EDGAR 10-K Filing

Company CIK: 926660
Filing Year: 2022
Filename: 926660_10-K_2022_0000950170-22-002462.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
The Company
On December 15, 2020, Apartment Income REIT Corp. (“AIR”) was created when Apartment Investment and Management Company (“Aimco”) completed a pro rata distribution, in which stockholders received one share of AIR common stock for every one share of Aimco common stock held as of the close of business on December 5, 2020. Apartment Income REIT, L.P. (then known as AIMCO Properties, L.P.) (the “AIR Operating Partnership”) also completed the separation, through a pro rata distribution of all of the outstanding common limited partnership units of Aimco OP L.P. (“Aimco Operating Partnership,” and such units, “Aimco OP Units”) to holders of AIR Operating Partnership common limited partnership units and AIR Operating Partnership Class I High Performance partnership units as of the close of business on December 5, 2020. The transactions described in this paragraph are collectively referred to as the “Separation.”
AIR is a self-administered and self-managed real estate investment trust (“REIT”). AIR owns, through its wholly-owned subsidiaries, all of the common equity, the general partner interest, and special limited partner interest in AIR Operating Partnership, a Delaware limited partnership originally incorporated on May 16, 1994. 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; Greater Washington, D.C.; Miami; Denver; the San Francisco Bay Area; Los Angeles; and San Diego.
Please refer to Note 15 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 its simplified business model and diversified portfolio of stabilized apartment communities. The Board of Directors has set the following strategic objectives on a go forward basis:
•Pursue a simple, efficient, and predictable business model
•Maintain a high quality and diversified portfolio of stabilized multi-family properties
•Continuously improve on our best in class property operations platform to generate above market organic growth
•Maintain an efficient cost structure with general and administrative expenses less than or equal to 15 basis points of gross asset value
•Maintain a flexible, low levered balance sheet
•Enhance portfolio quality through disciplined approach to capital allocation, targeting highly accretive opportunities on a leverage neutral basis
•Develop private capital partnerships as an alternative source of equity capital for accretive growth
•Continued commitment to corporate responsibility with transparent and measurable goals
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.” These investors also focus on NAREIT FFO, as adjusted for non-cash, unusual, or non-recurring items. We refer to this metric as Pro forma Funds From Operations (“Pro forma FFO”) and use it as a secondary measure of operational performance.
AIR provides investors with a simple and transparent way to invest in the multi-family sector with public market liquidity.
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 discussed in the Executive Overview in Item 7.
Operational Excellence
We own and operate a portfolio of stabilized apartment communities, diversified by both geography and price point. As of December 31, 2021, our portfolio included 84 apartment communities with 26,410 apartment homes in which we held an average ownership of approximately 88%.
To manage our property operations efficiently and to increase the benefits from our local management expertise, we give direct responsibility for operations within each area to area operations leaders with regular oversight by 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, with the exception of routine maintenance and purchases and installation of equipment, we have specialized teams that manage capital spending at our communities.
We seek to improve our property operations by: focusing on retention by delivering world-class customer service; taking advantage of advances in technology; 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. 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 numerous opportunities to grade our work. In 2021, we received 62,000 customer grades averaging 4.3 on a five-point scale. 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. 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. Part of our property operations strategy is to focus on attracting and retaining stable, credit-worthy residents, and actively cultivating a sense of community among residents so that they are likely to live with us longer. We have explicit criteria for resident selection, which we apply to new and renewal leases, including creditworthiness and behavior in accordance with our apartment community standards, and our written “Good Neighbor Commitment.” Our focus on resident selection and retention has contributed to a decrease of apartment home turnover, from 43.1% in 2020 to 39.7% in 2021.
•Revenue Management and Ancillary Services. We have a centralized revenue management system that leverages people, processes, and technology to work in partnership with our local property management teams to develop rental rate pricing. We seek to increase Free Cash Flow (“FCF”), which we define as net operating income less Capital Replacements, 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 FCF 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 the provision of 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 smart home capabilities, website design, and package lockers, which meet today’s customer preference for self-service. Additionally, our efforts to maximize resident retention through our resident 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 0.2%. Our 2021 controllable operating expenses were down 30 basis points compared to 2020.
•Improving and Maintaining Apartment Community Quality. We believe that the physical condition and amenities of our apartment communities are important factors in our ability to maintain and increase rental rates. We invest in the maintenance and improvement of our communities primarily through: Capital Replacements, which are capital additions made to replace the portion of an apartment community consumed during our ownership; Capital Improvements, which extend the useful life of a community from its condition at our date of purchase; Capital Enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in longer-lived materials as described above, all of which do not significantly disrupt property operations; and Initial Capital Expenditures, which are capital additions contemplated in the underwriting of an acquired asset. During 2021, we invested $1,112 per apartment home in Capital Replacements, $371 per apartment home in Capital Improvements, and $3,301 per apartment home in Capital Enhancements. We also invested a total of $10.5 million in Initial Capital Expenditures, which were planned as part of our initial investment in communities acquired in 2021.
Portfolio Management and Quality
We expect to improve the quality of our portfolio by allocating investment capital to enhance rent growth and increase long-term capital values through routine investments in property upgrades (such as upgrading kitchens, bathrooms, and other interior design aspects) and through portfolio design, emphasizing land value as well as location and submarket. We plan to maintain a dynamic capital allocation and market selection process, expecting over time to reallocate our investment to locations with lower public tax burdens, including the southeastern United States and the Mountain West. 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 “B/B+” in quality, and is also diversified across several of the largest markets in the United States. Please refer to the Executive Overview section in Item 7 for a description of our portfolio quality ratings. As of December 31, 2021, our portfolio was allocated about one-half to “A” rated properties, and about one-half to “B” rated properties.
As part of our portfolio strategy, we seek to sell communities with lower expected FCF internal rates of return and reinvest the proceeds from such sales in accretive uses such as capital enhancements, share repurchases, and selective acquisitions of stabilized communities with projected FCF internal rates of return higher than expected from the communities being sold. 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 better than their previous owners. 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.
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, and our preferred equity. Properties securing our non-recourse property debt have a loan-to-value of approximately 36% as of December 31, 2021. We have notes receivable from Aimco with an aggregate principal amount of $534 million. The notes will mature on January 31, 2024 and are secured by a pool of properties owned by Aimco. We consider the notes a reduction of leverage as we expect proceeds to be used to repay loan amounts currently outstanding.
We target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x. As of December 31, 2021, Net Leverage to Adjusted EBITDAre was 6.5x. Pro forma for January 2022 sales activity, Net Leverage to Adjusted EBIDAre is 5.8x. Pro forma for proceeds from additional sales activity expected to close in the first quarter of 2022, Net Leverage to Adjusted EBITDAre is further reduced by 0.5x of a turn to 5.3x.
Excluding the notes receivable from Aimco in our calculation of Net Leverage and the related interest income from our calculation of Adjusted EBITDAre, Net Leverage to EBITDAre was 7.3x as of December 31, 2021 and, Pro forma completion of first quarter 2022 sales, was 6.2x.
Under our revolving credit facility and term loans, we have agreed to maintain a fixed charge coverage ratio of 1.50x. For the year ended December 31, 2021, our Fixed Charge Coverage ratio was 2.60x.
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 credit facilities primarily for working capital and other short-term purposes and to secure letters of credit. As of December 31, 2021, our share of cash and restricted cash, excluding amounts related to tenant security deposits, was $81.1 million and we had the capacity to borrow up to $284.6 million under our revolving credit line, bringing total liquidity to $365.7 million.
We manage our financial flexibility by maintaining an investment grade credit rating and holding communities that are unencumbered by property debt. AIR has been rated BBB by Standard & Poor’s. As of December 31, 2021, and excluding properties sold or expected to be sold during the first quarter of 2022, we held unencumbered communities with an estimated fair market value of approximately $8.4 billion, triple the amount from December 31, 2020.
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 an oversupply 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. Aimco also elected to be taxed as a REIT under the Code. 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.
The AIR Operating Partnership
The AIR Operating Partnership, and prior to the Separation, the Aimco 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 and the Aimco 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 or Aimco Operating Partnership during the taxable year. Generally, the characterization of any particular item is determined by the AIR Operating Partnership or the Aimco 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 or the Aimco Operating Partnership’s Partnership Agreement. The AIR Operating Partnership and the Aimco Operating Partnership are 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, or other laws regulating multi-family housing, including eviction moratoriums and other governmental regulation related to COVID-19, may reduce rental revenue or increase operating costs in particular markets.
