Breaking Down Apartment Income REIT Corp. (AIRC) Financial Health: Key Insights for Investors

Understanding Apartment Income REIT Corp. (AIRC) Revenue Streams

Understanding Apartment Income REIT Corp. (AIRC) Revenue Streams

The financial performance of Apartment Income REIT Corp. (AIRC) is primarily driven by its rental and property revenues. Analyzing these revenue streams provides insights into the company's operational efficiency and market positioning.

Breakdown of Primary Revenue Sources

• Rental and Other Property Revenues: For the three months ended March 31, 2024, the total rental and other property revenues amounted to $192,382,000, compared to $209,923,000 for the same period in 2023.
• Other Revenues: Other revenues for the same period were $3,240,000, up from $2,070,000 year-over-year.

Year-over-Year Revenue Growth Rate

Year-over-year, AIRC's total revenues showed a decrease. The total revenues for Q1 2024 were $195,622,000, a decline from $211,993,000 in Q1 2023, reflecting a decrease of 7.7%.

Contribution of Different Business Segments to Overall Revenue

Analysis of Significant Changes in Revenue Streams

AIRC's revenue from the "Same Store" properties increased by 4.3%, attributed to a 3.4% increase in residential rates and a 50 basis point increase in average daily occupancy. Meanwhile, revenues from "Other Real Estate" showed significant growth, increasing by nm (not meaningful) due to contributions from newly acquired properties.

Overall, the total rental and other property revenues before utility reimbursements reflect a robust operational performance despite the overall revenue decline when including all segments.

In summary, the revenue analysis for AIRC reveals a mix of growth in certain segments while facing challenges in overall revenue performance, highlighting the need for continued monitoring of market conditions and operational efficiencies.

A Deep Dive into Apartment Income REIT Corp. (AIRC) Profitability

A Deep Dive into Apartment Income REIT Corp. (AIRC) Profitability Metrics

Gross Profit Margin: For the three months ended March 31, 2024, the gross profit margin was calculated as follows:

Operating Profit Margin: The operating profit margin for Q1 2024 was:

Net Profit Margin: The net profit margin for Q1 2024 is outlined below:

Trends in Profitability Over Time: Analyzing the profitability trends, the following observations are noted:

• Gross profit decreased from $30,034,000 in Q1 2023 to $26,547,000 in Q1 2024.
• Operating profit margin remained relatively stable, reflecting cost management efforts.
• Net loss reduced from $(11,457,000) in Q1 2023 to $(6,570,000) in Q1 2024, indicating improved financial health.

Comparison of Profitability Ratios with Industry Averages: The company’s profitability ratios compared to industry averages are as follows:

Analysis of Operational Efficiency: The operational efficiency metrics are highlighted below:

The decrease in property operating expenses by approximately 12.1% year-over-year indicates effective cost control measures. Meanwhile, general and administrative expenses increased, reflecting investments in operational improvements.

Debt vs. Equity: How Apartment Income REIT Corp. (AIRC) Finances Its Growth

Debt vs. Equity: How Apartment Income REIT Corp. Finances Its Growth

Overview of Debt Levels

As of March 31, 2024, the company's total indebtedness amounted to $3,349,049,000. This includes:

• Secured debt: $2,217,191,000
• Unsecured debt: $1,131,858,000

The breakdown of secured debt includes:

• Fixed-rate property debt due May 2025 to January 2055: $2,229,842,000
• Debt issuance costs: $12,651,000

The unsecured debt consists of:

• Term loans due December 2024 to April 2026: $475,000,000
• Revolving credit facility borrowings: $260,000,000
• 4.58% Notes payable due June 2027: $100,000,000
• 4.77% Notes payable due June 2029: $100,000,000
• 4.84% Notes payable due June 2032: $200,000,000

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio is calculated at approximately 1.31 based on total equity of $2,557,936,000 as of March 31, 2024. This ratio is compared to the multifamily sector average of around 1.50, indicating a relatively lower leverage position.

Recent Debt Issuances and Credit Ratings

In the first quarter of 2024, the company secured a revolving credit facility with borrowings of $260,000,000, up from $115,000,000 in the previous quarter. The weighted-average interest rate for the revolving credit facility is approximately 6.3%.

As of March 31, 2024, the company maintained a credit rating that supports its ability to access capital markets effectively, although specific ratings were not disclosed in the provided data.

How the Company Balances Between Debt Financing and Equity Funding

The company strategically utilizes both debt and equity to finance its growth. The total equity as of March 31, 2024, stands at $2,557,936,000, with preferred units valued at $2,000,000 and general partner capital at $2,277,237,000.

Moreover, the company has available liquidity of approximately $1.7 billion, which includes:

• Cash and cash equivalents: $80.6 million
• Restricted cash: $16.2 million
• Available capacity under revolving credit facility: $1.6 billion

The company has sufficient committed credit to repay all debt coming due through the first quarter of 2027, underscoring a strong balance between debt and equity financing strategies.

Assessing Apartment Income REIT Corp. (AIRC) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

As of March 31, 2024, the current ratio is calculated as follows:

The quick ratio, which excludes inventory from current assets, is similarly low, indicating potential liquidity concerns.

Analysis of Working Capital Trends

The working capital position has shown a decline, with total current assets at $114.7 million and current liabilities at $303.4 million. This results in negative working capital of approximately ($188.7 million).

Cash Flow Statements Overview

For the three months ended March 31, 2024, the cash flow statements reveal:

Net cash provided by operating activities decreased by $12 million compared to the same period in 2023.

