Continue our commitment to corporate responsibility with transparent and measurable goals.
Our focused strategy is evidenced by:
Market-leading operating platform. The AIR Edge reflects the cumulative results of our focus on resident selection, satisfaction, and retention, as well as relentless innovation in delivering best-in-class property management. In 2023, AIR’s operating acumen resulted in Same Store net operating income (“NOI”) growth and Free Cash Flow ("FCF") growth of 9.3% and 9.5%, respectively. The AIR Edge additionally contributes to higher rates of growth at newly acquired properties. For example, properties acquired by AIR in 2021 (“Class of 2021”) contributed 100-basis points to the 9.3% Same Store NOI growth achieved in 2023.
High-quality, diversified portfolio. AIR’s portfolio has been materially enhanced through recycling approximately $4.6 billion since the end of 2020. The sale of lower rated properties (or the contribution to a joint venture of fractional ownership in such properties) improved the AIR portfolio by (i) subtraction of properties in less favorable locations with prospects for lower rent growth or higher capital needs, and (ii) exiting (or reducing exposures to) markets with greater regulatory risk, such as New York.
High-growth acquisition portfolio. AIR has used “paired trades,” raising capital through either property dispositions or the formation of joint ventures, to fund $585.0 million of acquisitions in 2023
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at AIR's share. The acquisitions improved the AIR portfolio by (i) addition of properties in more favorable locations with better prospects for long-term rent growth and lower capital needs. As a result, AIR increased its allocation of capital to properties expected to generate higher rates of NOI and FCF growth as the operating impacts of the AIR Edge are realized. AIR's "paired trade" framework considers the cost of capital on the properties or joint venture interests acquired by others as measured by NOI yield, FCF yield, and expected unlevered internal rates of return (“IRR”) over a 10-year hold period. We compare this cost of capital to the expected returns on acquisitions, and expect transactions to be accretive in the first or second year on a NOI and FCF yield basis, and a 200-basis point or higher spread on an unlevered IRR basis. Paired trades in 2023 were 40-basis points dilutive on a NOI yield basis, but 40-basis points accretive to FCF yield and 230-basis points accretive to unlevered IRR. As AIR continues to recycle capital out of older, and into newer properties, we expect FCF and Adjusted Funds from Operations ("AFFO") growth will be further enhanced.
As a result of its paired trade activity, the quality of the AIR portfolio has been enhanced with (i) average monthly revenue per apartment homes of $2,913, up 10% from 2022, and (ii) increased allocation to faster growing submarkets such as Miami Beach, FL, Bethesda, MD, and Raleigh-Durham, NC.
Efficiency. Through the combination of peer leading NOI and FCF margins, and low G&A expense, AIR converts a higher percentage of Same Store Revenue into FCF than does any of our peers, a durable advantage expected to compound over time, and enhanced as properties new to AIR's platform benefit from the AIR Edge.
Low leverage. AIR targets Net Leverage to Adjusted EBITDAre of ~6.0x, which equates to approximately 33% on a loan-to-value basis, a low level for the AIR business model with no exposure to construction, second mortgage lending, or short-term rentals. We anticipate the Net Leverage to Adjusted EBITDAre ratio will vary based on the timing of transactions. AIR has well laddered refunding and repricing schedules, with no debt maturities until the second quarter of 2025. AIR also has limited refunding and repricing risk with the ability to fund all maturities through the first quarter of 2027 from cash on hand, and a 10-year commitment to make up to $1 billion of property loans with up to 10-year maturities.
Deep and talented team. AIR values mutual respect and collaboration among teammates, as well as pay-for-performance. These policies have created a strong culture, a stable team, and best-in-class employee engagement. AIR promotes from within its deep talent pool, and will also recruit from outside when doing so strengthens our team.
Our business is organized around four areas of strategic focus: operational excellence; active portfolio management; a safe, low leverage balance sheet; and an engaged team and culture. The results from the execution of our strategy are discussed in the Executive Overview in Item 7.
Operational Excellence
We own and operate a portfolio of stabilized apartment communities on our market-leading operating platform, diversified by both geography and price point. As of December 31, 2023, our portfolio included 75 apartment communities with 26,626 apartment homes in which we held an average ownership of approximately 81%, with the balance owned by OP unitholders and our select joint venture partners.
To manage our property operations efficiently and to increase the benefits from our local management expertise, we give direct responsibility for operations to our area operations leaders, with regular support from senior management. To enable the area operations leaders to focus on sales and service, as well as to improve financial control and budgeting, we have dedicated area financial officers who support the operations leaders. Additionally, we have specialized teams at AIR's corporate headquarters in Denver, CO that provide shared services, including revenue management, marketing, procurement, capital management, and IT support across the portfolio.
We seek to improve our property operations through application of the AIR Edge. Our ideal is a culture where we service others, nurture relationships, and build safe, stable communities. We seek teams that are more cohesive, better compensated, and more productive. We seek customers that make better neighbors and stay longer. Our high customer retention is driven by delivering world-class customer service; taking advantage of real-time analytics and artificial
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intelligence; increasing automation; centralizing operational tasks where efficient to do so; standardizing business processes, operational measurements, and internal reporting; and enhancing financial controls over field operations. The AIR Edge is a durable operating advantage in driving organic growth, and is scalable as our portfolio grows. We focus on the following areas:
Customer Satisfaction. Our operating culture is focused on our residents and providing them with a high level of service in a clean, safe, and respectful living environment. We regularly monitor and evaluate our performance by providing customers with opportunities to grade our every interaction to ensure that we are customer-focused. In 2023, we received 40,000 customer grades averaging 4.28 rating on a five-point scale, considered world-class with reference to the Kingsley Index. We use this customer feedback as a daily management tool. We also publish these customer evaluations online as important and credible information for prospective customers. We have automated certain aspects of our on-site operations to enable current and future residents to interact with us using methods that are efficient and effective for them, such as using artificial intelligence to handle common customer inquiries and the execution of new and renewal leases. In addition, we emphasize the quality of our on-site teammates through recruiting, training, and retention programs, which, with continuous and real-time customer feedback, contributes to improved customer service. During 2023, AIR was honored externally for our customer satisfaction as a “Kingsley Excellence Elite Five” for the second year in a row, ranking first among public multi-family companies and second among all multi-family companies. We believe that greater customer satisfaction leads to higher resident retention and increased occupancy rates, which in turn leads to increased revenue and reduced costs.
Resident Selection and Retention. In our apartment communities, we believe that one’s neighbors are a meaningful part of the customer experience, together with the location of the community and the physical quality of the apartment homes, enhanced by excellent amenities. Part of our property operations strategy is to focus on attracting, selecting, and retaining stable, high character residents, and actively cultivating a sense of community so that our residents are more likely to live with us longer. Among many inputs that go into resident selection which are applied to both new and renewal leases, creditworthiness and behavior in accordance with our apartment community standards, which we document in our “Good Neighbor Commitment," are two factors among many, but of particular importance in the promotion of stable communities. We use artificial intelligence to target identified market segments predisposed to be stable residents with longer than average tenure, as well as higher FICO scores and so higher likelihood of meeting rental obligations. Our focus on resident selection and retention has contributed to an increase of apartment home retention, from 61.3% in 2022 to 62.3% in 2023.
Revenue Management and Ancillary Services. We have a centralized revenue management approach that leverages people, processes, and technology to work in partnership with our local property management teams to develop rental rate pricing. Through this active coordination, we price every unit, every day based on a pipeline of prospective residents, balancing supply and demand by market. Our pricing is based on AIR's internal information together with publicly available market data. We seek to increase free cash flow by optimizing the balance between rental and occupancy rates, as well as taking into consideration costs such as preparing an apartment home for a new resident. We are focused on careful measurements of on-site operations, as we believe that timely and accurate collection of apartment community performance and resident profile data allows us to maximize free cash flow through better property management and leasing decisions. We seek to maximize profit by performing timely data analysis of new and renewal pricing for each apartment home, thereby enabling us to adjust rents quickly in response to changes in supply and demand and minimize vacancy time. We also generate incremental revenue by providing or facilitating services to our residents, including, at certain apartment communities, telecommunications services, parking options, package lockers, and storage space rental.
Controlling Expenses. Innovation is the foundation of our cost control efforts. Innovative activities we have undertaken include: moving administrative tasks to our shared service center, which reduces costs and allows site teams to focus on sales and service; taking advantage of economies of scale at the corporate level through electronic procurement, which reduces complexity and increases purchasing volume discounts; focusing on life cycle costs by investing in more durable, longer-lived materials, which reduce turn times and costs; and leveraging technology through such items as our service technology platform, which allows for efficient work order completion and the use of robotics, smart home technology installed in all homes, which lowers turn, utility, and insurance costs while boosting revenue, intuitive website design, and convenient package lockers, which meet today’s customer preference for self-service. Additionally, our efforts to maximize resident retention through our resident
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selection process described above has resulted in reduced turn costs. These and other innovations contributed to a growth rate in controllable operating expense, which we define as property expenses less taxes, insurance, and utility expenses, compounding for the past 14 years at an annual rate of negative 0.1%.
Improving and Maintaining High Quality Apartment Communities. We believe that the physical condition and amenities of our apartment communities are important factors in our ability to maintain and increase rental rates. Onsite we perform in-depth and regular review of physical property conditions, while our offsite team maintains a disciplined underwriting approach to identify the need for capital enhancement activity, as defined below. We invest in the maintenance and improvement of our communities primarily through: Capital Replacements, which are expenditures that are necessary to help preserve the value of and maintain building infrastructure at the communities; Capital Enhancements, investment activity where we expect sustained incremental NOI generating returns that average greater than a 10% IRR and which may include kitchen and bath remodeling, energy conservation projects, and investments in more durable, longer-lived materials designed to position assets for higher rental levels in their respective market; and, Initial Capital Expenditures, incremental investment contemplated in underwriting the purchase of a property. During 2023, AIR's proportionate share of investment was $1,540 per apartment home in Capital Replacements and $3,278 per apartment home in Capital Enhancements ($71.0 million in 3,100 apartment homes). AIR's proportionate share of investment in Initial Capital Expenditures totaled $46.0 million, which were planned as part of our initial investment in communities recently acquired.
Portfolio Management
We expect to improve the quality of our portfolio by allocating investment capital to enhance rent growth and increase long-term capital values through (i) "paired trades," emphasizing allocations to properties with prospects for attractive submarket growth, as well as accretion to land value and (ii) routine investments in property upgrades (such as upgrading kitchens, bathrooms, and other interior design aspects). We plan to maintain a dynamic capital allocation and market selection process through the reallocation of our investment, over time. Through this allocation, AIR aims to optimize expected future free cash flow growth rates and returns by appropriately pricing, managing regulatory risk, and anticipating trends in job growth, net migration, and customer quality. We target geographic diversification in our portfolio to reduce the volatility of our rental revenue by avoiding undue concentration in any particular market.

Our portfolio of apartment communities is diversified across primarily “A” and “B” price points, averaging “A-” in quality, and also across top markets including eight important geographic concentrations in the United States.

As part of our portfolio strategy, we seek to sell communities with lower expected unlevered IRRs and reinvest the proceeds from such sales in accretive uses such as property acquisitions where the expected unlevered IRRs provide a spread of 200-basis points or higher than the cost of capital to fund, Capital Enhancements (where we expect sustained incremental NOI as a result of the investment providing investment returns averaging greater than a 10% IRR), and share repurchases. When the cost of capital is favorable, we will look to grow through the acquisition of stabilized apartment communities that we believe we can operate more efficiently than their previous owners through application of the AIR Edge. Through this disciplined approach to capital allocation, we expect to increase the quality and expected growth rate of our portfolio.
Balance Sheet
We seek to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage and primarily long-dated debt. We maintain financial flexibility through ample unused and available credit, holding properties with substantial value unencumbered by property debt, maintaining an investment grade rating, and using partners’ capital when it enhances financial returns or reduces investment risk. We seek to minimize refunding and repricing risk.

Our leverage includes our share of long-term, non-recourse property debt encumbering our apartment communities, together with outstanding borrowings under our revolving credit facility, our term loans, unsecured notes payable, and preferred equity.

We target a Net Leverage to Adjusted EBITDAre ratio of ~6.0x, which equates to approximately 33% on a loan-to-value basis, a low level for the AIR business model with no exposure to construction, second mortgage lending, or short-term rentals. We anticipate the Net Leverage to Adjusted EBITDAre ratio will vary based on the timing of transactions. As
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of December 31, 2023, Net Leverage to Adjusted EBITDAre was 6.1x, slightly elevated by 0.1x of a turn due to opportunistic fourth quarter share repurchases.

Under our credit agreement and unsecured notes payable, we have agreed to maintain a fixed charge coverage ratio of no less than 1.50 to 1.00. As of December 31, 2023, our fixed charge coverage ratio was 3.20.

Please refer to the Leverage Ratios subsection to the Non-GAAP Measures section in Item 7 for additional information regarding our leverage ratios.

We use our revolving credit facility for working capital, other short-term purposes, and to secure letters of credit. As of December 31, 2023, our share of cash and restricted cash, excluding amounts related to resident security deposits, was $105.4 million. Additionally, we had the capacity to borrow up to $1.8 billion under our revolving credit facility, after consideration of letters of credit, and committed property level financing through our secured credit facility with Fannie Mae thereby having total liquidity of just under $2 billion.

We manage our financial flexibility by maintaining an investment grade rating from S&P and Moody’s, and holding communities that are unencumbered by property debt. As of December 31, 2023, we held unencumbered apartment communities with an estimated fair market value of approximately $4.9 billion. AIR’s two investment grade ratings provide the company access to all debt capital market sources.