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, and workers’ compensation. 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 priority. We strive for transparency, and continuous improvement, as measured by Global Real Estate Sustainability Benchmark (“GRESB”). We are aligned with the UN Sustainable Development Goals. In 2021, we improved our GRESB scores over 2020 by 21%, including a perfect score in the social metrics and a near perfect score in governance. We have established targets for energy, water, and greenhouse gas reductions, embarked on environmental certifications for our properties, and are implementing resilience strategies including physical and climate risk assessments of the portfolio.
In the energy arena, AIR creates a positive environmental impact though energy management including systematic investments in building systems and SmartRent technology, which provides high and low temperature alerts and water leak detection. Utilities for vacant units are managed automatically, saving 1.9 million kWh of energy since 2019. We have incorporated LED lighting, low flow fixtures, and weatherization projects across the portfolio, and invested $19.2 million in conservation over the last 3 years.
AIR’s corporate philosophy is founded upon solid corporate governance, high ethical standards and professional responsibility. We engage annually with nearly three-quarters of stockholders on ESG matters. We have been awarded for the past several years for board composition by the Women’s Forum of New York, the Women’s Leadership Foundation, and Women on Boards. The Board’s Governance and Corporate Responsibility Committee oversees all ESG activities including political and non-profit contributions. AIR conducts regular Board refreshment and has an intentional balance of different backgrounds and experience.
Human Capital
Team and Culture
Our team and culture are keys to our success. 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 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 58% of all open manager level positions were filled internally in 2021, compared to a target of 35%, and approximately half of all open positions were filled internally, compared to the target of 40%. We provide both formal and informal training and coaching for teammates at every level of the organization.
As of December 31, 2021, we had approximately 800 teammates, of whom about 600 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, 2021, unions represented approximately 50 of our teammates. 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 via a third-party, confidential survey on his or her annual anniversary of employment. 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 during the year. AIR’s overall teammate engagement score from the 2021 Annual Lifecycle Surveys was 4.35, compared to the target of 4.30. 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 4.57, up from 4.50 in 2020. On-site voluntary turnover was 18.3%, up from 15.8% in 2020, and on-site overall turnover was 23.8%, down from 25.0% in 2020.
We offer benefits reinforcing our value of caring for each other, including an opportunity to manage one’s life through flexible work schedules and “dress for your day,” 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 means the most to them. Teammates have 15 hours of paid leave toward volunteering 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 640 students of our teammates with more than $1.3 million in scholarships since 2006. We raised $0.4 million from the AIR Gives Charity Golf Tournament in 2021 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 going through crisis.
A critical element of our culture is a relentless focus on efficiency. We continuously seek to reduce costs through process improvement, innovation, and continued technological investment. We expect this focus will make our properties more productive and also enable our general and administrative expenses, broadly defined, to be lower, as a percentage of our investments (measured by gross asset value), than are our peers. As a result, we expect our stockholders will benefit from a higher percentage of rental revenue being available after all costs for reinvestment in our business or dividends paid to our stockholders.
Our focus on our team and our culture is recognized externally. AIR has been recognized nationally as a “National Top Workplace Winner.” In addition to that national recognition, AIR has previously been recognized as a top workplace in Colorado, the Washington, D.C. area, and the San Francisco Bay area. Specifically in 2021, out of hundreds of participating companies, AIR was one of only six recognized by the Denver Post as a “Top Workplace” in Colorado for each of the past nine years. Also in 2021, AIR was recognized by the Washington Post as a “Top Workplace” in the Washington D.C. area. AIR was also recognized in 2021 (and for the second consecutive year) by the Denver Business Journal as one of the Denver Area’s Healthiest Employers.
COVID-19 and our Team
Impacts of the COVID-19 pandemic and governmental lockdowns continued into 2021. A cross-functional committee continued to lead our efforts to adjust to the changing conditions in order to keep our team and our residents safe.
We continued our commitment to our teammates by allowing flexible work arrangements, undertook to pay all costs associated with COVID-19 testing and treatment, and continued clear and frequent communication. Any teammate diagnosed with COVID-19 or placed into quarantine by doctor’s orders receives paid time off during the quarantine period.
Using our previous investment in technology and artificial intelligence, paired with policies providing flexibility, our team continued to lease apartments and fulfill service requests in a safe environment for both the team and our residents. Our top priority is the health and safety of our residents and teammates. Accordingly, we maintain enhanced cleaning procedures as well as physical distancing and remote working guidelines at our communities and corporate offices. Additionally, seeing residents as individuals, each impacted differently by the pandemic and lockdowns, our teammates have undertaken to speak to every resident in need, to listen, and to help each to solve his or her problems. We also seek to assist the broader communities where our residents and teammates live and work.
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, Aimco, or the Aimco 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.

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ITEM 1A. RISK FACTORS
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
Adverse economic and geopolitical conditions, health crises and dislocations in the credit markets could affect our ability to collect rents and late fees from tenants, and our ability to evict tenants, in addition to having other negative effects on our business, which in turn could adversely affect our financial condition and results of operations.
Adverse economic and geopolitical conditions, local, regional, national, or international health crises and dislocations in the credit markets could negatively impact our tenants and our operations. For example, the World Health Organization declared COVID-19 to be a pandemic on March 11, 2020. The ongoing COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the COVID-19 pandemic and the governmental measures taken in response continues to evolve.
Factors that have negatively impacted, or would negatively impact, our operations or those of entities in which we hold a partial interest during the COVID-19 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 COVID-19;
•our ability to dispose of communities at all or on terms favorable to us;
•our ability to collect payments of interest and principal on notes receivable when due; and
•potential litigation relating to the COVID-19 pandemic.
Given the ongoing and dynamic nature of the circumstances surrounding the COVID-19 pandemic, it remains challenging to predict the ultimate impact of the COVID-19 pandemic on the global economy, our residents and commercial tenants, our communities, and the operations of entities in which we hold a partial interest, or for how long disruptions are likely to continue. The extent of such impact will depend on developments, which are highly uncertain, rapidly evolving and cannot be predicted, including the ability to contain the virus, the emergence of new COVID-19 variants, the efficacy and availability of vaccines, global supply chain disruptions, the duration of measures implemented in response to the COVID-19 pandemic, and the overall impact of these measures. Such developments, depending on their nature, duration, and intensity, could have a material adverse effect on our operating results and financial condition. The COVID-19 pandemic also may have the effect of heightening many of the other risks described below.
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 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.
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;
•local conditions, such as loss of jobs, unemployment rates, or an increase in the supply of apartments, that 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.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities and the apartment communities we manage 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.
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.
If we are not successful in our acquisition of apartment communities, our results of operations could be adversely affected.
The selective acquisition of stabilized apartment communities when we have a favorable cost of capital (including the use of AIR Operating Partnership Common Units as an acquisition currency) is a component of our strategy. However, we may not be able to complete transactions successfully in the future. 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. This could have an adverse effect on our financial condition or results of operations.
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.
Rent control laws and other regulations that limit our ability to increase rental rates may negatively impact our rental income and profitability.
State and local governmental agencies may introduce rent control laws or other regulations that limit our ability to increase rental rates, which may affect our rental income. Especially in times of recession and economic slowdown, rent control 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.
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.
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.
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.
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. 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. The availability and cost of insurance are determined 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 have to retain a larger portion of the potential loss associated with our exposures to risks.
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 tenants, 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 tenants, 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.	
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, 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 may also incur additional costs to remedy damages caused by such disruptions. 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.
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.
Contracts for redevelopment and development services create risk for non-performance.
From time to time, we may choose to contract with Aimco or another qualified party to develop or redevelop properties. If Aimco or such another qualified party is unsuccessful in redeveloping or developing properties and fails to perform under our agreements with it, it could have an impact on our ability to grow our portfolio and to acquire stabilized properties at prices favorable to us, which could have a material adverse effect on our financial condition and results of operations.
Investments through joint ventures involve risks not present in investments in which we are the sole investor.
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.
“Sale of assets” provisions, such as in our Master Leasing Agreement, may have the effect of discouraging, delaying, or preventing the sale of our properties.
