Apartment Income REIT Corp.

Welcome and thank you for attending today's Area Community Second Quarter 2023 Earnings Conference Call. My name is JP and I will be your moderator for today's call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star two. I would now like to pass the conference over to Lisa Cohn, President and General Counsel of Air Communities. You may proceed.

Thank you, JB, and good day. My name is Lisa Cohn, and I am President and General Counsel of Air Communities. During this conference call, forward-looking statements we make are based on management's judgment, including projections related to our 2023 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today. We will also discuss certain non-GAAP financial measures, such as FFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on AIR's website. Prepared remarks today come from Harry Considine, our CEO, Keith Kimmel, our President of Property Operations, John McGrath, our co-chief investment officer and chairman of our investment committee, and Paul Belden, our chief financial officer. Other members of management are also present. All of us will be available during the question and answer session, which will follow our prepared remarks. I will now turn the call to Terry Considine. Terry?

Thank you, Lisa, and happy 21st anniversary at AIR. Thank you for your leadership of so many functions that are the foundation of what we do. On another call, we should spend more time discussing their importance in all that you do so well. Thank you to everyone on this call for your interest in AIR. AIR was organized to build a business based on its comparative advantage in property operations. Today, I plan to comment on our progress during the second quarter by addressing six subjects with more detailed reporting to follow from my colleagues. Heath and his team delivered solid customer satisfaction, air record customer retention rates of 62%, low controllable operating expenses, and high operating margins. Heath and his team steered a steady course as rent growth cooled across AIR's eight markets. They navigated the turbulence in Los Angeles from the wind down of limitations on landlord remedies and the strike by the Writers Guild, now joined by the Screen Actors Guild. With growth in same store and acquisition portfolios taken together, property NOI grew at low double digits. This will flow through to growth in air FFO, which is already increasing at the highest of the apartment REITs that have reported, pro forma last year's prepayment of the AIMCO note. Its earn in next year will drive 2024 FFO higher. Second, John sold $32 million in lower rated properties to invest in property upgrades with IRRs greater than 10%. Don and Joshua Minix on his team have a pipeline of opportunities to buy additional properties with target returns 200 basis points greater than AIR's cost of capital. Third, Paul kept the balance sheet bulletproof, reducing leverage and extending its duration. There's very little repricing risk in the next two years and almost no refunding risk in the next five. AIR enjoys abundant liquidity. Fourth, Matt O'Grady and Josh Minix again combined to access $600 million in equity capital provided by two of the largest and most sophisticated global real estate investors. Increasing AIR's joint ventures from two to four and increasing assets under management to 120% of AIR GAV. The sale of partial interest is another form of AIR's familiar paired trades. Both investors provided capital, which AIR is used to delever, repaying all debt with an interest rate greater than 4%. The balance will be used to buy real estate with target returns 200 basis points over AIR's cost of capital, and to fund share buybacks as part of a balanced investment program. Both joint ventures include undertakings, to co-invest with AIR in future acquisitions, bringing AIR substantial resources to invest at a time of great opportunity due to frozen transaction markets. Matt expects to sell down the AIR position in some of the existing joint ventures to enhance the expected return on investment on AIR's continued investment and to generate additional liquidity to invest in paired trades. Fifth, the most important fact of today's report And the report of other apartment REITs is that rental rates and inflation are dropping and dropping fast. In some peer cases, new lease rents are negative. This is not a surprise and is consistent with our January guidance, which assumed earn-in and other factors, but no market rent growth. The most important question is, what happens next? The apartment business will return to the blocking and tackling of property operations AIR has demonstrated comparative advantage. For example, with peer-leading retention, we do more of our business in higher-priced renewals with less exposure to new lease rates. For example, we have delivered low or flat controllable operating expenses for more than a decade. The most important opportunity is to acquire properties at distressed prices, distressed by the relative shutdown of transaction markets as sellers try to hold on for lower rates to arrive. Here, AIR has the advantage of access to abundant equity capital and the opportunity to use the AIR edge to improve property operations of acquired properties as demonstrated and reported in our earnings release. There is a related opportunity in the stock market to buy back shares priced at a discount as part of a balanced program of investment, just as AIR did last year when AIR bought back 5% of our outstanding shares. Sixth, AIR has a highly engaged board that is a great resource to me and the entire management team. Of particular note, the board has a shareholder bent and is recommending various amendments to the AIR charter to strengthen shareholder rights. You will see these in the proxy statement for the AIR annual meeting scheduled for September 15th. As we turn to the challenges and opportunities I feel fortunate to work with such a remarkable and motivated team. I thank each of them, my colleagues on the board, my teammates here in the Denver office, and especially my teammates in the field whose good work sets the standard for excellence in our industry. Thank you, thank you. I'll now turn the call to Keith Kimmel, President of Property Operations. Keith.