Please refer to the Executive Overview and Liquidity and Capital Resources sections in Item 7 for additional information regarding our balance sheet and liquidity.
Competition
In attracting and retaining residents to occupy our apartment communities, we compete with numerous other housing providers. Our apartment communities compete directly with other rental apartments, as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our apartment communities are located. Principal factors of competition include rent or price charged, attractiveness of the location and apartment community, and the quality and breadth of services. The number of competitive apartment communities relative to demand in a particular area has a material effect on our ability to lease apartment homes at our apartment communities and on the rents we charge. In certain markets, there exists a high supply of newly-constructed apartment homes, single-family homes, and condominiums relative to consumer demand, which affects the pricing and occupancy of our rental apartments.
We also compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships, and investment companies in acquiring, managing, obtaining financing for, and disposing of apartment communities. This competition affects our ability to acquire apartment communities we want to add to our portfolio and the price that we pay in such acquisitions; our ability to finance or refinance communities in our portfolio and the cost of such financing; and our ability to dispose of communities we no longer desire to retain in our portfolio and the timing and price available to us when we seek to dispose of such communities.
Taxation
AIR
AIR has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our initial taxable year ended December 31, 2020, and intends to continue to operate in such a manner. The Code imposes various requirements related to organizational structure, distribution levels, diversity of stock ownership, and certain restrictions with regard to owned assets and categories of income that must be met in order to continue to qualify as a REIT. As a REIT, we are generally not subject to federal and certain state income tax on the net income that we currently distribute to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation.
Certain of our operations, or a portion thereof, including property management and risk management are conducted through taxable REIT subsidiaries, each of which we refer to as a “TRS.” A TRS is a corporate subsidiary that has elected to be a TRS instead of a REIT and, as such, is subject to United States federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners that cannot be offered directly by a REIT.
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The AIR Operating Partnership
The AIR Operating Partnership is treated as a “pass-through” entity for United States federal income tax purposes and is not subject to United States federal income taxation. Partners in the AIR Operating Partnership, however, are subject to tax on their allocable share of partnership income, gains, losses, deductions, and credits, regardless of whether the partners receive any actual distributions of cash or other property from the AIR Operating Partnership during the taxable year. Generally, the characterization of any particular item is determined by the AIR Operating Partnership rather than at the partner level, and the amount of a partner’s allocable share of such item is governed by the terms of the AIR Operating Partnership’s Partnership Agreement. The AIR Operating Partnership is subject to tax in certain states.
Regulation
General
Apartment communities and their owners are subject to various laws, ordinances, and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers, and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on communities or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction, and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our net income and cash flows from operating activities. In addition, existing rent control laws, as well as future enactment of rent control or rent stabilization laws, “just cause” evictions, or other laws regulating multi-family housing (such as resident screening requirements or limitations on fees) may reduce rental revenue, increase operating and compliance costs, require modification of resident screening requirements, or affect the stability of our communities.
Environmental
Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community. These materials may include lead-based paint, asbestos, polychlorinated biphenyls, and petroleum-based fuels. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. In connection with the ownership, operation, and management of apartment communities, we could potentially be liable for environmental liabilities or costs associated with our current communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past. These and other risks related to environmental matters are described in more detail in Item 1A. Risk Factors.
Insurance
Our primary lines of insurance coverage are property, general liability, workers’ compensation, business interruption and cybersecurity. We believe that our insurance coverages adequately insure our apartment communities against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism, and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions, and limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling, and litigation management procedures to manage our exposure.
Corporate Responsibility
Corporate responsibility is a longstanding AIR priority and a key part of our culture. We offer benefits reinforcing our value of respect and caring for each other, including an opportunity to manage one’s life through flexible work schedules, paid time for parental leave, profit sharing, retirement plans for all, financial support for our teammates who are becoming United States citizens, and a bonus structure at all levels of the organization. We also pay full compensation and benefits for teammates who are actively deployed by the United States military.
Our team is also focused on making a difference in our local communities through our philanthropic endeavor, AIR Gives. For over 15 years, we have provided the flexibility for teammates to support a nonprofit or initiative that is important to them. Teammates have 15 hours of paid leave to volunteer with a nonprofit. Every hour volunteered also provides the teammate with charitable dollars to direct to a nonprofit of choice. Also, through AIR Gives, we award college scholarships to children of teammates. AIR Gives has supported over 675 students of our teammates with more than $1.4 million in scholarships since 2006. We raised $0.5 million from the AIR Gives Charity Golf Tournament in 2023 to benefit the Tragedy Assistance Program for Survivors, Project Sanctuary, and scholarships for students in affordable housing in
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partnership with the National Leased Housing Association. We also provide financial assistance to AIR teammates experiencing a financial emergency or other crisis.
During the year, AIR met directly with holders of more than approximately 80% of its outstanding common shares. Through a series of lunches, dinners, video meetings, conferences, property tours, in-person meetings, and calls, various Board members and Management discussed a variety of topics, such as governance, investment strategy, operations, and corporate responsibility, including CEO succession planning and Environmental, Social, and Governance (“ESG”).
Our commitment to strong corporate governance was further demonstrated in 2023, where AIR shareholders approved the Board's recommendation to amend AIR’s charter to reduce to a simple majority vote the threshold to amend our bylaws. Our commitment extends not just to maintaining open lines of communication with shareholders, but also to improving as best practices in governance evolve. This direct shareholder engagement yielded positive results with the outcome of our annual meeting as shareholders overwhelmingly supported our directors, as well as “say on pay” for which AIR had the highest support among peers.
We are committed to transparency, and continuous improvement, as measured by Global Real Estate Sustainability Benchmark (“GRESB”). AIR received a score of 82 out of 100 in 2023, including a 100% score for leadership and reporting, a 12.5% improvement in environmental performance, a perfect social score and a near perfect governance score. AIR now has a four out of five-star GRESB rating for overall management and performance. AIR was given an “A” in GRESB Public Disclosure, ranking 2nd among peers. AIR earned a Best ESG Program award from Multi-Housing News ("MHN"). The award celebrates AIR’s commitment to being an outstanding corporate citizen and its best-in-class program to achieve environmental, social, and governance goals. We also published our 2022-2023 Corporate Responsibility Report highlighting our commitment to community and published data consistent with the Taskforce on Climate-Related Financial Disclosures ("TCFD") and the Sustainability Accounting and Standards Board ("SASB"). AIR also certified 75% of its properties as sustainable, toward our goal of 95% by 2025.
Based on UN Sustainable Development Goals, we have set targets for energy, water, and greenhouse gas reductions. We published our goals and targets consistent with the UN Sustainability Goals, with an additional commitment to transparent, data-driven disclosures consistent with the SASB, which guides the disclosure of financially material sustainability information by companies to their investors. The standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each industry.
Human Capital
Team and Culture
Our team and culture are keys to our success. We have a relentless focus on productivity and innovation. We continuously seek to reduce costs through the use of additional automation and continued technological investment, and by avoiding costs, for example by retention of residents. We apply this same focus to our general and administrative expenses, expecting these costs to be lower than our peers.
We are defined by a commitment to our mission, vision, and values. We strive to provide an exceptional living experience for residents and a great place to work for teammates, to be a good neighbor in the communities we serve, and a good steward for our investors. We are accountable to teammates in return for their hard and meaningful work of providing homes for others. We see our workforce as a team, and not employees only. Our view is relational, and not transactional, reflecting a longer view of the benefits of a cohesive and caring team.
Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within. We focus on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. The Compensation and Human Resources Committee of the Board of Directors is responsible for succession planning in all leadership positions, both in the short-term and the long-term, with particular focus on CEO succession.
Our focus on our team and culture is widely recognized. In 2023, AIR was named a Kingsley Excellence Elite Five multifamily company and a winner of the 2023 Kingsley Excellence Awards for customer service for the second year in a row. Of the winners, AIR ranked second among all operators, and first among publicly traded REITs. AIR is committed to world-class customer service, which we deliver through listening to, learning from, and responding to our residents every day. We also benefit from the support of great leadership, contributions from exceptional teammates, and a strong culture. These strengths are confirmed by such awards as AIR's 2023 Top Workplaces USA Award (the second
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consecutive year), a 10-time winner of Top Workplace in Colorado (by the Denver Post), Top Workplace in Philadelphia (by The Philadelphia Inquirer), and in South Florida (by the Sun Sentinel) as well as two time winner of Built in 2023 Best Places to Work in Colorado, Los Angeles, Miami, and Washington, D.C., and the Denver Business Journal Healthiest Employer in Colorado for the third year in a row. We take seriously our responsibility to care for our customers, our neighbors, and each other as teammates. We are grateful for these recognitions and consider them confirmation of our success.
Our teammates are passionate about what we do, both inside and outside of work. We believe in doing whatever it takes to make our residents feel at home. We look at career growth as a jungle gym as well as a ladder, with opportunities to learn and grow in a variety of ways. Approximately 71% of all open manager level positions were filled internally in 2023, and approximately half of all open positions were filled internally. We provide both formal and informal training and coaching for teammates at every level of the organization. In 2023, 22% of AIR teammates voluntarily took part in AIR’s leadership training.
As of December 31, 2023, we had approximately 760 teammates, of whom approximately 610 were at the apartment community level performing on-site functions or at our shared service center performing tasks that have been centralized there, with the balance managing corporate and area functions, including investment and debt transactions, legal, finance and accounting, information systems, human resources, and other support functions. As of December 31, 2023, unions represented approximately 27 of our teammates down from 2022 due to our exit from the New York market. We have never experienced a work stoppage and we believe we maintain satisfactory relations with our teammates.
We evaluate team engagement, retention, and efficiency and include those in our goals on which all teammates are compensated. Every teammate is surveyed annually via a third-party, confidential survey. The teammate engagement score consists of the average of the responses to the questions that comprise the engagement index, on a scale of 1 to 5, for all teammates who complete the survey. AIR’s overall teammate engagement score from the 2023 Annual Lifecycle Surveys was 4.41, compared to the target of 4.35 with record high participation of 79.2%. With respect to our on-site goal, our primary objective is to maintain a highly engaged, stable workforce at our communities, enhanced by innovations in efficiency, all of which further our strategic objective of maximizing NOI margins. Our on-site teammate engagement score was 4.48, as compared to 4.47 in 2022. On-site voluntary turnover was 13.5%, down from 16.8% in 2022, and on-site overall turnover was 19.7%, down from 22.7% in 2022.
Available Information
The combined Annual Reports on Form 10-K, the combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed by AIR, the AIR Operating Partnership, and any amendments to any of those reports that were filed with the Securities and Exchange Commission are available free of charge through AIR’s website at www.aircommunities.com and the SEC’s website at www.sec.gov. The information contained on AIR’s website is not incorporated into this Annual Report.
ITEM 1A. RISK FACTORS
The risk factors noted in this section, and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.
Risks Related to Our Business
Failure to generate sufficient net operating income may adversely affect our liquidity, limit our ability to fund necessary capital expenditures, or adversely affect our ability to pay dividends or distributions.
Our ability to make payments to our investors depends on our ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Our net operating income and liquidity may be adversely affected by events or conditions beyond our control, including:
the general economic climate, including the impact of international hostilities and unrest;
an inflationary environment in which the costs to operate and maintain our communities increase at a rate greater than our ability to increase rents, which we can only do upon renewal of existing leases or at the inception of new leases;
competition from other apartment communities and other housing options;
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local conditions, such as loss of jobs, unemployment rates, recession, or an increase in the supply of apartments, which might adversely affect apartment occupancy or rental rates;
changes in governmental regulations and the related cost of compliance;
changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and
changes in interest rates and the availability of financing.
Our ability to fund necessary capital expenditures on our communities depends on, among other things, our ability to generate net operating income in excess of required debt payments. If we are unable to fund capital expenditures on our communities, we may not be able to preserve the competitiveness of our communities, which could adversely affect their net operating income and long-term value.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete for residents with other housing alternatives, including other rental apartments and condominiums, and, to a lesser degree, single-family homes that are available for rent, as well as new and existing condominiums, and single-family homes for sale. Competitive residential housing, as well as household formation and job creation in a particular area, could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
If our acquisitions do not perform as expected, our results of operations could be adversely affected.
The selective acquisition of stabilized apartment communities when we have a favorable cost of capital is a component of our strategy. However, we may not be able to complete transactions successfully in the future. We expect that other real estate investors will compete with us for attractive investment opportunities in markets where we focus our acquisition efforts. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.
Although we seek to acquire apartment communities when such acquisitions increase our free cash flow internal rates of return and are accretive to net asset value, such transactions may fail to perform in accordance with our expectations. In particular, following acquisition, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to sell the apartment community. Additionally, occupancy rates and rents at these properties could fail to meet our expectations or we may underestimate the costs necessary to operate an acquired property to the standards established for its intended market position. This could have an adverse effect on our financial condition or results of operations.
The Company may experience various increased costs, including increased property taxes.
Real property taxes on our properties may increase as our properties are reassessed by tax assessors or as property tax rates change. A California law commonly referred to as Proposition 13 (“Prop 13”) limits annual real estate tax assessment increases on California properties to 2% of assessed value while guaranteeing a base tax rate of 1%. However, under Prop 13, property tax reassessment at market value occurs as a result of a "change in ownership" of a property. Property tax assessors may not immediately recognize a "change in ownership" following a market transaction that has occurred leaving property owners unaware of the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the property taxes we are required to pay could increase substantially from the prior or current years, including on a retroactive basis. Additionally, the base tax rate of 1% for all taxing authorities guaranteed under Prop 13 does not include additional property tax levies for approved voter indebtedness or non-ad valorem tax increases. Various initiatives to repeal or amend Prop 13, to eliminate its application to commercial and residential property, to increase the permitted annual real estate tax increases, and/or to introduce split tax roll legislation could increase the assessed value and/or tax rates applicable to commercial property in California. Further, changes in U.S. federal tax law could cause state and local governments to alter their taxation of real property.
Rent control laws and other regulations that limit our ability to select residents, increase rental rates or limit our ability to evict residents to limited circumstances may negatively impact our rental income and profitability.
State and local governmental agencies continue to introduce and enact rent control laws or other regulations that limit our ability to select residents, increase rental rates, or limit our ability to evict residents (known as “just cause” evictions), which may affect our rental income. Especially in times of recession and economic slowdown, rent control
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initiatives can acquire significant political support. If rent controls unexpectedly became applicable to certain of our properties, our revenue from and the value of such properties could be adversely affected. In addition, resident selection is a key component of our operating model – selecting for residents who pay rent and rent increases, stay with us longer, and make good neighbors. Certain jurisdictions limit our ability to consider the rental history, credit history, eviction history, and criminal backgrounds of potential residents.We intend to comply with resident screening laws that apply to our communities, and our failure to comply could harm our business or our reputation.
Although we are insured for certain risks, the cost of insurance, increased claims activity, or losses resulting from casualty events may affect our financial condition and results of operations.
The availability and cost of insurance are determined by the quality of our properties and their maintenance and our operating procedures, as well as by market conditions outside our control. Current market conditions are challenging with respect to capacity and price. No assurance can be made that we will be able to obtain and maintain insurance at the same levels and on the same terms as we do today. If we are not able to obtain or maintain insurance in amounts we consider appropriate for our business, or if the cost of obtaining such insurance increases materially, we may prefer to retain a larger portion of the potential loss associated with our exposures to risks. We are insured for a portion of our consolidated apartment communities’ exposure to casualty losses resulting from fire, earthquake, hurricane, tornado, flood, and other perils, which insurance is subject to deductibles and self-insurance retention that exceed expected losses. We recognize casualty losses or gains based on the net book value of the affected apartment community and the amount of any related insurance proceeds. In many instances, the actual cost to repair or replace the apartment community may exceed its net book value and any insurance proceeds. We recognize the uninsured portion of losses as casualty losses in the periods in which they are incurred. In addition, we are self-insured for a portion of our exposure to third-party claims related to our teammate health insurance plans, workers’ compensation coverage, and general liability exposure. With respect to our exposure to claims of third parties, we establish reserves at levels that reflect our known and estimated losses. The ultimate cost of losses and the impact of unforeseen events may vary materially from recorded reserves, and variances may adversely affect our operating results and financial condition. We purchase insurance to reduce our exposure to losses and limit our financial losses on large individual risks.
Investments through joint ventures introduce governance risks even where the business of the joint venture adds no further business risks.
We have in the past and may in the future acquire properties in, or contribute or sell properties to, joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. We may choose to do so to access opportunities, or more often, to source equity capital at a lower cost than our alternatives.
These investments involve risks including, but not limited to, the possibility the other partners may have business, economic, or other objectives which are inconsistent with ours. In addition, the other partners may have the ability to take or force action (or withhold consent that may be required to take actions) contrary to our requests. In general, we structure such agreements with our partners so that we have full authority to use our expertise to make operating decisions.
Also, our partners might become insolvent or fail to make capital contributions when due, which may require us to contribute additional capital. In such event, the additional capital contributed is most often on favorable terms. In general, we and our partners may each have the right to trigger a buy-sell or other similar arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the joint venture (if we are the seller) or of the other partner’s interest in the joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm’s length marketing process and could cause us to recognize unanticipated capital gains or losses or the loss of fee income. Each joint venture agreement is individually negotiated and our ability to operate, finance, or dispose of properties and interests in such joint ventures in our sole discretion may be limited to varying degrees depending on the terms of the applicable joint venture agreement. We are also subject to other risks in connection with joint ventures, including (i) a deadlock if we and our partner are unable to agree upon certain major and other decisions (which could result in litigation or disposing of an asset at a time at which we otherwise would not sell the asset), and (ii) limitations on our ability to liquidate our position in the joint venture without the consent of the other partner.
Our business and operations would suffer in the event of significant disruptions or cyberattacks of our information technology systems or our failure to comply with laws, rules and regulations related to privacy and data protection.
Information technology, communication networks, and related systems are essential to the operation of our business. We use these systems to manage our resident and vendor relationships, internal communications, accounting and record-keeping systems, and many other key aspects of our business. Our operations rely on the secure processing, storage,
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and transmission of confidential and other information in our computer systems and networks, which also depend on the strength of our procedures and the effectiveness of our internal controls. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyberattacks.
Despite system redundancy, risk transfer, insurance, indemnification, the implementation of security measures, our required teammate awareness training, and the existence of a disaster recovery plan for our internal information technology systems, our systems, and systems maintained by third-party vendors with which we do business, are vulnerable to damage from any number of sources. We face risks associated with energy blackouts, natural disasters, terrorism, war, telecommunication failures, and cyberattacks and intrusions, such as computer viruses, malware, attachments to emails, intrusion, and unauthorized access, including from persons inside our organization or from persons outside our organization with access to our systems. We expend financial resources to protect against threats and cyberattacks and may be required to expend additional financial and other resources to address disruptions caused by cyberattacks. Although we make efforts to maintain the security and integrity of our systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary, or commercially sensitive in nature), and a loss of confidence in our security measures, which could harm our business. Additionally, if our information systems suffer severe damage, disruption or shutdown, we could experience delays in our financial results and we may lose revenue as a result of our inability to collect payments from residents.
We also are subject to laws, rules, and regulations in the United States, such as the California Consumer Protection Act, or CCPA (which became effective on January 1, 2020), relating to the collection, use, and security of employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy and data security laws of other jurisdictions in which we operate impose significant costs that are likely to increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation.
Potential liability or other expenditures associated with potential environmental contamination may be costly.
Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Potentially hazardous materials may include polychlorinated biphenyls, petroleum-based fuels, lead-based paint, or asbestos, among other materials. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources, and for potential fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur, or personal injury, disease, disability, or other infirmities related to the alleged presence of hazardous materials at an apartment community. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.
Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.
Under the Americans with Disabilities Act of 1990 (“ADA”), all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988 (“FHAA”) requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For those apartment communities receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. These and other federal, state, and local laws may require structural modifications to our apartment communities or changes in policy/practice or affect renovations of the communities. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our apartment communities are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA, the FHAA, and the Rehabilitation Act of 1973 in connection with the ongoing operation of our apartment communities and the apartment communities we manage.
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Natural disasters and severe weather may affect our financial condition and results of operations.
Natural disasters such as earthquakes and severe weather such as hurricanes may result in significant damage to our apartment communities. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather event (such as a hurricane) affecting a region may have a significant adverse effect on our financial condition and results of operations. We cannot accurately predict natural disasters or severe weather, or the number and type of such events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. Although we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from natural disasters or severe weather in the future that exceed our previous experience and assumptions.
We depend on our senior management.
Our success and our ability to implement and manage anticipated future growth depend, in large part, upon the efforts of our senior management team, who have extensive market knowledge and relationships, and exercise substantial influence over our operational, financing, acquisition, and disposition activity. Members of our senior management team have national or regional industry reputations that attract business and investment opportunities and assist us in negotiations with lenders, existing and potential residents, and other industry participants. The loss of services of one or more members of our senior management team, or our inability to attract and retain similarly qualified personnel, could adversely affect our business, diminish our investment opportunities, and weaken our relationships with lenders, business partners, existing and prospective residents, and industry participants, which could adversely affect our financial condition, results of operations, cash flow, per share trading price of AIR Common Stock, and ability to make distributions to our stockholders.
Moisture infiltration and resulting mold remediation may be costly.
Although we are proactively engaged in managing moisture intrusion and preventing the presence of mold at our apartment communities, it is not unusual for periodic moisture intrusion to cause mold in isolated locations within an apartment community. We have implemented policies, procedures, and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will manage mold exposure at our apartment communities and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. We have only limited insurance coverage for property damage claims arising from the presence of mold and for personal injury claims related to mold exposure.
Adverse economic and geopolitical conditions, local, regional, national, or international health crises and dislocations in the credit markets could negatively impact our residents and our operations.
Factors that could negatively impact our operations or those of entities in which we hold a partial interest during a pandemic or another health crisis, adverse economic or geopolitical event, or dislocation in the credit market include:
our ability to collect rents and late fees on a timely basis or at all, without reductions or other concessions;
our ability to evict residents for non-payment and for other reasons;
our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption;
fluctuations in regional and local economies, local real estate conditions, and rental rates;
our ability to control incremental costs associated with such factors;
our ability to dispose of communities at all or on terms favorable to us; and
potential litigation.
Contracts for redevelopment and development services create risk for non-performance.
We do not expect development or redevelopment to be a regular part of our business. Whether the opportunity emerges from covered land or is forced upon us as after an extreme casualty, development and redevelopment by another party acting as our agent shields us from the execution risk, but only to the extent of the expertise and creditworthiness of
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the other party. If such other qualified party acting as our agent fails to perform under our agreements with it, it could have a material adverse effect on our portfolio, financial condition and results of operations.
Our business could be negatively affected as a result of the actions of activist stockholders.
Publicly traded companies have increasingly become subject to campaigns by investors advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. Given our stockholder composition and other factors, it is possible our stockholders or future activist stockholders may attempt to effect such changes. Responding to proxy contests and other actions by such activist stockholders or others would be costly and time-consuming, disrupt our operations and divert the attention of our board of directors and senior management team from the pursuit of business strategies, which could adversely affect our results of operations and financial condition. Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or changes to the composition of the board of directors may lead to the perception of a change in the direction of the business, instability, or lack of continuity, which may be exploited by our competitors, cause concern to our current or potential lenders, partners, or others with whom we do business, and make it more difficult to attract and retain qualified personnel.
Risks Related to Our Indebtedness and Financing
Increases in interest rates would increase our interest expense and reduce our profitability.
As of December 31, 2023, we had approximately $115.0 million of variable-rate indebtedness outstanding, net of in place floating to fixed rate swaps. After consideration of these swaps, we estimate that a change in the floating rate of 100-basis points with constant credit risk spreads would increase or decrease interest expense by $1.2 million on an annual basis. Subsequent to the year ended December 31, 2023, we entered into interest rate swaps economically hedging $200 million of our revolving credit facility at 4.9%.
As of December 31, 2023, we had $117.5 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates, which may partially mitigate the effect of an increase in variable rates on our variable-rate indebtedness discussed above.
Our debt financing could result in foreclosure resulting in a loss of income and value, prevent us from making distributions on our equity, or otherwise adversely affect our liquidity.
We have a revolving credit facility, secured credit facility, and three tranches of term loans, maturing at various times over the next few years, each of which may be secured by assets of, or guaranteed by, certain subsidiaries of AIR, including the AIR Operating Partnership. Over time, we may become party to one or more additional financing arrangements, including credit facilities or other bank debt, and bonds.
In connection with such financing arrangements, we are subject to the risk that: (i) our cash flow from operations will be insufficient to make required payments of principal and interest; (ii) our indebtedness may not be refinanced; or (iii) the terms of any refinancing will not be as favorable as the terms of then-existing indebtedness. If we are unable to make required payments of principal and interest or are unable to refinance at maturity on favorable terms, or at all, the lenders could foreclose on the collateral securing that debt, resulting in the loss to us of income and asset value.
We also anticipate that certain of our subsidiaries will maintain a certain amount of secured property-level indebtedness. If we fail to make required payments of principal and interest on our mortgage debt, our lenders could foreclose on the apartment communities and other collateral securing such debt, resulting in the loss to us of income and asset value.
Our organizational documents do not limit the amount of debt that we may incur. Payments of principal and interest may leave us with insufficient cash resources to operate our communities or pay distributions required to maintain AIR’s qualification as a REIT.
Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity.
Our ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets. During periods of economic uncertainty, the United States credit markets may experience significant liquidity disruptions, which may cause the spreads on debt financings to widen considerably and make obtaining financing,
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both non-recourse property debt and corporate borrowings such as those under a credit facility, more difficult. In particular, apartment borrowers have benefited from the historic willingness of the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), to make substantial amounts of loans secured by multi-family properties, even in times of economic distress. These two lenders are federally chartered and subject to federal regulation, which is subject to change, making uncertain their prospects and ability to provide liquidity in a future downturn.
If our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of liquidity, which could result in lender foreclosure, resulting in loss of income and asset value, both of which would adversely affect our liquidity.
Because real estate investments are relatively illiquid, we may not be able to sell apartment communities when appropriate.
Real estate investments are relatively illiquid and generally cannot be sold quickly. REIT tax rules may also restrict our ability to sell apartment communities. Thus, we may not be able to change our portfolio promptly in response to changes in economic or other market conditions. Our ability to dispose of apartment communities in the future will depend on prevailing economic and market conditions, including the cost and availability of financing. This could have a material adverse effect on our financial condition or results of operations.
Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
From time to time, we may enter into interest rate hedge agreements to manage some of our exposure to interest rate volatility. Interest rate hedge agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to changes in interest rates. These risk factors may lead to failure to hedge effectively against changes in interest rates and therefore could adversely affect our results of operations.
Covenant restrictions may limit our operations and impact our ability to make payments to our investors.
Some of our existing or future debt and other securities may contain covenants that restrict our operations and impact our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. AIR Operating Partnership’s outstanding preferred units prohibits the payment of dividends on AIR Common Stock or AIR Operating Partnership Common Units if we fail to pay the dividends to which the holders of the preferred units are entitled. In addition, our debt agreements contain other customary affirmative and negative covenants.
We may increase leverage, which could further exacerbate the risks associated with our indebtedness.
We may decide to increase our leverage. Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. Although our credit facilities and unsecured notes payable may limit our ability to incur additional indebtedness, our governing documents do not limit the amount of debt we may incur, and our board of directors may change our target debt levels at any time without the approval of our stockholders. We may incur additional indebtedness from time to time in the future to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our indebtedness could intensify.
Risks Related to Tax Laws and Regulations
AIR may fail to qualify as a REIT.
If AIR fails to qualify as a REIT, AIR will not be allowed a deduction for dividends paid to its stockholders in computing its taxable income and will be subject to United States federal income tax at regular corporate rates. This would substantially reduce our funds available for distribution to our investors. Unless entitled to relief under certain provisions of the Code, AIR also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. In addition, AIR’s failure to qualify as a REIT may place us in default under our credit facilities.
We believe that AIR will operate in a manner that enables it to meet the requirements for qualification and taxation as a REIT. However, qualification as a REIT involves the application of highly technical and complex Code
15