Upon the occurrence of a sale of all or substantially all of our assets, as specified in our Master Leasing Agreement, Aimco will have the right to terminate the Master Leasing Agreement. The ability for Aimco to terminate the Master Leasing Agreement upon a sale of all or substantially all of our assets may have the effect of discouraging, delaying, or preventing the sale of our properties, even if the sale of our properties would be beneficial to our stockholders.
There may be, or there may be the appearance of, conflicts of interest in our relationship with Aimco.
The Separation was designed to minimize conflicts of interest between AIR and Aimco. Additionally, to provide direct oversight, AIR's board of directors has formed the AIR-AIV Transactions Committee to oversee prospective transactions between the two companies to ensure they are on arm’s length terms. The Aimco Board of Directors has formed a similar committee.
Although AIR and Aimco each have an independent board of directors and independent management and are incentivized to make decisions that are in the best interests of its respective business, Mr. Considine serves on both AIR’s and Aimco’s boards of directors. In addition, as part of the Separation, AIR and Aimco entered into the Employee Matters Agreement, which provides that Mr. Considine will continue to serve Aimco with specific responsibilities through the balance of 2022 to support the establishment and growth of the Aimco business, reporting directly to the Aimco board of directors. Mr. Considine does not serve on the AIR-AIV Transactions Committee and will recuse himself from voting as a member of either board of directors during the approval or disapproval of any transactions between the two companies.
Aimco and AIR have chosen different lines of business, but the agreements between Aimco and AIR generally do not limit or restrict Aimco or its affiliates from engaging in any business or managing other entities that engage in business of the type conducted by us. Although AIR and Aimco do not generally engage in the same business, Aimco and its affiliates may in the future determine to manage apartment communities and other real estate assets, some of which may be in close proximity to
certain of our apartment communities, or increase its ownership of stabilized apartment communities. Certain business opportunities appropriate for us may also in the future be appropriate for Aimco or its affiliates, and we may compete with Aimco for certain business opportunities. This may cause us to compete with Aimco for business opportunities or result in a change in our current business strategy. In order to reduce such conflicts, Aimco has granted AIR options to purchase stabilized apartment properties acquired by Aimco.
Actual, potential, or perceived conflicts could give rise to investor dissatisfaction, settlements with stockholders, litigation or regulatory inquiries or enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual, or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities, and a resulting increased risk of litigation and regulatory enforcement actions.
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
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 and two term loan credit facilities, each of which may be secured by assets of, or guaranteed by, certain subsidiaries of AIR, including our operating partnership, Apartment Income REIT, L.P. 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, 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.
Increases in interest rates would increase our interest expense and reduce our profitability.
As of December 31, 2021, we had approximately $1.5 billion of variable-rate indebtedness outstanding. We estimate that an increase in 30-day LIBOR of 100 basis points with constant credit risk spreads would increase interest expense by $15.1 million on an annual basis. We estimate that a decrease in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce interest expense by, a lesser amount, $4.8 million on an annual basis, due to the existence of LIBOR floors in certain of our floating rate debt agreements.
As of December 31, 2021, we had $92.7 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.
The phasing out of LIBOR could adversely affect our business, operating results, and financial condition.
In March 2021, the Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR settings will either cease to be provided or no longer be representative (i) immediately after December 31, 2021, in the case of the one-week and two-month U.S. dollar LIBOR terms and all sterling, euro, Swiss franc, and Japanese yen settings, and (ii) immediately after June 30, 2023, in the case of the overnight, one-, three-, six-, and 12-month U.S. dollar LIBOR terms. In 2018, the Alternative Reference Rates Committee identified the Secured Overnight Financing Rate (“SOFR”) as the alternative to LIBOR. However, uncertainty exists in the markets as to the adoption and implementation of alternative reference rates, and whether or not SOFR attains market traction as a LIBOR replacement remains a question. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other regulatory reforms that may be enacted in the United Kingdom or elsewhere. Due to the broad use of LIBOR as a reference rate, all financial market participants, including us, are impacted by the risks associated with this transition. Certain of our debt agreements, including or revolving credit facility and two term loan credit facilities, bear interest at rates that are calculated based, in part, on LIBOR. Accordingly, the phase-out of LIBOR and any other related changes or reforms could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results, and cash flows.
Covenant restrictions may limit our operations and impact our ability to make payments to our investors.
Some of our existing and/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 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 the Separation
We may be unable to achieve some or all of the benefits that we expect to achieve from the Separation.
Following the Separation, we and Aimco are two focused and independent companies. We may not be able to achieve some or all of the benefits that we expect to achieve as a company independent from Aimco in the time we expect, if at all. For instance,
it may take longer than anticipated for us to, or we may never, succeed in growing our business through the acquisition of stabilized apartment communities or through our active management strategies.
The Separation could give rise to disputes or other unfavorable effects, which could materially and adversely affect our business, financial position, or results of operations.
In connection with the Separation, we entered into a Separation and Distribution Agreement with Aimco, effective as of December 15, 2020 (the “Separation Agreement”), which, among other things, contains the agreements among the parties regarding the principal transactions that were necessary to effect the Separation. It also sets forth other agreements that govern certain aspects of the parties’ ongoing relationship after the Separation. The Separation may lead to increased operating and other expenses, of both a nonrecurring and a recurring nature, and to changes to certain operations, which expenses or changes could arise pursuant to arrangements made between Aimco and us or could trigger contractual rights of, and obligations to, third parties. Disputes with third parties could also arise out of these transactions, and we could experience unfavorable reactions to the Separation from our teammates, lenders, ratings agencies, regulators, or other interested parties. These increased expenses, changes to operations, disputes with third parties, or other effects could materially and adversely affect our business, financial position, or results of operations. In addition, disputes with Aimco could arise in connection with each of the Separation Agreement, the Employee Matters Agreement, the Property Management Agreements, the Master Services Agreement, the Master Leasing Agreement, or other agreements.
Although we have endeavored to enter into agreements on market terms, our Separation-related agreements with Aimco may not reflect terms that would have resulted from arm’s-length negotiations with unaffiliated third parties.
The agreements related to the Separation, including the Separation Agreement, the Employee Matters Agreement, the Property Management Agreements, the Master Services Agreement, the Master Leasing Agreement, and certain other agreements were entered into in the context of the Separation while we were still controlled by Aimco. As a result, although we endeavored to enter into these agreements on market terms, they may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements entered into in the context of the Separation concern, among other things, allocation of assets and liabilities attributable to periods prior to the Separation and the rights and obligations, including certain indemnification obligations, of Aimco and us after the Separation, certain services provided by us to Aimco and by Aimco to us after the Separation, and Aimco’s lease from us of certain properties.
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 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.
Furthermore, if Aimco failed to remain qualified as a REIT for its 2020 or 2021 taxable year, and AIR is deemed to be a “successor” of Aimco under Section 856 of the Code, then AIR may also fail to qualify as a REIT. AIR can provide no assurance that Aimco qualified as a REIT for its 2020 and 2021 taxable years.
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 taxable REIT subsidiary (“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 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 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.
Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs, which would result in a loss of benefits from those programs.
We may own equity interests in entities that own certain apartment communities that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development (“HUD”), or state housing finance agencies, typically provide one or more of the following: mortgage insurance, favorable financing terms, tax-exempt interest, historic or low-income housing tax credits, or rental assistance payments to the apartment community owners. As a condition of the receipt of assistance under these programs, the apartment communities must comply with various requirements, which typically limit rents to pre-approved amounts and limit our choice of residents to those with incomes at or below certain levels. Failure to comply with these requirements may result in financial penalties or loss of benefits. We will likely be required to obtain the approval of HUD in order to acquire or dispose of a significant interest in or manage a HUD-assisted apartment community. We may not always receive such approval.
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 you could be required to pay income taxes in excess of the cash dividends you 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 and 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 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 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 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, 2021, 156,998,367 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; (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 MUTA that allow for board classification without stockholder approval.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
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 price point and geography, 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 12 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, 2021:
Number of
Apartment
Communities
Number of
Apartment
Homes
Average
Economic
Ownership
Bay Area
2,212
%
Boston
2,462
%
Denver
2,026
%
Greater Washington, D.C.
5,645
%
Los Angeles
4,347
%
Miami
2,425
%
Philadelphia
2,748
%
San Diego
3,051
%
Other markets
1,494
%
Total portfolio (1)
26,410
%
(1)Total portfolio represents the number of apartment communities we owned an equity interest in.
As of December 31, 2021, on a consolidated basis, our apartment communities contained, on average, 314 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, 2021, apartment communities in our portfolio were encumbered by, in aggregate, $2.3 billion of property debt with a weighted-average interest rate of 3.2% and a weighted-average maturity of 8.5 years. The apartment communities collateralizing this non-recourse property debt have an estimated aggregate fair value $6.4 billion.
AIR stockholder share of the consolidated property debt is $1.9 billion, with a weighted-average interest rate of 3.2% and a weighted-average maturity of 8.7 years. The apartment communities collateralizing this non-recourse property debt, on the same ownership adjusted basis, is $5.1 billion.
As of December 31, 2021 and excluding properties sold or expected to be sold during the first quarter of 2022, we held, on an ownership adjusted basis, unencumbered apartment communities with an estimated fair value of approximately $8.4 billion.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 23, 2022, there were 157,117,624 shares of Common Stock outstanding, held by 729 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, 2021, we issued 1,883 shares of Common Stock in exchange for OP Units.
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 23, 2022, there were 169,680,388 common partnership units and equivalents outstanding (157,117,624 of which were held by AIR) that were held by 2,217 unitholders of record.
Unregistered Sales of Equity Securities
During the three months ended December 31, 2021, the AIR Operating Partnership issued 2,455,648 common OP Units as partial consideration for the acquisition of four apartment communities located in the Washington, D.C. area. The common OP Units were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
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, 2021, 1,883 OP Units were redeemed 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 period
Total
Number of
Units
Purchased
Average
Price Paid
per Unit
Total Number of
Units Purchased as Part
of Publicly Announced
Plans or Programs
Maximum Number
of Units that May Yet
Be Purchased Under
Plans or Programs
October 1 - October 31, 2021
5,954
$
49.73
N/A
N/A
November 1 - November 30, 2021
14,522
$
51.79
N/A
N/A
December 1 - December 31, 2021
242,099
$
52.88
N/A
N/A
Total
262,575
$
52.75
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 cash and 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, 2021, AIR owned approximately 92.1% of the legal interest in the common partnership units of the AIR Operating Partnership and 93.9% of the economic interest in 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.
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 Morgan Stanley Capital International Inc., a provider of equity indices. The NAREIT Equity Apartments Index is published by Nareit, a representative of real estate investment trusts and publicly traded real estate companies with interests in United States real estate and capital markets. The MSCI US REIT Index reflects total stockholder return for a broad range of REITs and 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 and are calculated to exclude companies as they are acquired and to add companies to the index calculation as they become publicly traded companies. 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 in AIR’s Common Stock and in each index on December 15, 2020, the day AIRC began trading “regular way,” and that all dividends paid have been reinvested. The historical information set forth below is not necessarily indicative of future performance.
Index (1)
December 15, 2020
December 31, 2020
December 31, 2021
Apartment Income REIT Corp.
100.00
101.21
149.57
MSCI US REIT Index
100.00
100.33
143.53
NAREIT Equity Apartments Index
100.00
100.44
164.32
S&P MidCap 400 Index
100.00
100.92
125.91
(1)Source: S&P Global Market Intelligence © 2022
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.
From January 1, 2022 through February 24, 2022, AIR's TSR has outperformed the MSCI US REIT index, the NAREIT Equity Apartments Index, and the S&P MidCap 400 Index, by 540 bps, 230 bps, and 330 bps respectively.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RE SERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 its simplified business model and diversified portfolio of stabilized apartment communities. The Board of Directors has set the following strategic objectives on a go forward basis:
•Pursue a simple, efficient, and predictable business model
•Maintain a high quality and diversified portfolio of stabilized multi-family properties
•Continuously improve on our best in class property operations platform to generate above market organic growth
•Maintain an efficient cost structure with general and administrative expenses less than or equal to 15 basis points of gross asset value
•Maintain a flexible, low levered balance sheet so that AIR is positioned to access the public bond market when doing so makes sense
•Enhance portfolio quality through disciplined approach to capital allocation; targeting accretive opportunities on a leverage neutral basis
•Develop private capital partnerships as an alternative source of equity capital for accretive growth
•Continued commitment to corporate responsibility with transparent and measurable goals
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.” These investors also focus on NAREIT FFO, as adjusted for non-cash, unusual, or non-recurring items. We refer to this metric as Pro forma Funds From Operations (“Pro forma FFO”) and use it as a secondary measure of operational performance.
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 business plan are further described in the sections that follow.
The Separation
For financial reporting purposes, GAAP requires that Aimco be presented as the predecessor for AIR’s financial statements. As a result, unless otherwise stated, financial results prior to the Separation on December 15, 2020 include the financial results of Aimco. The financial results prior to the Separation attributable to the apartment communities retained by Aimco are presented as discontinued operations and are excluded from our property net operating income.
Operational Excellence
We own and operate a portfolio of stabilized apartment communities, diversified by both geography and price point. As of December 31, 2021, our portfolio included 84 apartment communities with 26,410 apartment homes in which we held an average ownership of approximately 88%.
Same Store highlights for the year ended December 31, 2021 include:
•Recognition of 98.4% of all residential revenue billed during the year, with the balance of 1.6% treated as bad debt;
•Average daily occupancy (“ADO”) of 96.3%, a year-over-year increase of approximately 150 basis points, due primarily to recovery in the economy and to AIR’s leasing efforts since the onset of COVID-19 and the governmental lockdowns;
•For leases signed during the year, renewal rents increased by 5.7% and new lease rents increased by 3.9%, for a weighted-average increase of 4.7%;
•For leases becoming effective during the year, renewal rents increased by 5.3% and signed new lease rents increased by 3.2%, for a weighted-average increase of 4.1%;
•Net operating income increased by 1.6% compared to 2020; and
•Controllable operating expenses, which we define as property expenses less real estate taxes, insurance, and utility expenses, declined by 30 basis points compared to 2020.
Same Store Markets
As of December 31, 2021, our Same Store portfolio included 65 apartment communities with 22,040 apartment homes, which comprise approximately 95% of 2021 revenues. Overall results showed a consistent strengthening of the business throughout 2021 that has continued into 2022.
Typically, rental rates soften towards the end of the year due to lower demand than in the peak months of the summer and early fall. In 2021, that trend did not materialize. Demand remained strong, resulting in pricing remaining stable through the end of the year, with full year 2021 new lease rates up 3.2% and renewals up 5.3% from the prior leases.
Consistent with our expectations, full year ADO trended upwards from 94.8% in 2020 to 96.3% in 2021, with January 2022 ADO reaching a record high of 98.4%.
Portfolio Management and Quality
Our portfolio of apartment communities is diversified across primarily “A” and “B” price points, averaging “B/B+” in quality, and is also diversified across several of the largest markets in the United States. During 2021, we exited the Chicago and New York markets and, subsequent to year-end, reduced our exposure to California. We added to our portfolio in Florida through a $223 million acquisition, and improved the quality and location of our Washington, D.C. portfolio through selling some properties and partial interests in others while acquiring four properties, whose NOI growth we expect will exceed market NOI growth by more than 10% during each of the next two years and will exceed that of the properties we sold. Our 2021 portfolio management activities increased our average rents by approximately $150 per home and reduced the portfolio's average age by one year. Our current portfolio is of a higher quality and is expected to require lower recurring capital replacement spending.
We measure the quality of apartment communities in our portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance data and analysis. Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of local market average; and as “B” quality apartment communities those earning rents between 90% and 125% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of local market average rents. Although some companies and analysts within the multi-family real estate industry use apartment community quality ratings of “A” and “B” , some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company. Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multi-family real estate industry. As of December 31, 2021, our portfolio was allocated about one-half to “A” rated properties, and about one-half to “B” rated properties.
We expect to improve the quality of our portfolio by allocating investment capital to enhance rent growth and increase long-term capital values through routine investments in property upgrades (such as upgrading kitchens, bathrooms, and other interior design aspects) and through portfolio design, emphasizing land value as well as location and submarket. We plan to maintain a dynamic capital allocation and market selection process, expecting over time to reallocate our investment to locations with lower public tax burdens, including the southeastern United States and the Mountain West. We target geographic diversification in our portfolio to reduce the volatility of our rental revenue by avoiding undue concentration in any particular market.
As part of our portfolio strategy, we seek to sell communities with lower expected FCF internal rates of return and reinvest the proceeds from such sales in accretive uses such as capital enhancements, share repurchases, and selective acquisitions of stabilized communities with projected FCF internal rates of return higher than expected from the communities being sold. 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 better than their previous owners. Through this disciplined approach to capital allocation, we expect to increase the quality and expected growth rate of our portfolio.
Transactions
Acquisitions
In 2021, we acquired five properties for approximately $730 million, including four properties in the Washington D.C. area and one in Pembroke Pines, Florida, with 2,083 apartment homes. The Washington D.C. acquisition included 84,000 square feet of office and commercial space, and two vacant land parcels suitable for development of 498 additional apartment homes, valued at approximately $20 million. The acquisitions were funded with property sales, the issuance of OP Units, and the assumption of existing property debt. We expect a 4.3% NOI yield in 2022 which is anticipated to approach ~6% by 2024, approximately 130 basis points greater than the properties sold to fund the acquisitions, adding ~$0.04 to FFO per share. This spread is expected to increase over time as the long-term internal rate of return (“IRR”) is expected to be 9.0%, as compared to the IRR of the sold properties of 6.4%, which represents a 40% increase.
Dispositions
During 2021, we sold 16 apartment communities located in New York City, Washington, D.C., and Chicago with 1,395 apartment homes for gross proceeds of $512 million. Net sales proceeds from these transactions were $472 million.
Also during 2021, we formed a joint venture with an affiliate of Blackstone by selling for $408 million an 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with 20% ownership and earns various fees for providing property management and corporate services.
After year end, we sold an additional seven apartment communities located in San Diego, Los Angeles, and the Bay Area for gross proceeds of $507 million. We are under contract to sell an additional $267 million of properties located in Chicago, New York City, and California. In aggregate, the $1.7 billion of property sales are priced at an approximate 15% premium to their estimated 2020 fair market value, pre-COVID, an implied NOI cap rate of 4.3%, and a free cash flow cap rate of 4.0%.
Balance Sheet
Components of Leverage
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.
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, and our preferred equity. Properties securing our non-recourse property debt have a loan-to-value of approximately 36% as of December 31, 2021. We have notes receivable from Aimco with an aggregate principal amount of $534 million. The notes will mature on January 31, 2024 and are secured by a pool of properties owned by Aimco. We consider the notes a reduction of leverage as we expect proceeds to be used to repay loan amounts currently outstanding.
Please see the Liquidity and Capital Resources section for additional information regarding our leverage.
Leverage Targets
We target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x. Our leverage ratios for the three months ended December 31, 2021 are presented below:
Annualized Current Quarter
January 31, 2022 Annualized Current Quarter
Pro forma Completion of
First Quarter 2022 Sales
Annualized Current Quarter (1)
Proportionate Debt to Adjusted EBITDAre
6.4x
5.6x
5.1x
Net Leverage to Adjusted EBITDAre
6.5x
5.8x
5.3x
(1)Pro forma for the planned use of net proceeds from the January sales of $507 million and five properties under contract of $267 million.
Excluding the notes receivable from Aimco in our calculation of Net Leverage and including the related interest income in our calculation of Adjusted EBITDAre, Net Leverage to EBITDAre was 7.3x as of December 31, 2021 and, Pro forma completion of first quarter 2022 sales, was 6.2x.
Under our revolving credit facility and term loans, we have agreed to maintain a fixed charge coverage ratio of 1.50x. For the year ended December 31, 2021, our Fixed Charge Coverage ratio was 2.60x.
Please see the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.
Liquidity
We use our credit facilities primarily for working capital and other short-term purposes and to secure letters of credit. As of December 31, 2021, our share of cash and restricted cash, excluding amounts related to tenant security deposits, was $81.1 million and we had the capacity to borrow up to $284.6 million under our revolving credit line, bringing total liquidity to $365.7 million.
We manage our financial flexibility by maintaining an investment grade credit rating and holding communities that are unencumbered by property debt. AIR has been rated BBB by Standard & Poor’s. As of December 31, 2021 and excluding
properties sold or expected to be sold during the first quarter of 2022, we held unencumbered communities with an estimated fair market value of approximately $8.4 billion, triple the amount from December 31, 2020.
We anticipate seeking an investment grade credit rating from Moody’s. In assigning ratings, Moody’s places significant emphasis on the amount of non-recourse property debt as percentage of the undepreciated book value of a company’s assets. Pro forma for anticipated first quarter 2022 property sales, we anticipate that our share of property debt will approximate Moody's targets.
Dividend
As planned, AIR’s refreshed tax basis resulted in a tax efficient dividend paid to stockholders. In 2021, AIR's dividend of $1.74 per share was one-third taxable as capital gains, and two-thirds tax-free return of capital, increasing its after-tax yield to taxable investors.
On February 1, 2022, our Board of Directors declared a quarterly cash dividend of $0.45 per share of AIR Common Stock. This amount is payable on February 25, 2022, to stockholders of record on February 17, 2022.
In setting AIR's 2022 dividend, our Board of Directors anticipates targeting a dividend level of approximately 75% of full year FFO per share. We further expect that the after-tax dividend will continue to benefit from AIR's refreshed tax basis.
Corporate Responsibility
Corporate responsibility is a longstanding priority. We strive for transparency and continuous improvement, as measured by GRESB. We are aligned with the UN Sustainable Development Goals. In 2021, we improved our GRESB scores over 2020 by 21%, including a perfect score in the social metrics and a near perfect score in governance. We have established targets for energy, water, and greenhouse gas reductions, embarked on environmental certifications for our properties, and are implementing resilience strategies including physical and climate risk assessments of the portfolio.
In the energy arena, AIR creates a positive environmental impact though energy management including systematic investments in building systems and SmartRent technology, which provides high and low temperature alerts and water leak detection. Utilities for vacant units are managed automatically, saving 1.9 million kWh of energy since 2019. We have incorporated LED lighting, low flow fixtures, and weatherization projects across the portfolio, and invested $19.2 million in conservation over the last 3 years.
AIR’s corporate philosophy is founded upon solid corporate governance, high ethical standards and professional responsibility. We engage annually with nearly three-quarters of stockholders on ESG matters. We have been awarded for the past several years for board composition by the Women’s Forum of New York, the Women’s Leadership Foundation, and Women on Boards. The Board’s Governance and Corporate Responsibility Committee oversees all ESG activities including political and non-profit contributions. AIR conducts regular Board refreshment and has an intentional balance of different backgrounds and experience.
Team and Culture
Our team and culture are keys to our success. 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. We offer benefits reinforcing our value of caring for each other, including an opportunity to manage one’s life through flexible work schedules and “dress for your day,” 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. Consistent with the duration of our other leave policies, we also pay full compensation and benefits for teammates who are actively deployed by the United States military.
A critical element of our culture is a relentless focus on efficiency. We continuously seek to reduce costs through the use of additional automation and continued technological investment. We expect this focus will enable our general and administrative expenses to be lower, as a percentage of gross asset value, than our peers.
Our focus on our team and our culture is recognized externally. AIR has been recognized nationally as a “National Top Workplace Winner.” In addition to that national recognition, AIR has previously been recognized as a top workplace in Colorado, the Washington, D.C. area, and the San Francisco Bay area. Specifically in 2021, out of hundreds of participating companies, AIR was one of only six recognized by the Denver Post as a “Top Workplace” in Colorado for each of the past nine years. Also in 2021, AIR was recognized by the Washington Post as a “Top Workplace” in the Washington D.C. area. AIR was also
recognized in 2021 (and for the second consecutive year) by the Denver Business Journal as one of the Denver Area’s Healthiest Employers.
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, 2021, compared to 2020, should be read in conjunction with the accompanying consolidated financial statements in Item 8. For discussion of the year ended December 31, 2020, compared to 2019, please refer to Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the subheading “Detailed Results of Operations for the Year Ended December 31, 2020, Compared to 2019” included in AIR’s and the AIR Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020.
Results of Operations for the Year Ended December 31, 2021, Compared to 2020
Net income from continuing operations was $479.2 million for the year ended December 31, 2021, an increase of $593.8 million compared to a net loss from continuing operations of $114.6 million in 2020, due primarily to the following items:
•$475.6 million of higher gain on derecognition of leased properties and dispositions of real estate;
•$88.0 million a non-cash write-off of deferred tax asset balances in 2020,
•$46.3 million of higher interest income, as further described below; and
•$47.3 million of loss on impairment of real estate recognized in 2020 versus none in 2021; partially offset by
•$143.4 million of higher loss on extinguishment of debt, incurred primarily as a result of the early payment of property debt.
Property Operations
We have two segments: Same Store and Other Real Estate. Our Same Store segment includes communities that: (i) are owned and managed by AIR and (ii) had reached a stabilized level of operations. Our Other Real Estate segment includes the five properties that were acquired in 2021 and four communities that we expect to sell or lease to a third party, but do not yet meet the criteria to be classified as held for sale.
As of December 31, 2021, our Same Store segment included 65 apartment communities with 22,040 apartment homes, our Other Real Estate segment included nine apartment communities with 2,713 apartment homes, and 10 apartment communities with 1,657 apartment homes were classified as held for sale.
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, which excludes the results of properties retained by Aimco in connection with the Separation, which are included in discontinued operations. 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, held for sale, or retained by Aimco in the Separation, which are included in discontinued operations, reported in consolidated amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.
Please refer to Note 15 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
Change Attributable to Changes in Ownership
Change Excluding Changes in Ownership
(in thousands)
$
%
$
%
$
%
Rental and other property revenues, before utility reimbursements:
Same Store
$
548,554
$
582,104
$
(33,550
)
(5.8
%)
$
(42,169
)
(7.5
%)
$
8,619
1.7
%
Other Real Estate
31,105
15,947
15,158
95.1
%
-
-
%
15,158
95.1
%
Total
579,659
598,051
(18,392
)
(3.1
%)
(42,169
)
(7.5
%)
23,777
4.4
%
Property operating expenses, net of utility reimbursements:
Same Store
152,528
160,546
(8,018
)
(5.0
%)
(10,826
)
(7.0
%)
2,808
2.0
%
Other Real Estate
13,542
10,744
2,798
26.0
%
-
-
%
2,798
26.0
%
Total
166,070
171,290
(5,220
)
(3.0
%)
(10,826
)
(7.0
%)
5,606
4.0
%
Proportionate property net operating income:
Same Store
396,026
421,558
(25,532
)
(6.1
%)
(31,343
)
(7.7
%)
5,811
1.6
%
Other Real Estate
17,563
5,203
12,360
237.6
%
-
-
%
12,360
237.6
%
Total
$
413,589
$
426,761
$
(13,172
)
(3.1
%)
$
(31,343
)
(7.7
%)
$
18,171
4.6
%
For the year ended December 31, 2021, compared to 2020, excluding changes attributable to changes in ownership, our Same Store proportionate property NOI increased by $5.8 million, or 1.6%. This increase was attributable primarily to an $8.6 million, or 1.7%, increase in rental and other property revenues due primarily to a 150 basis point increase in ADO, a 10 basis point decrease in bad debt, and a 50 basis point increase in revenue from commercial tenants. The increase in proportionate property NOI was offset partially by higher Same Store property operating expenses of $2.8 million, driven by a $1.9 million, or 29.2%, increase in insurance expense and a $1.3 million, or 2.2%, increase in real estate taxes, offset partially by a decrease in controllable operating expenses.
Other Real Estate proportionate property NOI increased by $12.4 million for the year ended December 31, 2021, compared to 2020, due primarily to the June 2021 acquisition of City Center on 7th and October 2021 acquisition of four properties located in the Washington, D.C. area.
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, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.
For the year ended December 31, 2021, compared to 2020, non-segment real estate operations increased by $4.0 million, due primarily to:
•$6.8 million of property management revenues recognized during the year related to the management of Aimco communities as a result of the Separation;
•$2.9 million of write-off of straight-line rent receivables during 2020, due to the economic impact of COVID-19; offset partially by
•$3.9 million of lower NOI attributable to sold properties and properties leased to Aimco; and
•$2.5 million of higher casualty losses, net of insurance recoveries, primarily due to hurricane related flooding in Philadelphia.
Depreciation and Amortization
For the year ended December 31, 2021, compared to 2020, depreciation and amortization expense was relatively flat.
General and Administrative Expenses
For the year ended December 31, 2021, compared to 2020, general and administrative (“G&A”) expenses decreased $27.8 million, or 59.9%, due primarily to lower personnel costs; structural changes made to reflect AIR's more focused business model; and Aimco's reimbursement to AIR for services provided by our CEO, of which the GAAP impact was $5.3 million. We anticipate a similar reimbursement in 2022.
If G&A expenses, as defined below, exceeded 15 basis points of gross asset value, our CEO volunteered and AIR accepted his commitment, to reduce his compensation without any adjustment or makeup of any sort. Our CEO did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Accordingly, during the year ended December 31, 2021, our CEO’s compensation was reduced by $2.5 million. We do not expect the need for such a reduction in 2022.
G&A expenses, for the purpose of this metric, are defined as follows:
•All costs that are reported as G&A expenses in our consolidated statements of operations, in accordance with GAAP;
•Plus the depreciation of capitalized costs of non-real estate assets, related to G&A activities. In 2021, these costs were in other expenses, net in our consolidated statements of operations. Starting with AIR’s first quarter 2022 reporting, these costs will be included in G&A expenses in our consolidated statements of operations;
•Plus property management costs that exceed 3% of property revenues, to eliminate any distortion from allocation of costs;
•Less asset management fees earned from joint ventures, as asset management fees are paid by joint venture partners in reimbursement of G&A services provided by AIR. In accordance with GAAP, these fees are recorded outside of G&A expenses in our consolidated statements of operations. The California joint venture is consolidated on our balance sheet and accordingly fees earned from this venture are included in the determination of net income (loss) attributable to noncontrolling interests in consolidated real estate partnerships. The Washington D.C. area joint venture is not consolidated on our balance sheet and accordingly fees earned from this venture are included in income from unconsolidated real estate partnerships. Total fees earned from the joint ventures were $4.5 million for the year ended December 31 , 2021.
•Gross asset value is determined as a weighted average of quarterly estimates. Acquisitions and dispositions are included in the determination of gross asset value in the period the transaction occurs.
Increases in gross asset value, and higher asset management fees are expected to eliminate the need for our CEO to reduce his compensation in 2022 and in future years.
Provision for Real Estate Impairment Loss
During the year ended December 31, 2020, we recognized a non-cash impairment loss on real estate of $47.3 million. We did not recognize any impairment losses during the year ended December 31, 2021.
Other Expenses, Net
Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses, and certain non-recurring items.
For the year ended December 31, 2021, compared to 2020, other expenses, net, decreased by $46.6 million, or 63.1%, due primarily to costs associated with the Separation that were substantially lower in 2021.
Interest Income
Interest income for the year ended December 31, 2021, compared to 2020, increased by $46.3 million, which includes $27.8 million of income associated with our notes receivable from Aimco and $26.0 million of rental payments, which GAAP characterizes as interest income associated with properties leased to Aimco.
Interest Expense
For the year ended December 31, 2021, compared to 2020, interest expense decreased by $17.6 million, or 11.9%, primarily due to lower amounts owed and refinancing of higher cost property debt with lower cost corporate borrowings. Through December 31, 2021, we repaid approximately $1.5 billion of property debt with a weighted-average interest rate of 4.06%, and increased corporate debt by $838.4 million.
Loss on Extinguishment of Debt
For the year ended December 31, 2021, compared to 2020, loss on extinguishment of debt increased by $143.4 million, due to prepayment penalties from the early payment of property debt and the write-off of deferred financing costs. During the year
ended December 31, 2021, we incurred $156.7 million of debt extinguishment costs from the prepayment of debt. Approximately 60% of the prepayment penalty reflected the mark-to-market on the debt and accelerated future interest expense. The remaining 40%, or $60 million, is an investment in higher future earnings, a $5.6 billion increase in our pool of unencumbered properties and increased financial flexibility.
