May 12, 2023
Correspondence Filing Via Edgar
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Real Estate & Construction
100 F Street, NE
Washington, D.C. 20549-3561
Attn: William Demarest
Kristi Marrone
Re: Apartment Income REIT Corp.
Apartment Income REIT, L.P.
Form 10-K for the year ended December 31, 2022
File Nos. 000-24497 and 001-39686
____________________________________________
Dear Mr. Demarest and Ms. Marrone:
This letter responds to the comments of the staff of the Securities and Exchange Commission (the “Staff”) addressed to Paul Beldin of Apartment Income REIT Corp. and Apartment Income REIT, L.P. (together, the “Companies”) in a letter dated April 28, 2023. The Companies’ response to the Staff’s comment is set forth below.
* * * * *
Form 10-K for the year ended December 31, 2022
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Portfolio Management, page 24
Response: “CSAT score” represents the overall customer satisfaction score of our residents, graded on a scale from zero to five. Customers receive surveys asking them to grade company execution of six different activities; including prospecting, move-in, service requests, pre-renewal contacts, renewal, and move-out. The Companies respectfully advise the Staff that they will revise the disclosure in future filings to include this definition. See appendix A.
Response: The description of the calculation of both net G&A and GAV are presented below.
Net General and Administrative Expenses (“Net G&A”)
Net G&A, as defined by the Company, includes:
This definition will be included in future filings, beginning with the quarterly report on Form 10-Q for the period ended June 30, 2023, to the extent relevant.
Gross Asset Value (“GAV”)
GAV is used by the Companies as an estimation of the fair market value of the Companies’ assets, which consists almost entirely of its real estate portfolios as of a specified date. GAV is calculated using observable market information, and unobservable inputs, assumptions, and discounted cash flow methodologies management believes to be appropriate based on the unique characteristics of the communities.
The Companies’ real estate portfolios are primarily valued using a capitalization rate (“cap rate”) method calculated as the Companies’ properties’ estimated forward 12-month property Net Operating Income (“NOI”), less a 3% management fee divided by the cap rate.
Market cap rates are estimated and calculated on a property-by-property basis, based on industry information by zip code published by Green Street Advisors (“GSA”), a nationally recognized provider of real estate data, adjusted to incorporate the Companies’ judgment and detailed knowledge of each community’s condition and location. Such information published by GSA includes ranges of current cap rates based on the following community characteristics: market in which the community is located; infill or suburban location within the market; property quality grade; and whether the community is stabilized or value-add.
Alternatively, if the Companies are actively marketing a community for sale or have recently acquired a community, the cap rate used may differ from GSA’s cap rate survey based upon the actual bids the Companies receive, or the cap rates used in the underwriting of the acquisition.
The Companies’ portfolio is also valued using forecasted future cash flows for each property using operational budgets, future inflation estimates, and GSA market growth information. An internal rate of return calculation is then applied to the capitalized future value plus the forecasted cash flows to validate that the estimated return is within an expected range. Further, the Companies may use 3rd party appraisal data, if available, as another indicator of gross asset value. The Companies then consider the outcomes of the different valuation techniques to determine GAV.
Additionally, the Companies use the sales price from recent dispositions to validate the valuation inputs, assumptions, and methodology and to confirm that our internal calculation of GAV is representative of market value.
See appendix A for revised disclosure should this metric be included in future filings to the extent relevant.
Response: The Companies’ definition of Adjusted EBITDAre, as used to compute their leverage ratios, is based on the most recent quarterly results, annualized. The Companies have revised their reconciliation of Adjusted EBITDAre to clarify this distinction within the quarterly report on Form 10-Q for the quarter ended March 31, 2023, as follows, with additions underlined and deletions stricken:
| Three Months Ended |
| March 31, 2023 |
Net loss | $ (9,948) |
Adjustments: |
|
Interest expense | 36,187 |
Loss on extinguishment of debt | 2,008 |
Income tax expense | 139 |
Depreciation and amortization | 95,666 |
Net income attributable to noncontrolling interests in consolidated real estate partnerships | (685) |
EBITDAre adjustments attributable to noncontrolling interests and unconsolidated real estate partnerships | (7,083) |
EBITDAre | $ 116,284 |
Pro forma FFO and other adjustments, net (1) | 7,019 |
Quarterly Adjusted EBITDAre | $ 123,303 |
Annualized Adjusted EBITDAre | $ 493,212 |
Additionally, please see appendix A for revised disclosure should this metric be included in future filings to the extent relevant.