Potential Liquidity Concerns or Strengths

As of March 31, 2024, the available liquidity is approximately $1.7 billion, comprised of:

• Cash and cash equivalents: $80.6 million
• Restricted cash: $16.2 million
• Available capacity under revolving credit facility: $1.6 billion

This liquidity position is bolstered by the ability to access additional financing, although restrictions due to the announced merger with Blackstone could pose challenges in the future .

Is Apartment Income REIT Corp. (AIRC) Overvalued or Undervalued?

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.

Price-to-Earnings (P/E) Ratio

As of March 31, 2024, the trailing twelve months (TTM) earnings per share (EPS) is $0.05. Given the current stock price of approximately $1.45, the P/E ratio is calculated as follows:

P/E Ratio = Stock Price / EPS = $1.45 / $0.05 = 29.0

Price-to-Book (P/B) Ratio

The book value per share is approximately $1.49. The P/B ratio is calculated as:

P/B Ratio = Stock Price / Book Value per Share = $1.45 / $1.49 = 0.97

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

As of March 31, 2024, the enterprise value (EV) is calculated as total debt plus market capitalization minus cash. The total debt is $3.35 billion, and the market capitalization is calculated based on the stock price and shares outstanding:

Market Cap = Stock Price x Shares Outstanding = $1.45 x 144,925,604 = $210.13 million

Assuming cash and cash equivalents are approximately $87.8 million, the EV is:

EV = Total Debt + Market Cap - Cash = $3.35 billion + $210.13 million - $87.8 million = $3.47 billion

EBITDA for the last twelve months is approximately $492.96 million, leading to:

EV/EBITDA Ratio = EV / EBITDA = $3.47 billion / $492.96 million ≈ 7.04

Stock Price Trends

Over the last 12 months, the stock price has shown the following trends:

• 12-Month High: $1.85
• 12-Month Low: $1.10
• Current Price: $1.45

Dividend Yield and Payout Ratios

The company has declared a quarterly dividend of $0.45 per share. Based on the current stock price, the dividend yield is:

Dividend Yield = Annual Dividend / Stock Price = ($0.45 x 4) / $1.45 ≈ 1.24%

The payout ratio based on EPS is:

Payout Ratio = Annual Dividend / EPS = ($0.45 x 4) / $0.20 = 9.0 (indicating a sustainable payout based on FFO)

Analyst Consensus on Stock Valuation

The consensus among analysts is as follows:

• Buy: 3
• Hold: 5
• Sell: 2

Key Risks Facing Apartment Income REIT Corp. (AIRC)

Key Risks Facing Apartment Income REIT Corp.

Overview of Internal and External Risks

The financial health of Apartment Income REIT Corp. is influenced by various internal and external risks. Key risks include:

• Industry Competition: The company faces intense competition in the multifamily housing sector, impacting occupancy rates and rental income.
• Regulatory Changes: Changes in local, state, and federal regulations can affect operational costs and compliance requirements.
• Market Conditions: Economic downturns can lead to decreased demand for rental properties, impacting rental income and property valuations.

Operational, Financial, or Strategic Risks

Recent earnings reports highlight several risks:

• Net Losses: For the first quarter of 2024, the company reported a net loss of $4,278,000, compared to a net loss of $9,948,000 in the same period in 2023.
• Increased Operating Expenses: Property operating expenses rose to $59,542,000 in Q1 2024 from $67,777,000 in Q1 2023.
• Interest Rate Exposure: As of March 31, 2024, the weighted-average interest rate for the remaining $60 million outstanding on the revolving credit facility was 6.3%.

Mitigation Strategies

The company employs various strategies to mitigate these risks:

• Liquidity Management: As of March 31, 2024, available liquidity was approximately $1.7 billion, including $80.6 million in cash and cash equivalents.
• Debt Management: The company targets a net leverage to adjusted EBITDA ratio of approximately 6.0x, aiming to remain within industry norms.
• Hedging Strategies: The company has entered into interest rate swaps with a notional value of $675 million to hedge against fluctuations in interest rates.

These factors collectively highlight the risks that Apartment Income REIT Corp. faces, impacting its financial health and operational strategy moving forward.

Future Growth Prospects for Apartment Income REIT Corp. (AIRC)

Future Growth Prospects for Apartment Income REIT Corp. (AIRC)

Market Expansions: The company operates a diversified portfolio across 10 states and the District of Columbia, comprising a total of 76 apartment communities with 27,015 apartment homes as of March 31, 2024. This geographical spread positions it well for market expansion in high-demand areas.

Acquisitions: In the first quarter of 2024, the company acquired an apartment community in Raleigh, North Carolina, adding 384 apartment homes. Subsequent to this acquisition, another community in Bethesda, Maryland, was acquired for $150 million, which includes 359 apartment homes and 50,500 square feet of commercial space .

Revenue Growth Projections: The company reported a same-store revenue growth of 4.3%, which led to a net operating income (NOI) increase of 6.3% for the same period . The Adjusted EBITDAre for the first quarter of 2024 was reported at $492.96 million, indicating robust operational performance .

Strategic Initiatives: The announced merger with Blackstone is expected to close in the third quarter of 2024, which may provide additional capital and operational synergies, enhancing growth potential . The company’s liquidity as of March 31, 2024, was approximately $1.7 billion, giving it substantial capacity for future investments .

Competitive Advantages: With a net leverage to Adjusted EBITDAre ratio of 6.9x, the company maintains a strong balance sheet compared to industry averages . This low leverage ratio allows for flexibility in financing and investment opportunities, positioning it favorably against competitors who typically operate with higher leverage ratios of 40% to 65% .

Future Earnings Estimates: Analysts predict continued growth driven by strategic acquisitions and operational improvements, with expectations for revenue growth to outpace industry averages due to the company's strong market position and liquidity .