Gain on Derecognition of Leased Properties and Dispositions of Real Estate
During the year ended December 31, 2021, we recognized $594.9 million of gain on derecognition of leased properties and dispositions of real estate, which primarily consists of: $243.4 million in property sales, $266.4 million in connection with the Washington, D.C. joint venture, and $87.1 million related to the derecognition of assets leased to Aimco.
Apartment communities sold are summarized below (dollars in millions):
Number of apartment communities sold
Gross proceeds
$
511.5
$
185.2
Net proceeds (1)
$
471.9
$
158.7
(1)Net proceeds are after repayment of debt, if any, net working capital settlements, payment of transaction costs, and debt prepayment penalties, if applicable.
The apartment communities sold during 2021 were located outside of primary markets or in lower-rated locations within primary markets. The apartment communities sold during 2020 were sold by Aimco prior to the Separation.
Mezzanine Investment Income, net
In connection with the Separation, Aimco was allocated economic ownership of the mezzanine loan investment and option to acquire a 30% equity interest in the partnership. Subsequent to the Separation, all risks and rewards of ownership are Aimco’s. During the year ended December 31, 2020, we recognized $27.6 million of income in connection with the mezzanine loan. For the year ended December 31, 2021, the mezzanine investment income was offset by an expense to recognize the requirement that this income be contributed to Aimco.
Income Tax Benefit (Expense)
Certain of our operations, including property management and risk 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. Income taxes related to these items, as well as changes in valuation allowance, are included in income tax benefit (expense) in our consolidated statements of operations.
For the year ended December 31, 2021, we recognized an income tax benefit of $5.2 million, compared to income tax expense of $95.4 million for the year ended December 31, 2020, due primarily to the conversion of one of our former TRS entities into a REIT in the fourth quarter of 2020, which resulted in the non-cash write-off of deferred tax asset balances.
Income from Discontinued Operations, net of tax
For the year ended December 31, 2020, apartment communities that were included in discontinued operations generated net income of $11.2 million.
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 and Pro forma Funds From Operations
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 (loss) 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 including (iv) our share of the 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.
In addition to NAREIT FFO, we use Pro forma FFO to measure short-term performance. Pro forma FFO represents NAREIT FFO as defined above, excluding the results of operations of properties retained by Aimco in the Separation and certain amounts that are unique or occur infrequently.
In computing Pro forma FFO, we made the following adjustments to NAREIT FFO:
•Prepayment penalties, net: Pro forma adjustments include $148 million of debt extinguishment costs from the prepayment of debt. Approximately 60% of the prepayment penalty reflected the mark-to-market on the debt and accelerated future interest expense. The remaining 40%, or $60 million, is an investment in higher future earnings, a $5.6 billion increase in our pool of unencumbered properties and increased financial flexibility. We excluded such costs from Pro forma FFO because we believe these costs are not representative of future cash flows.
•Tax adjustment: we challenged the methodology previously used to value net operating loss carrybacks at our TRS entity. As a result of the revised tax position, we expect to receive $9.7 million in refunds. This amount has been recorded as a receivable and was excluded from Pro forma FFO, due to the unusual and non-recurring nature of the refund.
•Separation and transition related costs: during 2021, we incurred tax, legal, and other transition related costs and wrote off costs associated with redevelopment projects we no longer intend to pursue as a result of the Separation. We excluded these costs from Pro forma FFO because we believe they are not representative of ongoing operating performance.
•Casualty losses: during 2021, we incurred casualty losses, net of insurance recoveries, due to Hurricane Ida-induced flooding in downtown Philadelphia causing damage to our Park Towne Place apartment community. We excluded these costs from Pro forma FFO because of the unusual nature of the weather event.
•Non-cash straight-line rent: in 2018, we assumed a 99-year ground lease with scheduled rent increases. Due to the terms of the lease, GAAP rent expense will exceed cash rent payments until 2076. We include the cash rent payments for this ground lease in Pro forma FFO but exclude the incremental straight-line non-cash rent expense. The rent expense for this lease is included in other expenses, net, in our consolidated statements of operations.
•Incremental cash received from leased properties: during 2021, we leased properties to Aimco. Due to the terms of these leases, during 2021 cash received exceeded GAAP income. We include the cash lease income in Pro forma FFO.
NAREIT FFO and Pro forma FFO 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.
For the year ended December 31, 2021 NAREIT FFO and Pro forma FFO are calculated as follows (in thousands, except per share data):
Net income (loss) attributable to AIR common stockholders
$
447,124
Adjustments:
Real estate depreciation and amortization, net of noncontrolling partners’ interest
296,436
Gain on derecognition of leased properties and dispositions of real estate
(594,861
)
Income tax adjustments related to gain on dispositions and other tax-related items
2,707
Common noncontrolling interests in AIR OP’s share of above Adjustments
19,715
Amounts allocable to participating securities
NAREIT FFO attributable to AIR common stockholders
$
171,241
Adjustments, all net of common noncontrolling interests in AIR Operating Partnership and participating securities:
Prepayment penalties
148,406
Tax adjustment
(9,099
)
Separation and transition related costs
14,850
Casualty losses
2,458
Non-cash straight-line rent
2,470
Incremental cash received from leased properties
Other
(91
)
Pro forma FFO
$
330,773
Weighted-average common shares outstanding - basic
154,135
Dilutive common share equivalents
Pro forma shares and dilutive share equivalents used to calculate Pro forma FFO per share
154,503
Net income (loss) attributable to AIR per common share - diluted
$
2.89
NAREIT FFO per share - diluted
$
1.11
Pro forma FFO per share - diluted
$
2.14
Please refer to the Results of Operations section for discussion of the factors affecting our AIR Pro forma FFO for 2021.
Leverage Ratios
As discussed under the Balance Sheet heading, we target Net Leverage to Adjusted EBITDAre at 5.5x, with a range between 5.0x and 6.0x. 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.
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 line, and our term loans. 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 (which are primarily restricted under the terms of our property debt agreements), excluding tenant security deposits included in restricted cash, assuming the remaining amounts of cash and restricted cash would be used to reduce our outstanding leverage. We further reduce our recorded debt by our notes receivable from Aimco, the proceeds from which we expect will be used to pay down property debt.
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.
For informative purposes below, we have also disclosed leverage information excluding our notes receivable from Aimco. The necessary adjustments to calculate Leverage to EBITDAre are described in the footnotes to the relevant tables.
The reconciliation of total indebtedness to Proportionate Debt and Preferred Equity, as used in our leverage ratios as of December 31, 2021, is as follows (in thousands):
December 31, 2021
Total indebtedness
$
3,743,286
Adjustments:
Debt issuance costs related to non-recourse property debt and term loans
16,471
Debt related to assets classified as held for sale
84,307
Proportionate share adjustments related to debt obligations
(396,298
)
Cash and restricted cash
(92,761
)
Tenant security deposits included in restricted cash
10,028
Proportionate share adjustments related to cash and restricted cash
1,629
Notes receivable from Aimco (1)
(534,127
)
Proportionate Debt
$
2,832,535
Perpetual preferred stock
2,129
Preferred noncontrolling interests in AIR Operating Partnership
79,370
Net Leverage
$
2,914,034
Leverage reduction funded by January 2022 property sales
(498,713
)
Net Leverage, Pro forma for January 2022 sales
$
2,415,321
Incremental leverage reduction funded by anticipated property sales during the balance of the first quarter of 2022
(260,553
)
Net Leverage, Pro forma for first quarter 2022 property sales
$
2,154,768
(1)Proportionate Debt would be $3.4 billion on a gross basis excluding the adjustment for notes receivable from Aimco. Our calculation of Net Leverage to EBITDAre was 7.3x as of December 31, 2021 and, Pro forma completion of first quarter 2022 sales, was 6.2x.
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, depreciation, and amortization expense, which we have further adjusted for:
•gains and losses on the derecognition of leased properties and dispositions of depreciated property;
•impairment write-downs of depreciated property; and
•adjustments to reflect our share of EBITDAre of investments in unconsolidated entities.
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:
•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;
•the income recognized related to our notes receivable from Aimco is excluded, as their proceeds are expected to be used to repay current amounts outstanding;
•the amount by which GAAP rent expense exceeds cash rents for a long-term ground lease for which expense exceeds cash payments until 2076 is excluded. The excess of GAAP rent expense over the cash payments for this lease does not reflect a current obligation that affects our ability to service debt; and
•the amount by which cash received exceeds GAAP lease income for the properties leased to Aimco is included.