provisions for which only limited judicial and administrative authorities exist. Moreover, even a technical or inadvertent mistake could jeopardize our REIT status. AIR’s qualification as a REIT will depend on its satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. AIR’s ability to satisfy the asset tests will depend upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. AIR’s compliance with the REIT annual income and quarterly asset requirements will also depend upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the IRS will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax, or other considerations may cause AIR to fail to qualify as a REIT, or the board of directors of AIR may determine to revoke its REIT status.
REIT distribution requirements limit our available cash.
As a REIT, AIR is subject to annual distribution requirements. AIR Operating Partnership will pay distributions intended to enable AIR to satisfy its distribution requirements. This will limit the amount of cash available for other business purposes, including amounts to fund our growth. AIR will generally be required to distribute annually at least 90% of its “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for its distributed earnings not to be subject to United States federal corporate income tax. We intend to make distributions to AIR’s stockholders to comply with the requirements applicable to REITs under the Code (which may be all cash or a combination of cash and stock satisfying the requirements of applicable law). However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell apartment communities or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.
AIR may be subject to federal, state, and local income taxes in certain circumstances.
Even as a REIT, AIR may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. AIR could also be required to pay a 100% tax on any net income on non-arm’s-length transactions between AIR and a TRS and on any net income from sales of apartment communities that were held for sale primarily in the ordinary course of business. State and local tax laws may not conform to the United States federal income tax treatment, and AIR may be subject to state or local taxation in various state or local jurisdictions in which AIR transacts business. Any taxes imposed on AIR would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.
Complying with the REIT requirements may cause AIR to forgo otherwise attractive business opportunities.
To qualify as a REIT, AIR will need to continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts distributed to AIR stockholders, and the ownership of AIR stock. As a result of these tests, AIR may be required to make distributions to stockholders at disadvantageous times or when AIR does not have funds readily available for distribution, forgo otherwise attractive investment opportunities, liquidate assets in adverse market conditions, or contribute assets to a TRS that is subject to regular corporate federal income tax.
The tax on prohibited transactions could limit our ability to engage in certain transactions which would be treated as prohibited transactions for U.S. federal income tax purposes.
Net income that we derive from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property that is held primarily for sale to customers in the ordinary course of our trade or business. We might be subject to this tax if we were to dispose of our property in a manner that was treated as a prohibited transaction for U.S. federal income tax purposes.
We have conducted, and intend to continue to conduct, our operations so that no asset that we own (or that we treat as being owned) will be treated as, or as having been, held for sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary course of our business. As a result, we may choose not to engage in certain sales at the REIT level, even though the sales might otherwise be beneficial to us. In addition, whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with certain safe harbor provisions of the Code that would prevent such treatment. The
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100% prohibited transaction tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to prevent prohibited transaction characterization.
Changes to United States federal income tax laws could materially and adversely affect AIR and AIR’s stockholders.
The present United States federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial, or administrative action at any time, which could affect the United States federal income tax treatment of an investment in AIR Common Stock. The United States federal income tax rules dealing with REITs are constantly under review by persons involved in the legislative process, the IRS, and the United States Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect AIR and AIR’s stockholders. Revisions in federal tax laws and interpretations thereof could significantly and negatively affect AIR's ability to qualify as a REIT and the tax considerations relevant to an investment in AIR Common Stock, or could cause AIR to change its investments and commitments.
Risks Related to AIR Common Stock
We cannot guarantee the timing, amount, or payment of dividends on AIR Common Stock.
We are required to distribute annually to holders of AIR Common Stock at least 90% of our “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income (and may be all cash or a combination of cash and stock satisfying the requirements of applicable law). Our board of directors will determine the amount of, and declare, our dividends. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as REIT distribution requirements, current market conditions, liquidity needs, other uses of cash, such as for deleveraging and accretive investment activities, and other factors that it deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and access the capital markets. We cannot guarantee that we will pay a dividend in the future.
Although unlikely to do so, we may choose to pay dividends in our own stock, in which case stockholders could be required to pay income taxes in excess of the cash dividends they receive.
Although we have no plans to do so, we may choose to pay dividends in our own stock. If we do effect taxable dividends that are payable in cash or shares of AIR Common Stock, the current tax law allows up to only 20% of such dividend to be paid in cash. Taxable stockholders receiving such dividends are required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. Holder sells the stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain Non-U.S. Holders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of AIR Common Stock to pay taxes owed on dividends, it may put downward pressure on the trading price of AIR Common Stock.
It is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in future years. Moreover, the IRS may impose additional requirements with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.
Risks Related to AIR’s Corporate Structure
AIR and its subsidiaries may be prohibited from making distributions and other payments.
All of AIR’s apartment communities are owned by subsidiaries of AIR Operating Partnership, and all of AIR’s operations are conducted by subsidiaries of AIR. As a result, AIR depends on distributions and other payments from AIR Operating Partnership, and AIR Operating Partnership depends on distributions and payments from its subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of AIR Operating Partnership and its subsidiaries to make such distributions and other payments depends on their earnings and cash flows and may be subject to statutory or contractual limitations. As an equity investor in the REIT subsidiaries, AIR Operating Partnership and its subsidiaries, our right to receive assets upon their liquidation or reorganization are effectively subordinated to the claims of their creditors and any holders of preferred equity senior to our equity investments. To the extent that we are recognized as
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a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
Limits on ownership of shares specified in AIR’s charter may result in the loss of economic and voting rights by purchasers that violate those limits.
AIR’s charter provides for restrictions on ownership and transfer of AIR’s shares of capital stock, including certain restrictions that, subject to certain exceptions, will prevent any person from beneficially or constructively owning more than (i) 8.7% (or 15% in the case of certain pension trusts, registered investment companies, and the initial holder, Terry Considine), by value or number of shares, whichever is more restrictive, of the outstanding shares of AIR Common Stock, or (ii) 8.7% (or 15% in the case of certain pension trusts, registered investment companies, and the initial holder, Terry Considine) in aggregate value of the outstanding shares of all classes and series of AIR capital stock, including AIR Common Stock and any AIR Class A Preferred Stock, (“Preferred Stock”). The charter also prohibits anyone from buying shares of AIR’s capital stock if the purchase would result in AIR losing its REIT status. This could happen if a transaction results in five or fewer individuals (applying certain attribution rules of the Code) owning 50% or more of the value of all of AIR’s shares of capital stock or in fewer than 100 persons owning all of AIR’s shares of capital stock.
In addition to the ownership limits described above, AIR’s charter prohibits any person from (i) beneficially or constructively owning shares of our capital stock that would result in our being “closely held” under section 856(h) of the Code, (ii) transferring shares of our capital stock if such transfer would result in shares of our capital stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution), (iii) beneficially or constructively owning shares of our stock to the extent such beneficial or constructive ownership in a tenant of AIR’s real property that is described in Section 856(d)(2)(B) of the Code if the income derived by AIR from such tenant would cause AIR to fail to satisfy any of the gross income requirements of Section 856(c) of the Code, (iv) beneficially or constructively owning shares of our capital stock if such ownership would result in our failing to qualify as a REIT, and (v) beneficially or constructively owning shares of stock to the extent such beneficial ownership of stock would result in us failing to qualify as a “domestically controlled qualified investment entity” within the meaning of section 897(h) of the Code.
If anyone acquires shares in excess of the ownership limits or in violation of the ownership requirements of the Code for REITs or the transfer restrictions in AIR’s charter:
the transfer will be considered null and void;
we will not reflect the transaction on AIR’s books;
we may institute legal action to enjoin the transaction;
we may demand repayment of any dividends received by the affected person on those shares;
we may redeem the shares;
the affected person will not have any voting rights for those shares; and
the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by AIR.
AIR may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:
may lose control over the power to dispose of such shares;
may not recognize profit from the sale of such shares if the market price of the shares increases;
may be required to recognize a loss from the sale of such shares if the market price decreases; and
may be required to repay to us any dividends received from us as a result of his or her ownership of the shares.
AIR’s charter may limit the ability of a third-party to acquire control of AIR.
The 8.7% and other ownership limits discussed above may have the effect of delaying or precluding acquisition by a third-party of control of AIR without the consent of AIR’s Board of Directors. AIR’s charter authorizes its Board of
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Directors to issue up to 1,022,175,000 shares of capital stock, consisting of 1,021,175,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. As of December 31, 2023, 144,925,604 shares of Common Stock and 20 shares of Preferred Stock were outstanding. Under AIR’s charter, its Board of Directors has the authority to classify and reclassify any of AIR’s unissued shares of capital stock into shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting power restrictions, limitations as to dividends, qualifications, or terms or conditions of redemptions as the AIR Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of AIR, where there is a difference of opinion between the AIR Board of Directors and others as to what is in AIR’s stockholders’ best interests.
The Maryland General Corporation Law may limit the ability of a third-party to acquire control of AIR.
As a Maryland corporation, AIR is subject to various Maryland laws that may have the effect of discouraging offers to acquire AIR and increasing the difficulty of consummating any such offers, where there is a difference of opinion between the AIR board of directors and others as to what is in AIR’s stockholders’ best interests. The Maryland General Corporation Law, specifically the Maryland Business Combination Act, restricts mergers and other business combination transactions between AIR and any person who acquires, directly or indirectly, beneficial ownership of shares of AIR’s stock representing 10% or more of the voting power without prior approval of the board of directors of AIR. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66-2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price.
The Maryland General Corporation Law, specifically the Maryland Control Share Acquisition Act, provides generally that a person who acquires shares of AIR’s capital stock representing 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, the Maryland General Corporation Law provides, among other things, that the board of directors of AIR will have broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time, and place for special meetings of the stockholders. To date, AIR has not adopted a stockholders’ rights plan.
In addition, the Maryland General Corporation Law provides that a corporation that (x) has at least three directors who are not officers or teammates of the entity or related to an acquiring person and (y) has a class of equity securities registered under the Exchange Act, may elect in its charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that: (i) the corporation will have a staggered board of directors (known as “board classification”); (ii) any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws; (iii) the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws; (iv) vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and (v) the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.
AIR has opted out of the provisions of the Maryland General Corporation Law that allow for board classification without stockholder approval.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
Risk Management and Strategy
AIR takes a risk-based approach to cybersecurity and has implemented cybersecurity policies throughout its operations that are designed to address cybersecurity threats and incidents. AIR regularly assesses risks from cybersecurity threats, monitors its information systems for potential vulnerabilities, and tests those systems according to its cybersecurity policies, standards, processes, and practices, which are integrated into its overall approach to enterprise risk management. To protect its information systems from cybersecurity threats, AIR uses various security tools that help it identify, escalate, investigate, resolve, and recover from security incidents in a timely manner. AIR’s cybersecurity program is designed to align with the National Institute of Technology Standards Cybersecurity Framework 1.1, which provides a structured approach for assessing, identifying, and managing material risks from cybersecurity threats.
AIR’s technology team, under the leadership of AIR’s Senior Vice President of Technology, who has over 30 years of technology management experience, defines an annual work plan designed to maintain strong cybersecurity maturity, set improvement objectives of key controls and systems, including feedback from third-party assessments, and identify and implement on-going investments to replace or upgrade systems or technologies and proactively maintain strong security. As part of our annual planning, management conducts regular tabletop testing of our incident response plan to increase awareness, establish key decision-making criteria, ensure effective communication among key stakeholders, and comply with AIR’s disclosure obligations. AIR also partners with third-party experts to assess the effectiveness of our cybersecurity prevention and response systems and processes (e.g., periodic penetration testing and assessments of IT general controls). AIR also engages vendors to enhance cybersecurity safeguards and improve incident response and updates or replaces systems and applications as appropriate to improve data processing and storage management and enhance security. To further protect AIR's information systems, we structure and monitor our relationships with third-party service providers and periodically conduct due diligence on their cybersecurity architecture and process design.
To date, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected AIR and we believe are not reasonably likely to have a material adverse effect on AIR, including its business strategy, results of operations, or financial condition. For additional information on cybersecurity risks and potential related impacts on AIR, refer to “Our business and operations would suffer in the event of significant disruptions or cyberattacks of our information technology systems or our failure to comply with laws, rules and regulations related to privacy and data protection.” in Part I, Item 1A. Risk Factors.
Governance
Our Board of Directors oversees AIR’s risk management process, including cybersecurity risks. The Audit Committee oversees AIR’s enterprise risk assessment. The Audit Committee meetings include discussions of specific risk areas, including, among others, those relating to cybersecurity. AIR’s Senior Vice President of Technology reports, typically on a quarterly basis, to the Audit Committee on AIR’s cybersecurity profile risk assessment and technology environment and the broader technology landscape. The Audit Committee also independently engages consultants to conduct cybersecurity assessments and, preparedness analyses, and to provide the Board with ongoing training concerning cybersecurity risk governance.
AIR’s Senior Vice President of Technology, in coordination with other members of AIR’s management, is responsible for leading the assessment and management of cybersecurity threats. AIR has implemented a governance program for its cybersecurity efforts. This includes regularly updating privacy notices, terms of use, and lease documents, as well as identifying responsible teammates to facilitate the implementation of cybersecurity priorities. These teammates report regularly to senior management and to the Board on risk identification, safeguards, and mitigation steps. AIR has developed and implemented policies to identify and mitigate cybersecurity risks and provides training to teammates at onboarding and annually thereafter. Updates are communicated to all teammates, and actionable guidance is provided when new risks arise.

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ITEM 2. PROPERTIES
Additional information about our consolidated real estate, including property debt, is contained in “Schedule III – Real Estate and Accumulated Depreciation” in this Annual Report on Form 10-K.
Our portfolio is diversified by both geography and price point, with a mix of urban and suburban submarkets, and consists of market rate apartment communities in which we own a substantial interest. Our portfolio includes garden style, mid-rise, and high-rise apartment communities located in 10 states and the District of Columbia. Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities diversified among some of the largest markets in the United States. The following table sets forth information on the apartment communities in our portfolio as of December 31, 2023:
Number of
Apartment
Communities
Number of
Apartment
Homes
Average
Economic
Ownership
Bay Area2,077 73 %
Boston1,284 100 %
Denver2,280 87 %
Los Angeles3,815 78 %
Miami10 3,970 96 %
Philadelphia2,748 75 %
San Diego2,367 81 %
Washington, D.C.12 6,477 70 %
Other markets1,608 100 %
Total portfolio (1)75 26,626 81 %
(1)Total portfolio represents the number of apartment communities in which we owned an equity interest.
As of December 31, 2023, on a consolidated basis, our apartment communities contained, on average, 355 apartment homes, with the largest community containing 2,113 apartment homes. These apartment communities offer residents a range of amenities, including resort pools with cabanas, grills, clubhouses, spas, fitness centers, package lockers, dog parks, and large open spaces. Many of the apartment homes offer features such as granite countertops, wood flooring, stainless steel appliances, fireplaces, spacious closets, washer and dryer connections, balconies, and patios.
As of December 31, 2023, on a consolidated basis, apartment communities in our portfolio were encumbered by, in aggregate, $2.2 billion of property debt with a weighted-average interest rate of 3.6% and a weighted-average maturity of 7.7 years. The apartment communities collateralizing this non-recourse property debt have an estimated aggregate fair value of $4.8 billion.
AIR’s proportionate share of property debt as of December 31, 2023 is $2.3 billion, with a weighted-average interest rate of 4.0% and a weighted-average maturity of 7.5 years. The apartment communities collateralizing this non-recourse property debt, on the same ownership adjusted basis, have an estimated aggregate fair value of $4.0 billion.
As of December 31, 2023, we held, on an ownership adjusted basis, unencumbered apartment communities with an estimated fair value of approximately $4.9 billion.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal matters included in Note 7 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K is incorporated by reference into this Item 3. In addition to the matters referred to in Note 7, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
AIR
AIR’s Common Stock is listed and traded on the NYSE under the symbol “AIRC.”
On February 12, 2024, there were 144,917,372 shares of Common Stock outstanding, held by 812 stockholders of record. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
Unregistered Sales of Equity Securities
From time to time, we may issue shares of Common Stock in exchange for OP Units, defined under The AIR Operating Partnership heading below. Such shares are issued based on an exchange ratio of one share for each common OP Unit. Please refer to Note 9 to the consolidated financial statements in Item 8 for further discussion of such exchanges. We may also issue shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the three months ended December 31, 2023, we issued no shares of Common Stock in exchange for OP Units. We did not issue any shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships.
Repurchases of Equity Securities
The following table summarizes AIR’s share repurchases, all of which were part of publicly announced programs:
Fiscal periodTotal
Number of
Shares
Repurchased
Average
Price Paid
per Unit
Total Number of
Shares Repurchased as Part
of Publicly Announced
Plans or Programs
Maximum Dollar Value
of Shares that May Yet
Be Repurchased Under
Plans or Programs
(in thousands) (1)
October 1 – October 31, 2023$— $— 
November 1 – November 30, 2023$— $— 
December 1 – December 31, 20232,069,800$34.39 2,069,800$34,333 
   Total2,069,800$34.39 2,069,800
(1)    AIR’s Board of Directors has authorized a share repurchase program of its outstanding capital stock for $500 million. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions. As of December 31, 2023, there was $34.3 million remaining available for future share repurchased under this authorization. Subsequent to the year ended December 31, 2023, AIR's Board of Directors authorized an additional $500 million of share repurchases, which replaced the remaining $34.3 million balance under the previous share repurchase authorization.
The AIR Operating Partnership
Interests in the AIR Operating Partnership that are held by limited partners other than AIR are referred to as OP Units. OP Units include common partnership units (“common OP Units”) and partnership preferred units (“preferred OP Units”). There is no public market for OP Units, and we have no intention of listing them on any securities exchange. In addition, the AIR Operating Partnership’s Partnership Agreement restricts the transferability of OP Units.
On February 12, 2024, there were 158,396,561 common partnership units and equivalents outstanding (144,917,372 of which were held by AIR) that were held by 1,863 unitholders of record.
Unregistered Sales of Equity Securities
During the three months ended December 31, 2023, the AIR Operating Partnership did not issue nor repurchase any unregistered OP Units.
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Repurchases of Equity Securities
The AIR Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one year, limited partners other than AIR have the right to redeem their common OP Units for cash or, at our election, shares of AIR Common Stock on a one-for-one basis (subject to customary antidilution adjustments). During the three months ended December 31, 2023, no OP Units were redeemed in exchange for shares of our Common Stock.
The following table summarizes the AIR Operating Partnership’s repurchases or redemptions of common OP Units in exchange for cash:
Fiscal periodTotal
Number of
Units
Repurchased
Average
Price Paid
per Unit
Total Number of
Units Repurchased as Part
of Publicly Announced
Plans or Programs
Maximum Number
of Units that May Yet
Be Repurchased Under
Plans or Programs (1)
October 1 – October 31, 20237,766 $31.23 N/AN/A
November 1 – November 30, 20238,549 $30.10 N/AN/A
December 1 – December 31, 202313,393 $32.11 N/AN/A
   Total29,708 $31.30 
(1)The terms of the AIR Operating Partnership’s Partnership Agreement do not provide for a maximum number of OP Units that may be repurchased, and other than the express terms of its Partnership Agreement, the AIR Operating Partnership has no publicly announced plans or programs of repurchase.
Dividend and Distribution Payments
As a REIT, AIR is required to distribute annually to holders of its Common Stock at least 90% of its “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income. AIR’s Board of Directors determines and declares its dividends. In making a dividend determination, AIR’s Board of Directors considers a variety of factors, including: REIT distribution requirements, current market conditions, liquidity needs, and other uses of cash, such as for deleveraging and accretive investment activities.
Stockholders receiving any dividend, whether payable in cash or shares of AIR Common Stock, will be required to include the full amount of such dividend as ordinary income to the extent of AIR’s current and accumulated earnings and profits, as determined for United States federal income tax purposes for the year of such dividend, and may be required to pay income taxes with respect to such dividend in excess of the cash dividends received. With respect to certain non-United States stockholders, AIR may be required to withhold United States tax with respect to such dividend, including in respect of all or a portion of such dividend that is payable in Common Stock.
The Board of Directors of the AIR Operating Partnership’s general partner determines and declares distributions on OP Units. AIR, through wholly-owned subsidiaries, is the general and special limited partner of the AIR Operating Partnership. As of December 31, 2023, AIR owned approximately 91.1% of the legal interest and 93.6% of the economic interest in the common OP Units of the AIR Operating Partnership. 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 GAAP.
The AIR Operating Partnership holds all of AIR’s assets and manages the daily operations of AIR’s business. The distributions paid by the AIR Operating Partnership to AIR are used by AIR to fund the dividends paid to its stockholders. Accordingly, the per share dividends AIR pays to its stockholders generally equal the per unit distributions paid by the AIR Operating Partnership to holders of its common partnership units.
Our credit agreement includes customary covenants, including a restriction on dividends and distributions and other restricted payments, but permits dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of AIR’s funds from operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain AIR’s REIT status.
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Performance Graph
The following graph compares cumulative total returns for AIR’s Common Stock, the MSCI US REIT Index, the NAREIT Equity Apartments Index, and the Standard & Poor’s 400 Total Return Index (“S&P MidCap 400 Index”). The MSCI US REIT Index is published by MSCI, and the NAREIT Equity Apartments Index is published by FTSE Russell. The MSCI US REIT Index reflects total stockholder return for a broad range of equity REITs, while the NAREIT Equity Apartments Index provides a more direct multi-family peer comparison of total stockholder return. The indices are weighted for all companies that fit the definitional criteria of the particular index. All companies that fit the definitional criteria and existed at the point in time presented are included in the index calculations. The graph assumes the investment of $100 and reinvestment of all dividends paid in AIR’s Common Stock and in each index on September 14, 2020, the day prior to AIR's announcement of its Separation from Aimco. On December 15, 2020, the Separation from Aimco was completed and AIR began "regular way" trading. The historical information set forth below is not necessarily indicative of future performance.
Total Return Performance
8788
Index (1)September 14, 2020December 31, 2020December 31, 2021December 31, 2022December 31, 2023February 12, 2024
Apartment Income REIT Corp.100.0124.9184.5120.7128.7117.2
MSCI US REIT Index100.0108.2177.0120.5127.5120.4
NAREIT Equity Apartments Index100.0107.2153.4115.8131.7127.1
S&P MidCap 400 Index100.0122.5152.8132.9154.7157.8
(1)Source: S&P Global Market Intelligence © 2024
The Performance Graph will not be deemed to be incorporated by reference into any filing by AIR under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that AIR specifically incorporates the same by reference.
ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
We created AIR to be the most efficient and effective way to invest in U.S. multi-family real estate, due to our simple business model, diversified portfolio of stabilized apartment communities, and low leverage. The Board of Directors has set the following strategic objectives:
Pursue a simple, efficient, and predictable business model with a low-risk premium.
Maintain a high quality and diversified portfolio of stabilized multi-family properties.
Continuously improve our best-in-class property operations platform, the “AIR Edge,” to generate above-market organic growth.
Maintain an efficient cost structure.
Maintain a flexible, low levered balance sheet with access to multiple sources of debt capital.
Enhance portfolio quality through a disciplined approach to capital allocation, targeting accretive opportunities on a leverage neutral basis.
Form private capital partnerships as a source of equity capital for accretive growth.
Continue our commitment to corporate responsibility with transparent and measurable goals.
We own and operate a portfolio of stabilized apartment communities, diversified by both geography and price point. As of December 31, 2023, our portfolio included 75 apartment communities with 26,626 apartment homes in which we held an average ownership of approximately 81%.
Our business is organized around four areas of strategic focus: operational excellence; portfolio management; balance sheet; and team and culture. The results from the execution of our strategy are further described in the sections that follow.
Operational Excellence
Same Store highlights for the year ended December 31, 2023 include:
Full year Same Store Revenue, NOI, and FCF up 7.9%, 9.3%, and 9.5%, respectively
Transacted blended lease rate growth up 5.6%
Resident retention up 100 bps in the year to 62.3%
Controllable expenses up only 20 bps
Full year Same Store NOI and FCF margins of 74.5% and 68.4%, up to all-time highs
Run-Rate FFO and AFFO per share increased 7.8% and 7.7%, respectively, for the full year
Recurring operations have generated Run-Rate FFO and AFFO per share Compound Annual Growth Rate ("CAGR") of 9.5% and 10.7%, respectively, since 2021
Pro forma FFO of $2.41 per share, meeting the mid-point of 2023 guidance
2.1 million shares ($71 million) repurchased in the fourth quarter at an average $34.39 per share
13.4 million outstanding shares and OP units (8% of total) repurchased since year-end 2021
Acquisition Portfolio: Operating Update
AIR’s acquisitions are expected to experience a rate of NOI and FCF growth during the initial years of AIR ownership that is higher than the rate in the Same Store Portfolio as operational improvements are realized and physical upgrades are completed.
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Fourth Quarter Year-Over-Year Variance
YearProperties
% of GAV (3)
RevExpNOI
Same Store excluding Class of 20215875.2%6.3%1.0%7.9%
Class of 2021 (1)56.8%5.7%(5.7%)10.7%
Class of 2022 (2)45.9%7.0%6.0%7.4%
Other Real Estate (2)45.4%5.7%(16.0%)15.1%
Class of 202345.8%
Class of 202410.9%
Total Portfolio76100.0%
(1)    Class of 2021 acquisitions are included in, and contributed 20-basis points to, reported Same Store NOI growth metrics.
(2)    Class of 2022 expenses increased in the quarter primarily as a result of a tax revaluation in Florida, offset by continued improvement in controllable expenses across the Class. Favorable expenses in Other Real Estate reflect AIR’s optimization of controllable expenses. Both portfolios continue to perform in line with expectations.
(3)     Gross Asset Value ("GAV") is based on third party estimates.
Portfolio & Financial Highlights
FY 2023FY 2022Variance Variance (%)
Portfolio Metrics
New Residents
Average household income ($)$237,000$238,000($1,000)flat
Median household income ($)$170,000$163,000$7,0004%
Rent-to-income % 19.0%18.9%0.1%flat
Average FICO 723727(4)(0.6%)
Existing Residents
Customer Satisfaction (CSAT) (1)
4.284.230.051%
TTM Retention (%) (2)
62.3%61.3%1.0%2%
# Properties757411%
# Apartment homes21,67422,200(526)(2%)
Average monthly revenue per apartment home ($)$2,913$2,648$26510%
Gross asset value ($B) (3)
$9.8B$10.9B($1.1B)(10%)
Assets under management ($B) (4)
$11.9B$12.4B($0.5B)(4%)
Balance Sheet
Total shares, units, and dilutive equivalents (in thousands) 154,636159,164(4,528)(3%)
Total leverage ($M)
   Recourse debt ($ / %)
$990M / 30%
$1,662M / 50%
($672M)(40%)
   Property debt ($ / %)
$2,299M / 68%
$1,604M / 48%$695M43%
   Preferred equity ($ / %)
$79M / 2%
$79M / 2%flat
Total leverage ($)$3,368M
$3,345M
$23M1%
Net leverage ($)$3,263M$3,058M$205M7%
Leverage metrics
Net leverage / Adjusted EBITDAre (x) (5)
6.1x
6.05x
0.05x
1%
Mark-to-Market Value ($M)$201M$217M($16M)(7%)
Weighted Average Interest Rate (%) 4.3%4.1%0.2%5%
Weighted Average Maturity (years)6.56.30.23%
Unencumbered Properties ($B) (6)
$4.9B$7.6B($2.7B)(36%)
Note: All metrics presented at AIR share, unless noted
(1)     Customer satisfaction (“CSAT”), as graded on a scale from zero to five, represents ratings by our residents as to overall satisfaction with their interaction with AIR and/or AIR teammates in performance of services. We believe this is a useful metric for investors as our financial performance is affected by the satisfaction of our residents. Resident satisfaction is correlated to retention of customers and their willingness to pay higher rents, in turn increasing average daily occupancy, lease growth rates, and revenue growth, and also lowering operating expense.
(2)    Trailing twelve months ("TTM") retention represents the percentage of residents who have renewed in the trailing twelve months. It is calculated by dividing the number of renewed in the trailing twelve months, excluding intra-community transfers, by the daily average number of occupied apartment homes during the trailing twelve months.
(3)     GAV is based on third party estimates.
(4)     The value of assets under management ("AUM") is calculated using the estimated fair market value of properties based on third party estimates.
(5)     Please refer to the section titled Non-GAAP Measures within Item 7 for a reconciliation of the metrics Net Leverage and Adjusted EBITDAre.
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(6)     The estimated fair value of unencumbered properties provides the investor with information on the flexibility of the Companies’ balance sheet. We believe this is a useful metric for investors, as it allows the reader to evaluate the Companies’ ability to source additional debt capital in the future.
Transactions
Acquisitions
In 2023, AIR improved its portfolio through the acquisition of three properties with 1,115 apartment homes for approximately $459.2 million, including one property in Miami Beach, Florida, one in Raleigh, North Carolina, and one in Durham, North Carolina. The acquisitions are expected to be accretive to FCF in both 2024 and thereafter.