Response: The value of unencumbered properties is calculated using the estimated fair market value of properties unencumbered by debt. The estimated fair market value is calculated in the same manner as GAV, as defined in the bullet titled “How net G&A and GAV are calculated” above.
Response: “Net G&A as % of GAV” includes annual data, while all other periodic metrics represent quarterly data for the fourth quarter of the year presented, and all point-in-time metrics present data as of the balance sheet date for the fiscal period disclosed. If included in future annual reports on Form 10-K, the Companies will revise the disclosure accordingly. See appendix A for revised disclosure should this metric be included in future filings, beginning with the quarterly report on Form 10-Q for the period ended June 30, 2023, to the extent relevant.
Response: The Companies believe comparing current period operational and financial data to 2019, the most recent annual fiscal period prior to the December 15, 2020, separation from Aimco (whereby AIR is treated as the accounting spinnor, and Aimco is treated as the predecessor for AIR’s financial statements and is presented within discontinued operations in AIR’s financial statements for periods prior to the separation) provides the investor with relevant information to evaluate: (i) the completion of the strategic objectives AIR set to achieve through the separation, (ii) the full implementation of AIR’s business model subsequent to the separation, and (iii) the transformation of AIR’s business undistorted by the disruption of the pandemic.
The Companies believe this comparison period provides the investor with comparative data useful in analyzing AIR’s performance against our strategic objectives, which include:
Response: The Companies respectfully advise the Staff regarding the usefulness of the aforementioned metrics:
See appendix A for revised disclosure should this metric be included in future filings to the extent relevant.
Response: The Companies will revise disclosure of this table based on the responses above, if included in future annual reports on Form 10-K or quarterly reports on Form 10-Q.
We thank you for your prompt attention to this letter in response to your Comment Letter and look forward to hearing from you at your earliest convenience. If you have further questions regarding the information provided, please contact Paul Beldin, Executive Vice President and Chief Financial Officer, at (303) 691-4554 or Paul.Beldin@aircommunities.com.
Sincerely,
/s/ Paul Beldin
Paul Beldin
Executive Vice President and Chief Financial Officer
Cc: Lisa R. Cohn
President and General Counsel
Appendix A
The Companies will revise disclosure of this table based on the responses above as follows, if included in future annual reports on Form 10-K.
| AIR | Aimco | |
| XX 2023 | Q4 2019 | Change |
Residents | | | |
Average Household Income | $X | $165,000 | X% |
Median Household Income | $X | $116,000 | X% |
CSAT Score(1) | X | 4.30 | X |
Portfolio | | | |
Properties | X | 124 | X% |
Apartment Homes | X | 32,598 | X% |
Average Revenue per Apartment Home | $X | $2,272 | X% |
Redevelopment and Development ($M) | $X | $230 | $X |
Mezzanine Investments ($M) | $X | $280 | $X |
Low G&A | | | |
Net G&A as % of GAV(2) | X bps | 36 bps (per GSA) | X bps |
Balance Sheet | | | |
Net Leverage / Adjusted EBITDAre (3) | Xx | 7.6x | Xx |
Subsequent 24 Month Refunding (% Total Debt) | X% | 15% | X% |
Subsequent 24 Month Repricing (% Total Debt) | X% | 15% | X% |
Unencumbered Properties ($B) (4) | $X | $2.4 | $X |
Gross Asset Value (“GAV”) is calculated using observable market information, and unobservable inputs, assumptions, and discounted cash flow methodologies management believes to be appropriate based on the unique characteristics of the communities. The Companies’ portfolio is valued by triangulating three valuation techniques including: