Apartment Income REIT Corp.

Welcome and thank you for attending today's Air Community's third quarter 2023 earnings conference call. My name is Judy 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 a star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. Thank you. I would now like to pass the conference over to Lisa Cohn, President and General Counsel of Air Communities. You may proceed.

Thank you, and good day. My name is Lisa Cohn, and I am President and General Counsel of Air Communities. During this conference call, the forward-looking statements we make are based on management's judgments. including projections related to our 2024 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 and AFFO. These are defined and are reconciled to the most comparable gap measures in the supplemental information as part of the full earnings release published on AIR's website. Comments today come from Terry Considine, our CEO, Steve Kimmel, President of Property Operations, Josh Minix, our Chief Investment Officer, and Paul Belden, our CFO. Other members of management are also present. And all of us will be available during the Q&A session, which will follow our prepared remarks. I will now turn the call to Terry Considine. Terry?

Good morning, and thank you, Lisa, and all of you on this call. I read the first takes this morning and last night and set aside my prepared remarks to address what I understand to be on your minds. There's considerable consensus on AIR's good operations. There's confusion about $0.07 of the increase in 2024 expected interest expense. $0.04 was the result of the third quarter refinancing fully disclosed in our third quarter report. It reflects the acceleration by a year or so of the difference between legacy interest rates and then current market rates. This will occur in every REIT balance sheet as debts reprice. A penny reflects the impact of fourth quarter share repurchases funded by borrowing at a somewhat higher interest rate than in the third quarter and was considered in our underwriting. Two cents reflects a $50 million increase in expected 2024 borrowings to fund accretive property upgrades. We have underwritten past and future investments at substantial accretive spreads to our cost of capital. The higher interest expense in 2024 is the price paid for a higher quality portfolio with faster free cash flow growth in 24, but more importantly in 2025 and later. There is some suggestion that leverage increases variability and lower leverage would reduce saving. Financial leverage does introduce exposure to changing interest rates. This was especially pronounced last year when, for example, the 10-year fluctuated from 3.25% to 5% and back to 4%. But even the highest rates are well below the returns on air investment. The bigger point is the use of the borrowed proceeds to upgrade the AIR portfolio and create shareholder value. We are focused on the long-term values of a better portfolio with higher earning power and look past the short-term noise of interest rate changes. Any discussion of leverage needs to consider risk. AIR leverage at 30% loan-to-value to stabilize properties is safe. Comparison to others needs to consider the stability of stabilized properties as owned by heir with the risk of other business models with development risk, the implicit financial leverage of unfunded completion costs, and the risk of second mortgage lending where the much higher leverage from senior debt is off balance sheet but remains real. There were some concerns about paired trades with minor year one FFO, and free cash flow impacts. To state the concern is to answer it. We're comfortable with the relatively minor year one noise if we see considerable long-term value creation. We are confident that 2023's pair trades will out-earn their cost of capital. There were some similar concerns about the complexity of joint ventures. This complexity is addressed by transparency, as, for example, shown in Schedule 2B, which provides a clear path from gap to economics. It fails to consider the benefits to shareholders, which we saw in 2023 and anticipate in 2024, including the opportunity to upgrade our portfolio by the sale of partial interest in an otherwise illiquid market and the opportunity to reinvest the proceeds in other properties, often at discounts to their construction costs, with higher free cash flow growth rates, all while others are sidelined. The long-term benefits to portfolio construction are real and predictable. The creation of additional service income lowers heirs already low G&A. A corollary benefit to stock investors might be the reassurance that the most sophisticated global real estate investors chose and choose to co-invest alongside AIR. There was some discussion of non-recurring income. It's just that, non-recurring. It's cash and needs to be reported. It was exaggerated in 2022 when we accelerated the termination of continuing agreements between AIR and ANCO. It declined considerably in 2023. AIR's focus on long-term free cash flow will naturally reduce non-recurring income, But when it's available, shareholders will be better off if we take it, disclosing, as we do, that it's not recurring. Finally, forecasts for 2024 are just that, forecasts. AIR has taken a conservative view to guidance of 2024 market rental rate growth. We also provided a range of guidance that shows a possible and substantial upside. Time will tell where results land. I encourage you to keep score at the end of the year, not at its beginning. My bottom line. Given the consensus on the performance of air operations and the continuing increases in the quality of the air portfolio and its growth rate, it seems likely that air shareholders at year end will own an enterprise whose value will have increased considerably. Given that our diversified portfolio is largely insulated from today's surge in new supply, I expect that our results will compare favorably to ours in 2023 and to peers in 2024. The expected value creation will be the work of a stable and cohesive team and the advice and oversight of an engaged board of directors. I thank both for their friendship and help. With that, I'd like to turn the call to Keith Kimmel. Keith?