In January 2024, AIR acquired an apartment community located in Raleigh, North Carolina with 384 apartment homes for $86.5 million; we expect a 5.7% forward NOI cap rate at stabilization in the third quarter of 2024, and a long-term unlevered IRR of >10%.
Joint Ventures
AIR formed two joint ventures in 2023. The first, with a global asset manager (the "Value-Add JV") was formed by contributing the Huntington Gateway property, a 443-unit property located in Virginia in exchange for $9 million in cash and the assumption of $94.1 million in debt by the joint venture. AIR has a 30% ownership in the Value-Add JV but will receive 50% of the net cash flows from operations, and various fees for providing property management, construction, and corporate services to the joint venture.
The second, with a global institutional investor (the "Core JV"), was formed by contributing 10 properties located in Philadelphia, PA, Washington, D.C. area, Denver, CO, Oceanside, CA, and Kendall, FL in exchange for $201.9 million in cash and the assumption of $644.4 million in debt by the joint venture. Subsequent to initial formation, AIR and our joint venture partner increased the investment in the Core JV, together funding the joint venture's acquisition of an 11th property in the third quarter of 2023. The Core JV now consists of 11 properties with 3,549 apartment homes. AIR has a 53% ownership in the joint venture.
Dispositions
During 2023, we sold three properties with 257 apartment homes located in New York for net proceeds of $52.1 million, completing our strategic exit from New York market.
Capital Allocation – Common and OP Unit Share Repurchases
During the year ended December 31, 2023, we repurchased an aggregate of 4.3 million shares of Common Stock at an average price of $34.48 for $149.0 million. Subsequent to year ended December 31, 2023, AIR's Board of Directors authorized an additional $500 million of share repurchases, which replaced the remaining $34.3 million balance under the previous share repurchase authorization.
During the year ended December 31, 2023, we repurchased an aggregate of 0.5 million OP Units at an average price of $35.05 for $18.5 million.
Balance Sheet
We seek to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage and primarily long-dated debt. We target a Net Leverage to Adjusted EBITDAre ratio of ~6.0x, which equates to approximately 33% on a loan-to-value basis, a low level for the AIR business model with no exposure to construction, second mortgage lending, or short-term rentals. We anticipate the Net Leverage to Adjusted EBITDAre ratio will vary based on the timing of transactions. We maintain financial flexibility through ample unused and available credit, holding properties with substantial value unencumbered by property debt, maintaining an investment grade rating, and using partners’ capital when it enhances financial returns or reduces investment risk. We seek to minimize refunding and repricing risk.
Components of Leverage
Our leverage includes AIR’s share of long-term, non-recourse property debt encumbering our apartment communities, together with outstanding borrowings under our revolving credit facility, term loans, unsecured notes payable, and preferred equity.
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Please see the Liquidity and Capital Resources section for additional information regarding our leverage and the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.
Liquidity
We use our revolving credit facility for working capital, and other short-term purposes, and to secure letters of credit. As of December 31, 2023, our share of cash and restricted cash, excluding amounts related to resident security deposits, was $105.4 million. Additionally, we had the capacity to borrow up to $1.8 billion under our revolving credit facility, after consideration of letters of credit, and committed property level financing through our secured credit facility with Fannie Mae, thereby having total liquidity of just under $2 billion.
We manage our financial flexibility by maintaining an investment grade rating from S&P and Moody’s, and holding communities that are unencumbered by property debt. As of December 31, 2023, we held unencumbered apartment communities with an estimated fair market value of approximately $4.9 billion. AIR’s two investment grade ratings provide the company access to all debt capital market sources.
Dividend and Equity Capital Markets
On January 30, 2024, the AIR Board of Directors declared a quarterly cash dividend of $0.45 per share of Common Stock. This amount is payable on February 27, 2024, to shareholders of record on February 16, 2024.
As planned, AIR’s refreshed tax basis is resulting in a tax-efficient dividend being paid to stockholders. In 2023, approximately 3.5% of our dividend was taxable at capital gain rates, 83.5% was treated as return of capital, and the remaining 13% taxable at ordinary income rates. We believe the tax characteristics of our dividend makes our stock more attractive to taxable investors, such as foreign investors, taxable individuals, and corporations by comparison to peer shares whose dividends are taxed at higher rates. For example, AIR’s dividend characteristics in 2023 compare to a peer average of approximately 20% at capital gains rates and 80% at ordinary income rates, with 0% treated as return of capital. As a result, an investor would retain approximately 95% more of its dividend on an after tax basis through AIR’s common shares as compared to the peer average.
Corporate Responsibility
Corporate responsibility is a longstanding AIR priority and a key part of our culture. We offer benefits reinforcing our value of respect and caring for each other, including an opportunity to manage one’s life through flexible work schedules, paid time for parental leave, profit sharing, retirement plans for all, financial support for our teammates who are becoming United States citizens, and a bonus structure at all levels of the organization. We also pay full compensation and benefits for teammates who are actively deployed by the United States military.
Our team is also focused on making a difference in our local communities through our philanthropic endeavor, AIR Gives. For over 15 years, we have provided the flexibility for teammates to support a nonprofit or initiative that is important to them. Teammates have 15 hours of paid leave to volunteer with a nonprofit. Every hour volunteered also provides the teammate with charitable dollars to direct to a nonprofit of choice. Also, through AIR Gives, we award college scholarships to children of teammates. AIR Gives has supported over 675 students of our teammates with more than $1.4 million in scholarships since 2006. We raised $0.5 million from the AIR Gives Charity Golf Tournament in 2023 to benefit the Tragedy Assistance Program for Survivors, Project Sanctuary, and scholarships for students in affordable housing in partnership with the National Leased Housing Association. We also provide financial assistance to AIR teammates experiencing a financial emergency or other crisis.
During the year, AIR met directly with holders of more than approximately 80% of its outstanding common shares. Through a series of lunches, dinners, video meetings, conferences, property tours, in-person meetings, and calls, various Board members and Management discussed a variety of topics, such as governance, investment strategy, operations, and corporate responsibility, including CEO succession planning and Environmental, Social, and Governance (“ESG”).
Our commitment to strong corporate governance was further demonstrated in 2023, where AIR shareholders approved the Board's recommendation to amend AIR’s charter to reduce to a simple majority vote the threshold to amend our bylaws. Our commitment extends not just to maintaining open lines of communication with shareholders, but also to improving as best practices in governance evolve. This direct shareholder engagement yielded positive results with the
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outcome of our annual meeting as shareholders overwhelmingly supported our directors, as well as “say on pay” for which AIR had the highest support among peers.
We are committed to transparency, and continuous improvement, as measured by GRESB. AIR received a score of 82 out of 100 in 2023, including a 100% score for leadership and reporting, a 12.5% improvement in environmental performance, a perfect social score and a near perfect governance score. AIR now has a four out of five-star GRESB rating for overall management and performance. AIR was given an “A” in GRESB Public Disclosure, ranking 2nd among peers. AIR earned a Best ESG Program award from MHN. The award celebrates AIR’s commitment to being an outstanding corporate citizen and its best-in-class program to achieve environmental, social, and governance goals. We also published our 2022-2023 Corporate Responsibility Report highlighting our commitment to community and published data consistent with the TCFD and SASB. AIR also certified 75% of its properties as sustainable, toward our goal of 95% by 2025.
Based on UN Sustainable Development Goals, we have set targets for energy, water, and greenhouse gas reductions. We published our goals and targets consistent with the UN Sustainability Goals, with an additional commitment to transparent, data-driven disclosures consistent with the SASB, which guides the disclosure of financially material sustainability information by companies to their investors. The standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each industry.
Team and Culture
Our team and culture are keys to our success. We have a relentless focus on productivity and innovation. We continuously seek to reduce costs through the use of additional automation and continued technological investment, and by avoiding costs, for example by retention of residents. We apply this same focus to our general and administrative expenses, expecting these costs to be lower than our peers.
We are defined by a commitment to our mission, vision, and values. We strive to provide an exceptional living experience for residents and a great place to work for teammates, to be a good neighbor in the communities we serve, and a good steward for our investors. We are accountable to teammates in return for their hard and meaningful work of providing homes for others. We see our workforce as a team, and not employees only. Our view is relational, and not transactional, reflecting a longer view of the benefits of a cohesive and caring team.
Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within. We focus on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. The Compensation and Human Resources Committee of the Board of Directors is responsible for succession planning in all leadership positions, both in the short-term and the long-term, with particular focus on CEO succession.
Our focus on our team and culture is widely recognized. In 2023, AIR was named a Kingsley Excellence Elite Five multifamily company and a winner of the 2023 Kingsley Excellence Awards for customer service for the second year in a row. Of the winners, AIR ranked second among all operators, and first among publicly traded REITs. AIR is committed to world-class customer service, which we deliver through listening to, learning from, and responding to our residents every day. We also benefit from the support of great leadership, contributions from exceptional teammates, and a strong culture. These strengths are confirmed by such awards as AIR's 2023 Top Workplaces USA Award (the second consecutive year), a 10-time winner of Top Workplace in Colorado (by the Denver Post), Top Workplace in Philadelphia (by The Philadelphia Inquirer), and in South Florida (by the Sun Sentinel) as well as two time winner of Built in 2023 Best Places to Work in Colorado, Los Angeles, Miami, and Washington, D.C., and the Denver Business Journal Healthiest Employer in Colorado for the third year in a row. We take seriously our responsibility to care for our customers, our neighbors, and each other as teammates. We are grateful for these recognitions and consider them confirmation of our success.
Results of Operations
Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we acquire and dispose of our apartment communities affects our operating results.
The following discussion and analysis of the results of our operations and financial condition for the year ended December 31, 2023, compared to 2022, should be read in conjunction with the accompanying consolidated financial statements in Item 8. For discussion of the year ended December 31, 2022, compared to 2021, please refer to Item 7
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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the subheading “Results of Operations for the Year Ended December 31, 2022, Compared to 2021” included in AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022.
Financial Highlights
Net income attributable to AIR common stockholders per common share, on a dilutive basis, decreased $1.54 for the year ended December 31, 2023, compared to 2022, due primarily to:
Lower gains on dispositions of real estate and
Lower interest income from the Aimco note receivable and prepayment penalty received in the second and third quarters of 2022, as well as and higher interest expense due to higher interest rates and higher outstanding property debt balances; partially offset by
Same Store revenue growth of 7.9% which resulted in higher NOI of 9.3%, primarily driven by an increase of 7.0% in residential rents for the year ended December 31, 2023, compared to 2022. Additionally, acquisitions continue to grow at a high rate. For example, the property acquisitions that closed during 2021 (the "Class of 2021") had NOI growth of 20.5% for the year ended December 31, 2023, compared to 2022.
Pro forma FFO per share was $2.41 for the years ended December 31, 2023 and 2022, due primarily to the below factors:
Same Store revenue growth as noted above,
Cash gains from derivative instruments, offset partially by
A decrease in interest income as noted above, and
An increase in interest expense as noted above.
For the year ended December 31, 2023, Pro forma FFO includes $0.05 per share of non-recurring items including derivative gains that were accelerated through the repayment of certain previously hedged term loans, partially offset by higher than anticipated casualty and legal costs. After consideration of these non-recurring items Run-Rate FFO per share was $2.36 for the year ended December 31, 2023. Please refer to Item 7 Non-GAAP Measures for further discussion regarding Run-Rate FFO.
For the year ended December 31, 2022, Pro forma FFO includes $0.22 per share, respectively, of non-recurring items including the Aimco note and 2022 prepayment. After consideration of these non-recurring items Run-Rate FFO per share was $2.19 for the year ended December 31, 2022.
Run-Rate AFFO per share was $2.09 for year ended December 31, 2023, compared to $1.94 for the year ended December 31, 2022. Our 2023 capital allocation decisions have resulted in paired trades in which we have purchased apartment communities with an anticipated higher rate of NOI growth and lower recurring capital needs, and sold partial interests in apartment communities with lower anticipated rates of NOI growth and higher capital needs. Please refer to Item 7 Non-GAAP Measures for further discussion regarding Run-Rate AFFO.
Results of Operations for the Year Ended December 31, 2023, Compared to 2022
Property Operations
We have two segments: Same Store and Other Real Estate. Our Same Store segment includes communities that are owned and managed by AIR and have reached a stabilized level of operations. Our Other Real Estate segment includes four properties acquired in 2022, four properties previously leased to Aimco, and four properties acquired in 2023.
As of December 31, 2023, our Same Store segment included 63 apartment communities with 22,794 apartment homes and our Other Real Estate segment included 12 apartment communities with 3,832 apartment homes, which we held an average ownership of approximately 81%.
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Proportionate Property Net Operating Income
Our proportionate share of financial information includes our share of unconsolidated real estate partnerships and excludes the noncontrolling interest partners’ share of consolidated real estate partnerships. We believe proportionate information benefits the users of our financial information by providing the amount of revenues, expenses, assets, liabilities, and other items attributable to our stockholders.
We use proportionate property NOI to assess the operating performance of our communities. Proportionate property NOI reflects our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, net of utility reimbursements. In our consolidated statements of operations, utility reimbursements are included in rental and other property revenues in accordance with GAAP.
We do not include offsite costs associated with property management, casualty gains or losses, or the results of apartment communities sold or held for sale in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.
Please refer to Note 16 to the consolidated financial statements in Item 8 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.
 Year Ended December 31,Historical Change
(dollars in thousands)20232022$ %
Rental and other property revenues, before utility reimbursements:
Same Store$600,142 $556,318 $43,824 7.9 %
Other Real Estate119,587 37,783 81,804 nm
Total719,729 594,101 125,628 21.1 %
Property operating expenses, net of utility reimbursements:  
Same Store152,898 147,084 5,814 4.0 %
Other Real Estate37,899 12,399 25,500 nm
Total190,797 159,483 31,314 19.6 %
Proportionate property net operating income:  
Same Store447,244 409,234 38,010 9.3 %
Other Real Estate81,688 25,384 56,304 nm
Total$528,932 $434,618 $94,314 21.7 %
For the year ended December 31, 2023, compared to 2022, our Same Store proportionate property NOI increased by 9.3%. This increase was attributable primarily to a $43.8 million, or 7.9%, increase in rental and other property revenues due to a 7.0% increase in residential rents and a 80 basis point increase in late fees and other, partially offset by a 40 basis point decrease in Average Daily Occupancy ("ADO").
Other Real Estate proportionate property NOI increased by $56.3 million for the year ended December 31, 2023, compared to 2022, due primarily to contribution from four properties acquired in 2023, four properties acquired in the second and third quarter of 2022, and NOI contribution from the four properties acquired on September 1, 2022, due to the cancellation of the respective master leases.
Non-Segment Real Estate Operations
Operating income amounts not attributed to our segments include offsite costs associated with property management, casualty losses, and the results of apartment communities sold or held for sale, which we do not allocate to our segments for purposes of evaluating segment performance.
For the year ended December 31, 2023, compared to 2022, non-segment real estate operations decreased by $29.7 million, due primarily to $25.5 million of lower NOI attributable to sold properties due to decreased disposition activity, with dispositions of 15 additional properties during 2022 compared to 2023.
Other Expenses, Net
Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses, ground leases and certain non-recurring items.
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For the year ended December 31, 2023, compared to 2022, other expenses, net, increased by $16.8 million, due primarily to higher legal expenses, one-time severance payments, and incremental ground lease expense associated with an acquired property.
Interest Income
For the year ended December 31, 2023, compared to 2022, interest income decreased by $42.0 million, or 83.5%, due primarily to lower interest income on our note receivable from Aimco, inclusive of the prepayment penalty and lower interest income associated with properties leased to Aimco through September 1, 2022, due to the cancellation of the respective master leases.
Interest Expense
For the year ended December 31, 2023, compared to 2022, interest expense increased by $13.2 million, or 11.3%, due primarily to higher rates on our term loans and revolving credit facility, interest expense associated with our senior unsecured notes issued in the second quarter of 2022, and higher outstanding property debt balances; offset partially by the reclassification of gains on derivatives from accumulated other comprehensive income into interest expense, lower balances on our revolving credit facility, and repayment of $325 million of term loans in the third quarter of 2023.
Loss on Extinguishment of Debt
For the year ended December 31, 2023, compared to 2022, loss on extinguishment of debt decreased by $21.6 million, due to higher prepayment penalties incurred from the early payment of property debt in 2022.
Gains on Dispositions and Impairments of Real Estate
During the year ended December 31, 2023, we recognized $677.7 million of gain on dispositions and impairments of real estate, net due primarily to:
$700.5 million of gain on dispositions of real estate from the contribution of 10 properties in connection with the Core JV;
$1.0 million of gain in connection with the formation of the Value-Add JV; offset partially by
A non-cash impairment loss on real estate of $23.6 million due to the evaluation of the expected hold period of three apartment communities included in our Other Real Estate reporting segment, which are now sold.
During the year ended December 31, 2022, we recognized $939.8 million of gain on dispositions of real estate related to the sale of 18 apartment communities, and we did not recognize any real estate impairment losses.
Gain on Derivative Instruments
For the year ended December 31, 2023, we recognized $16.7 million of gains on derivative instruments that are not designated as cash flow hedges primarily related to mark-to-market valuation changes in interest rate swaps and treasury locks during the period. During the year ended December 31, 2022, we did not recognize any gains on derivative instruments.
Loss from Unconsolidated Real Estate Partnerships
For the year ended December 31, 2023, loss from unconsolidated real estate partnerships increased $26.1 million, compared to 2022. During the year ended December 31, 2023, our unconsolidated joint ventures generated proportionate NOI of $29.0 million. This incremental NOI was offset by higher depreciation expense due to the step-up in value for properties in the Core and Value-Add JV's to fair market value.
Income Tax (Expense) Benefit
Certain of our operations, including property management, are conducted through taxable REIT subsidiaries (“TRS entities”).
Our income tax (expense) benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities for which the tax consequences have been realized or will be realized in future periods.
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Income taxes related to these items, as well as changes in valuation allowance, are included in income tax (expense) benefit in our consolidated statements of operations.
For the year ended December 31, 2023, compared to 2022, income tax expense decreased $1.5 million, due primarily to a decrease in income from sales of properties subject to state income tax.
Non-GAAP Measures
Certain key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined and described below, and for those non-GAAP measures used or disclosed within this annual report, we provide reconciliations of the non-GAAP measures to the most comparable financial measure computed in accordance with GAAP.
NAREIT Funds From Operations, Pro forma Funds From Operations, Run-Rate FFO and Run-Rate Adjusted Funds From Operations
Many of our investors focus on multiples of Funds From Operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), referred to herein as “NAREIT FFO.”
NAREIT FFO is a non-GAAP measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate assets generally appreciate over time or maintain residual value to a much greater extent than do other depreciable assets such as machinery, computers, or other personal property. NAREIT defines FFO as net income computed in accordance with GAAP, excluding: (i) depreciation and amortization related to real estate; (ii) gains and losses from sales and impairment of depreciable assets and land used in our primary business; and (iii) income taxes directly associated with a gain or loss on the sale of real estate; and adjustments for our share of FFO of unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine NAREIT FFO. We calculate NAREIT FFO attributable to AIR common stockholders (diluted) by subtracting dividends on Preferred Stock and preferred units and amounts allocated from NAREIT FFO to participating securities.
These investors also focus on NAREIT FFO, as adjusted for non-cash, unusual, or non-recurring items. We refer to these metrics as Pro forma Funds From Operations (“Pro forma FFO”), Run-Rate Funds From Operations ("Run Rate FFO"), and Run-Rate Adjusted Funds From Operations (“ Run Rate AFFO”) to measure short-term and current period performance. Pro forma FFO is used to measure short-term, operational, performance and represents NAREIT FFO as defined above, excluding certain amounts that are unique or occur infrequently. Run-Rate FFO represents Pro forma FFO as defined above, and includes adjustments to provide a stabilized view of current performance that may be indicative of long-term performance. Run-Rate AFFO represents Run-Rate FFO as defined above, reduced by Capital Replacements and is a measure of current period performance.
NAREIT FFO, Pro forma FFO, Run-Rate FFO and Run-Rate AFFO should not be considered alternatives to net income determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.
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NAREIT FFO, Pro forma FFO, Run-Rate FFO, and Run-Rate AFFO are calculated as follows (in thousands, except per share data):
Year Ended December 31,
20232022
Net income attributable to AIR common stockholders$634,444 $903,642 
Adjustments:
Real estate depreciation and amortization, net of noncontrolling partners’ interest356,357 332,401 
Gain on dispositions and impairments of real estate, net of noncontrolling partners’ interest(675,726)(939,700)
Income tax adjustments related to gain on dispositions and other tax-related items 961 1,093 
Common noncontrolling interests in AIR OP’s share of above adjustments and amounts allocable to participating securities20,291 37,514 
NAREIT FFO attributable to AIR common stockholders$336,327 $334,950 
Adjustments:
Gain on derivative instruments (1)(8,221)— 
Non-cash straight-line rent (2)12,316 8,035 
Business transformation and transition related costs (3)
7,585 5,333 
Legal Reserve
3,500 — 
Loss on extinguishment of debt (4)
2,008 23,636 
Casualty losses and other (5)3,993 2,027 
Common noncontrolling interests in AIR OP’s share of above adjustments and amounts allocable to participating securities(1,351)(2,423)
Pro forma FFO attributable to AIR common stockholders$356,157 $371,558 
Acceleration of swap settlement, net of common noncontrolling interests in AIR OP and participating securities
(13,711)— 
Non-recurring income, net associated with the Aimco note and 2022 prepayment, net of common noncontrolling interests in AIR OP and participating securities
— (34,370)
Casualty and Legal expense in excess of run-rate, net of common noncontrolling interests in AIR OP and participating securities (5)
7,395 — 
Run-Rate FFO attributable to AIR common stockholders$349,841 $337,188 
Capital Replacements, net of common noncontrolling interests in AIR OP and participating securities(41,075)(38,143)
Run-Rate AFFO attributable to AIR common stockholders$308,766 $299,045 
Weighted-average common shares outstanding – basic147,899154,093
Dilutive common share equivalents 77226
Total shares and dilutive share equivalents147,976154,319
Net income attributable to AIR per share – diluted$4.27 $5.81 
NAREIT FFO per share – diluted$2.27 $2.17 
Pro forma FFO per share – diluted$2.41 $2.41 
Run-Rate FFO per share - diluted$2.36 $2.19 
Run-Rate AFFO per share - diluted$2.09 $1.94 
(1)During 2023, we entered into treasury locks and interest rate swaps that did not qualify for hedge accounting under GAAP. Changes in the fair value of these instruments are included in net income attributable to AIR common stockholders. Any non-cash changes in fair value are excluded in the determination of Pro forma FFO.
(2)In 2018 and 2022, we assumed 99-year ground leases with scheduled rent increases. Due to the terms of the leases, GAAP rent expense will exceed cash rent payments until 2076 and 2079, respectively. We include the cash rent payments for these ground leases in Pro forma FFO but exclude the incremental straight-line non-cash rent expense. The rent expense for these leases is included in other expenses, net, in our consolidated statements of operations.
(3)    During 2023 and 2022, we incurred consulting, placement, legal, and other transformation related costs as we fully implement AIR’s business model, including projects intended to increase efficiency and reduce costs in future periods. As we engage in and finalize our finance transformation initiative that modernizes our systems and processes, including a new ERP system, we expect to continue to incur these costs during the first half of 2024. We have excluded these costs from Pro forma FFO because we believe they are not related to ongoing operating performance.
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(4)    During 2023 and 2022, we incurred debt extinguishment costs related to the prepayment of debt. In 2023, these costs are related to the prepayment of high-cost, floating-rate debt. We excluded these costs from Pro forma FFO because we believe they are not representative of future cash flows.
(5)    During 2023, we incurred significant casualty losses related to fire damage at our Palazzo East at Park La Brea apartment community. During 2021, we incurred significant casualty losses due to Hurricane Ida-induced flooding in downtown Philadelphia causing damage to our Park Towne Place apartment community, whose clean-up costs extended into 2022. During the third quarter of 2023, we recorded a net gain upon receipt of third-party funds, upon closing the 2021 Park Towne Place claim. AIR excludes individually significant casualty losses from the computation of FFO when the expected gains or losses are atypical, and costs are greater than $1 million. Individual casualty losses less than $1 million are included in FFO. In 2023, these "normal" casualty losses exceed historical averages and AIR's expectation entering the year by $2.5 million. In 2023, legal expenses exceeded historical averages and AIR's expectation entering the year by $5.4 million, which are excluded from the determination of Run-Rate FFO.
Please see the Results of Operations section for discussion of the factors affecting our Pro forma FFO for 2023.
Leverage Ratios
We target Net Leverage to Adjusted EBITDAre of ~6.0x, which equates to approximately 33% on a loan-to-value basis, a low level for the AIR business model with no exposure to construction, second mortgage lending, or short-term rentals. We anticipate the Net Leverage to Adjusted EBITDAre ratio will vary based on the timing of transactions. We also focus on Proportionate Debt to Adjusted EBITDAre. We believe these ratios, which are based in part on non-GAAP financial information, are commonly used by investors and analysts to assess the relative financial risk associated with balance sheets of companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.
Our leverage ratios for the three months ended December 31, 2023, are presented below:
Annualized Current Quarter
Proportionate Debt to Adjusted EBITDAre6.0x
Net Leverage to Adjusted EBITDAre6.1x
Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt, outstanding borrowings under our revolving credit facility, term loans, and unsecured notes. Proportionate Debt excludes unamortized debt issuance costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations. We reduce our recorded debt by the amounts of cash and restricted cash on-hand, excluding resident security deposits included in restricted cash, assuming the remaining amounts of cash and restricted cash would be used to reduce our outstanding leverage.
We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.
Preferred equity represents the redemption amounts for AIR’s Preferred Stock and the AIR Operating Partnership’s Preferred Partnership Units and, although perpetual in nature, are another component of our overall leverage.
The reconciliation of total indebtedness to Proportionate Debt and Preferred Equity, as used in our leverage ratios is as follows (in thousands):
December 31, 2023
Total indebtedness$3,210,344 
Adjustments:
Debt issuance costs related to non-recourse property debt and term loans16,631 
Proportionate share adjustments related to debt obligations 62,127 
Cash and restricted cash(117,491)
Resident security deposits included in restricted cash
11,156 
Proportionate share adjustments related to cash and restricted cash 902 
Proportionate Debt3,183,669 
Perpetual Preferred Stock2,000 
Preferred noncontrolling interests in AIR Operating Partnership77,140 
Net Leverage$3,262,809 
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We calculated Adjusted EBITDAre used in our leverage ratios based on annualized current quarter amounts. EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and facilitate comparison of credit strength between AIR and other companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. NAREIT defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, and depreciation and amortization expense, which we have further adjusted for:
gains and losses on dispositions of depreciated property;
impairment write-downs of depreciated property; and
adjustments to reflect our share of EBITDAre of investments in unconsolidated entities and consolidated entities with non-controlling interests.
EBITDAre is defined by NAREIT and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted for the effect of the following items for the reasons set forth below:
net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests are excluded to allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry; and
the amount by which GAAP rent expense exceeds cash rent payments for two long-term ground leases until 2076 and 2079 is excluded. The excess of GAAP rent expense over the cash payments for these leases does not reflect a current obligation that affects our ability to service debt; and
applicable Pro forma FFO adjustments to NAREIT FFO under the heading “NAREIT Funds From Operations and Pro forma Funds From Operations,” excluding items that are not included in EBITDAre, to exclude certain amounts that are unique or occur infrequently.
The reconciliation of net income to EBITDAre and Adjusted EBITDAre, as used in our leverage ratios, is as follows (in thousands):
Three Months Ended December 31, 2023
Net loss$(11,875)
Adjustments:
Interest expense33,025 
Income tax benefit(3,484)
Depreciation and amortization78,644 
Gain on dispositions of real estate (2,206)
Net income attributable to noncontrolling interests in consolidated real estate partnerships(1,291)
EBITDAre adjustments attributable to noncontrolling interests and unconsolidated real estate partnerships22,073 
EBITDAre$114,886 
Pro forma FFO and other adjustments, net (1)23,972 
Quarterly Adjusted EBITDAre$138,858 
Adjusted EBITDAre, before removal of annualization impact for non-recurring items555,432 
Removal of annualization impact for non-recurring items (2)$(22,945)
Adjusted EBITDAre$532,487 
(1)Includes pro forma adjustments to NAREIT FFO under the heading NAREIT Funds From Operations and Pro forma Funds From Operations, excluding items that are not included in EBITDAre such as prepayment penalties, net. EBITDAre has also been adjusted by $3.8 million non-cash gain on derivative instruments.

(2)Fourth quarter 2023 EBITDAre benefits from $22.9 million of items that are not expected to recur in the future. As such, they were not annualized in the computation of Adjusted EBITDAre.
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Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flows from operations. Additional sources are proceeds from dispositions of apartment communities, proceeds from refinancing existing property debt, borrowings under new property debt, borrowings under our credit facilities, and proceeds from equity offerings. As of December 31, 2023, our available liquidity was just below $2 billion, which consisted of:
$90.1 million of our share of cash and cash equivalents;
$15.3 million of our share of restricted cash, excluding amounts related to resident security deposits, which consists primarily of escrows held by lenders for capital additions, property taxes, and insurance;
$1.8 billion of available capacity to borrow under our revolving credit facility after consideration of letters of credit and committed property level financing through our secured credit facility with Fannie Mae.
Additional liquidity may also be provided through future secured and unsecured financings.
Uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners, and acquisitions of apartment communities. We use our cash and cash equivalents and cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to meet our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and debt refinancing. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, including apartment community acquisitions, primarily through secured and unsecured borrowings, the issuance of equity securities (including OP Units), the sale of apartment communities, and cash generated from operations. Additionally, we expect to meet our liquidity requirements associated with our debt maturities.
For further information on our liquidity requirements related to our contractual obligations and commitments, refer to Note 4, Note 5, Note 7, and Note 9 to the consolidated financial statements in Item 8. In addition to the commitments outlined in the aforementioned footnotes, we also anticipate interest payments, net of the impact of our economic hedges, for the years ended December 31, 2024 through 2028 and thereafter of approximately $114 million, $101 million, $82 million, $72 million, $62 million, respectively, and approximately $225 million in the aggregate thereafter based on balances outstanding as of December 31, 2023.
Leverage and Capital Resources
The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Any adverse changes in the lending environment could negatively affect our liquidity. We believe we have mitigated much of this exposure by reducing our short and intermediate-term maturity risk through refinancing such loans with long-dated debt.
If financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending, issuance of equity securities (including OP Units), or proceeds from the sale of apartment communities.
The combination of secured and unsecured debt and preferred OP Units, comprise our total leverage. The weighted-average remaining term to maturity for our total leverage was 6.5 years as of December 31, 2023, inclusive of extension options, with a weighted-average interest rate of 4.3%. We have sufficient committed credit to repay all debt coming due through the first quarter of 2027.
Under our credit agreement and unsecured notes payable, we have agreed to maintain certain financial covenants, as well as other covenants customary for similar credit arrangements. The financial covenants we are required to maintain include a maximum leverage ratio of no greater than 0.60 to 1.00; a fixed charge coverage ratio of no less than 1.50 to 1.00, a maximum secured indebtedness to total assets ratio of no greater than 0.40 to 1.00, a maximum unsecured leverage ratio no greater than 0.60 to 1.00, and a minimum unsecured interest coverage ratio no less than 1.50 to 1.00. We believe we
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were in compliance with these covenants as of December 31, 2023, and expect to remain in compliance during the next 12 months.
Changes in Cash, Cash Equivalents and Restricted Cash
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing, and financing activities, which are presented in our consolidated statements of cash flows in Item 8 of this report.
Operating Activities
For the year ended December 31, 2023, net cash provided by operating activities was $370.4 million. Our operating cash flow is affected primarily by rental rates, occupancy levels, operating expenses related to our portfolio of apartment communities, and changes in working capital items. Cash provided by operating activities for the year ended December 31, 2023, decreased by $50.2 million compared to 2022, due to lower interest income received and higher cash paid for interest, partially offset by a net increase in NOI contributions from properties.
Investing Activities
For the year ended December 31, 2023, our net cash used in investing activities of $313.1 million consisted primarily of purchases of real estate and capital expenditures, offset partially by the contribution of apartment communities into unconsolidated real estate partnerships. Net cash provided by investing activities of $650.3 million for the same period in 2022 consisted primarily of proceeds from dispositions of real estate and proceeds from the repayment of the note receivable from Aimco, offset partially by purchases of real estate and capital expenditures.
Capital additions totaled $155.6 million and $149.7 million during the years ended December 31, 2023 and 2022, respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.
We categorize capital spending for communities in our portfolio broadly into five primary categories:
capital replacements, expenditures that are necessary to help preserve the value of and maintain building infrastructure at the communities;
capital enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in more durable, longer-lived materials designed to position assets for higher rental levels in their respective markets;
initial capital expenditures, which represent capital additions contemplated in the underwriting at our recently acquired communities. These amounts are considered in the underwriting of the acquisition and are therefore included with the purchase price when determining expected returns;
casualty, which represents capitalized costs incurred in connection with the restoration of an apartment community after a casualty event; and
other, which represents capitalized costs in connection with tenant improvements, entitlement, and planning.
We exclude the amounts of capital spending related to apartment communities sold or classified as held for sale at the end of the period from the foregoing measures in order to view the spend for the continuing portfolio.
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A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying consolidated statements of cash flows, are presented below (in thousands):
Year Ended December 31,
20232022
Capital replacements$32,497 $30,925 
Capital enhancements71,996 77,549 
Initial capital expenditures43,415 30,188 
Casualty5,739 6,542 
Other1,927 4,502 
Total capital additions$155,574 $149,706 
Plus: additions related to apartment communities sold and held for sale12,674 43,654 
Consolidated capital additions$168,248 $193,360 
Plus: net change in accrued capital spending5,414 (956)
Total capital expenditures per consolidated statements of cash flows$173,662 $192,404 
For the years ended December 31, 2023 and 2022, we capitalized $1.1 million and $1.5 million of interest costs, respectively, and $16.2 million and $16.6 million of indirect costs, respectively.
Financing Activities
Net cash used in financing activities of $241.3 million for the year ended December 31, 2023 consisted primarily of net repayments on our revolving credit facility, the repayment of term loans, payment of dividends, and repurchases of Common Stock and OP Units, offset partially by net proceeds from non-recourse property debt. Net cash used in financing activities of $862.2 million for the year ended December 31, 2022, consisted primarily of repayments of non-recourse property debt and term loans, repurchase of shares of Common Stock and OP Units, and payment of dividends and distributions, offset partially by proceeds from the issuance of non-recourse property debt.
Future Capital Needs
We expect to fund any future acquisitions, debt maturities, and other capital spending principally with proceeds from apartment community sales (including the formation of joint ventures), secured and unsecured borrowings, the issuance of equity securities (including OP Units), and operating cash flows. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for 2024 and beyond.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting estimates involve our more significant judgments used in the preparation of our consolidated financial statements.
Impairment of Long-Lived Assets
Real estate and other long-lived assets to be held and used are individually evaluated for impairment when conditions exist that may indicate the carrying amount of a long-lived asset may not be recoverable. We use the held for sale impairment model for properties classified as held for sale, whereby an impairment charge is recognized if the carrying amount of the long-lived asset classified as held for sale exceeds its fair value less cost to sell. Upon determination that an impairment has occurred, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the community. The measurement of the impairment loss is based on the fair value of the communities and incorporates various estimates, assumptions, and market data, the most significant being market rental rates, operating expense assumptions, expected hold period, capitalization rates, and purchase and sale agreements. We project future rental revenue growth rates using forecasted rates from third-party market research analytics. Property expense growth rates and capitalization rates are based on the apartment communities’ historical, current, and expected future operating results, existing operating expense assumptions, and operational strategies. These projections are adjusted to reflect current economic conditions and require considerable management judgement. We recognized an impairment loss on real estate
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included in our Other Real Estate segment of $23.6 million under the held-for-sale impairment model during the year ended December 31, 2023. We did not recognize any such impairment during the years ended December 31, 2022 and 2021.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and repricing risk, that is the possibility of increases in base interest rates and credit risk spreads. During 2023, we refinanced a portion of our corporate debt with fixed rate property debt and we extended our debt maturities, with no debt maturities until the second quarter of 2025. We use short-term debt financing and working capital primarily to fund short-term uses and generally expect to refinance such borrowings with cash from operating activities, proceeds from apartment community sales, long-term debt, or equity financings. Our objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in interest rate movements. We use derivative financial instruments, principally interest rate swaps and treasury rate locks, to reduce our exposure to interest rate risk. We do not hold or issue derivatives for speculative purposes and closely monitor the credit quality of the institutions with which we transact.
As of December 31, 2023, on a consolidated basis, we had $475.0 million of outstanding borrowings on our term loans, and $115.0 million of variable-rate borrowings under our revolving credit facility. After consideration of our interest rate swap derivatives, which reduce our total variable rate exposure by $475.0 million, we estimate that a change in the floating rate of 100-basis points with constant credit risk spreads would increase or decrease interest expense by $1.2 million, net, on an annual basis. Subsequent to the year ended December 31, 2023, we entered into interest rate swaps economically hedging $200 million of our revolving credit facility borrowings at 4.9%. Additionally, we restructured interest rate swaps, economically hedging the balance of our terms loans at 3.9% for the balance of the year. After consideration of these swaps, we have no variable rate exposure.
As of December 31, 2023, we had one undesignated forward starting interest rate swap with a notional value of $50.0 million that was entered into in anticipation of future debt. We estimate that a change in the floating rate of 100-basis points with constant credit risk spreads would increase or decrease interest expense by $0.5 million, net, on an annual basis.
As of December 31, 2023, we had $117.5 million of cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates, which may partially mitigate the effect of an increase in variable rates on our variable-rate debt discussed above.
We estimate the fair value of debt instruments as described in Note 13 to the consolidated financial statements in Item 8. The estimated fair value of total indebtedness, including our non-recourse property debt, term loans, revolving credit facility, and unsecured notes payable, was approximately $3.0 billion as of December 31, 2023.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent registered public accounting firm’s reports, consolidated financial statements and schedule listed in the “Index to Financial Statements” on page F-1 of this Annual Report are filed as part of this report and incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
AIR
Disclosure Controls and Procedures
AIR’s management, with the participation of AIR’s chief executive officer and chief financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, AIR’s chief executive officer and chief financial officer have concluded that, as of the end of such period, AIR’s disclosure controls and procedures are effective.
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Management’s Report on Internal Control Over Financial Reporting
AIR’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of AIR’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2023, AIR’s internal control over financial reporting is effective.
AIR’s independent registered public accounting firm has issued an attestation report on AIR’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in AIR’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, AIR’s internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Apartment Income REIT Corp.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Apartment Income REIT Corp. (the "Company") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Denver, Colorado

February 16, 2024
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The AIR Operating Partnership
Disclosure Controls and Procedures
The AIR Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of AIR, who are the equivalent of the AIR Operating Partnership’s chief executive officer and chief financial officer, respectively, has evaluated the effectiveness of the AIR Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of AIR have concluded that, as of the end of such period, the AIR Operating Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management of the AIR Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the AIR Operating Partnership’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2023, the AIR Operating Partnership’s internal control over financial reporting is effective.
The AIR Operating Partnership’s independent registered public accounting firm has issued an attestation report on the AIR Operating Partnership’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in the AIR Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the AIR Operating Partnership’s internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners and the Board of Directors of Apartment Income REIT, L.P.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Apartment Income REIT, L.P. (the "Partnership") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Partnership and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion
The Partnership's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Denver, Colorado
February 16, 2024



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ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Each member of the Board of Directors of AIR also is a director of the general partner of the AIR Operating Partnership. The officers of AIR are also the officers of the general partner of the AIR Operating Partnership and hold the same titles.
The information required by Item 10 will be included in our 2024 Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2024 Annual Meeting of Stockholders and is incorporated herein by reference. The 2024 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be included in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 will be included in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 will be included in our 2024 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 will be included in our 2024 Proxy Statement and is incorporated herein by reference.
45

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)The financial statements listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report and incorporated herein by reference.
(a)(2)The financial statement schedule listed in the Index to Financial Statements on Page F-1 of this report is filed as part of this report and incorporated herein by reference.
(a)(3)Exhibits.
INDEX TO EXHIBITS (1) (2)
EXHIBIT NO.DESCRIPTION
46

21.1
23.1
23.2
31.1
31.2
47

31.3
31.4
32.1
32.2
32.3
32.4
97.1
99.1
99.2
101
The following materials from AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) consolidated balance sheets; (ii) consolidated statements of operations; (iii) consolidated statements of comprehensive income; (iv) consolidated statements of equity and consolidated statements of partners’ capital; (v) consolidated statements of cash flows; (vi) notes to the consolidated financial statements; and (vii) Schedule III
104Cover Page Interactive Data File (embedded within the Inline XBRL document).
(1)Schedule and similar attachments to the exhibits have been omitted but will be provided to the Securities and Exchange Commission or its staff upon request.
(2)The Commission file numbers for exhibits are 001-39686 (AIR) and 000-24497 (the AIR Operating Partnership).
*Management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
48

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
APARTMENT INCOME REIT CORP.
By:
/s/ TERRY CONSIDINE
Terry Considine
Director and Chief Executive Officer
Date:
February 16, 2024
APARTMENT INCOME REIT, L.P.
By:AIR-GP, Inc., its General Partner
By:
/s/ TERRY CONSIDINE
Terry Considine
Director and Chief Executive Officer
Date:
February 16, 2024

49

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities and on the dates indicated.
SignatureTitleDate
APARTMENT INCOME REIT CORP.
APARTMENT INCOME REIT, L.P.
By: AIR-GP, Inc., its General Partner
/s/ TERRY CONSIDINEDirector and Chief Executive OfficerFebruary 16, 2024
Terry Considine(principal executive officer)
/s/ PAUL BELDINExecutive Vice President andFebruary 16, 2024
Paul Beldin
Chief Financial Officer
(principal financial officer)
/s/ MOLLY H.N. SYKE
Vice President and Chief Accounting Officer February 16, 2024
Molly H.N. Syke
(principal accounting officer)
/s/ THOMAS L. KELTNERChairman of the Board of DirectorsFebruary 16, 2024
Thomas L. Keltner
/s/ THOMAS N. BOHJALIANDirectorFebruary 16, 2024
Thomas N. Bohjalian 
/s/ KRISTIN R. FINNEY-COOKEDirectorFebruary 16, 2024
Kristin R. Finney-Cooke
/s/ MARGARITA PALÁU-HERNÁNDEZDirectorFebruary 16, 2024
Margarita Paláu-Hernández
/s/ DEVIN I. MURPHYDirectorFebruary 16, 2024
Devin I. Murphy
/s/ JOHN D. RAYISDirectorFebruary 16, 2024
John D. Rayis
/s/ ANN SPERLINGDirectorFebruary 16, 2024
Ann Sperling
/s/ NINA A. TRANDirectorFebruary 16, 2024
Nina A. Tran
50

APARTMENT INCOME REIT CORP.
APARTMENT INCOME REIT, L.P.
INDEX TO FINANCIAL STATEMENTS