The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three months ended December 31, 2021, as used in our leverage ratios, is as follows (in thousands):
Three Months Ended
December 31, 2021
Net income
$
399,125
Adjustments:
Interest expense
29,272
Loss on extinguishment of debt
111,857
Income tax benefit
(6,016
)
Depreciation and amortization
87,550
Gain on derecognition of leased properties and dispositions of real estate
(500,349
)
EBITDAre
$
121,439
Net loss from continuing operations attributable to noncontrolling interests in consolidated real estate partnerships
(174
)
EBITDAre adjustments attributable to noncontrolling interests and unconsolidated real estate partnerships
(8,245
)
Interest income on notes receivable from Aimco (1)
(6,944
)
Pro forma FFO adjustments, net (2)
5,148
Adjusted EBITDAre
$
111,224
Annualized Adjusted EBITDAre
$
444,896
January 2022 property sales, annualized
(25,800
)
January 2022 Adjusted Annualized EBITDAre
$
419,096
Remaining first quarter 2022 anticipated sales for properties under contract, annualized
(12,452
)
Pro forma Adjusted Annualized EBITDAre
$
406,644
(1)Adjusted EBITDAre would be approximately $118 million on a gross basis including the interest income on the notes receivable from Aimco. Our calculation of Net Leverage to EBITDAre, including the related interest income, was 7.3x as of December 31, 2021 and, Pro forma completion of first quarter 2022 sales, was 6.2x.
(2)Pro forma adjustments, net, 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 and amounts attributable to noncontrolling interest share, and a $4.6 million adjustment to reflect the disposition of 15 apartment communities and Washington, D.C. joint venture transaction during the period as if the transactions closed on October 1, 2021.
Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow 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, interest and proceeds from our notes receivable from Aimco, and proceeds from equity offerings.
As of December 31, 2021, our available liquidity was $365.7 million, which consisted of:
•$66.0 million in cash and cash equivalents;
•$15.1 million of restricted cash, excluding amounts related to tenant security deposits, which consists primarily of escrows held by lenders for capital additions, property taxes, and insurance; and
•$284.6 million of available capacity to borrow under our revolving credit line after consideration of letters of credit.
Additional liquidity may also be provided through property debt financing at properties unencumbered by debt and proceeds from our notes receivable from Aimco.
Uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, payments of operating lease obligations, 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 our 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 refinancings. We may use our revolving credit line 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 debt or 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 5, Note 6, 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 relating to our currently outstanding fixed-rate and variable-rate non-recourse property debt, variable-rate revolving credit facility borrowings, and our term loan borrowings for the years ended December 31, 2022 through 2026 of approximately $93 million, $77 million, $66 million, $59 million, and $48 million, respectively, and approximately $176 million in the aggregate thereafter based on balances outstanding on a consolidated basis as of December 31, 2021. Interest related to variable-rate debt is estimated based on the rate effective as of December 31, 2021. After taking into consideration our planned first quarter 2022 debt repayments, anticipated interest payments on a consolidated basis for the years ended December 31, 2022 through 2026 would be approximately $79 million, $65 million, $54 million, $47 million and $36 million, respectively, and approximately $147 million in the aggregate thereafter. The aforementioned future interest payments are based on debt outstanding as of December 31, 2021 and do not take into effect any future refinancing or debt issuances.
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. Currently, interest rates are low compared to historical levels and financing is readily available. 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. However, if financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.
The combination of non-recourse property-level debt, borrowings under our revolving credit line, our term loans, our preferred OP Units as described below, and our redeemable noncontrolling interests in a consolidated real estate partnership comprise our total leverage. The weighted-average remaining term to maturity for our total leverage was 6.6 years as of December 31, 2021 with a weighted average interest rate of 2.6%.
As of December 31, 2021, our preferred equity, which includes outstanding preferred OP Units and outstanding perpetual preferred stock, represented approximately 2.3% of our total leverage. Preferred OP Units are redeemable at the holder’s option and our preferred stock is redeemable by AIR on or after December 15, 2025. For illustrative purposes, we compute the weighted-average maturity of our preferred OP Units assuming a 10-year maturity and our preferred stock assuming it is called at the expiration of the no-call period.
Under our revolving credit line 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 greater than 1.5x, a Maximum Secured Indebtedness to Total Assets ratio of no greater than 0.45 to 1.00 through March 31, 2023, and 0.40 to 1.00 thereafter, and a Maximum Unsecured Leverage ratio no greater than 0.60 to 1.00. We were in compliance with these covenants as of December 31, 2021 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, 2021, net cash provided by operating activities was $333.0 million. Our operating cash flow is affected primarily by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities.
Cash provided by operating activities for the year ended December 31, 2021 increased by $56.3 million, compared to 2020. The increase was due to improved operating results of our Same Store communities and contribution from acquired communities.
Investing Activities
For the year ended December 31, 2021, net cash provided by investing activities of $478.3 million consisted primarily of proceeds from dispositions of real estate and the maturation of debt investments, offset partially by purchases of real estate and capital expenditures.
Capital additions totaled $143.1 million and $295.7 million during the years ended December 31, 2021 and 2020, 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 four primary categories:
•capital replacements, which do not increase the useful life of an asset from its original purchase condition. Capital replacements represent capital additions made to replace the portion of our investment in acquired apartment communities consumed during our period of ownership;
•capital improvements, which represent capital additions made to replace the portion of acquired apartment communities consumed prior to our period of ownership;
•capital enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in more durable, longer-lived materials designed to reduce costs, and do not significantly disrupt property operations; and
•other additions, which represent capital additions: (i) contemplated in the underwriting of our recently acquired communities; and (ii) capitalized costs incurred in connection with the restoration of an apartment community after a casualty event.
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.
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 (dollars in thousands):
Year Ended December 31,
Capital replacements
$
29,358
$
26,854
Capital improvements
9,786
10,685
Capital enhancements
87,171
24,070
Other capital expenditures
16,831
234,126
Total capital additions
$
143,146
$
295,735
Plus: additions related to apartment communities sold and held for sale
25,774
33,421
Consolidated capital additions
$
168,920
$
329,156
Plus: net change in accrued capital spending from continuing operations
5,579
17,758
Total capital expenditures from continuing operations per consolidated statements of cash flows
$
174,499
$
346,914
For the years ended December 31, 2021 and 2020, we capitalized $2.4 million and $13.7 million of interest costs, respectively, and $10.3 million and $33.0 million of other direct and indirect costs, respectively.
Other capital expenditures decreased by $217.3 million for the year ended December 31, 2021, compared to 2020, due primarily to increased spend incurred in 2020 related to the redevelopment and development of properties that have subsequently been leased to Aimco effective January 1, 2021.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2021, increased by $765.9 million compared to the prior year. Our primary uses of financing related cash were principal repayments on non-recourse property debt and associated
debt extinguishment costs and the payment of dividends. Our primary sources of financing were new corporate term loans and a private placement of common equity.
Future Capital Needs
We expect to fund any future acquisitions and other capital spending principally with proceeds from apartment community sales, secured and unsecured borrowings, the issuance of debt and/or equity securities (including OP Units), the formation of joint ventures, 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 2022 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.
Sales-Type Lease Arrangements
We have entered into leases of existing properties with Aimco, which are generally accounted for as sales-type leases in accordance with ASC 842. The terms of such leases range from 10 to 25 years. We are required to estimate the fair value of the leased property for the purposes of lease classification and, for sales-type leases, the rate implicit in the lease. We estimate the fair value of our properties using various estimates and assumptions, the most significant being the capitalization rate. As of December 31, 2021, we have assets recorded reflecting our net investment in such leased properties totaling $466 million.
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 and assumptions, the most significant being market rental rates, operating expense assumptions, expected hold period, and capitalization rates. 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 to be held and used included in our Other Real Estate segment of $47.3 million under the held-for-use impairment model during the year ended December 31, 2020. We did not recognize any such impairment during the year ended December 31, 2021.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. To reduce this risk, we have lowered our use of leverage. 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. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.
Market Risk
As of December 31, 2021, on a consolidated basis, we had approximately $1.2 billion of outstanding borrowings on our term loans, $88.5 million of variable-rate property-level debt outstanding, and $304.0 million of variable-rate borrowings under our revolving credit line. We estimate that an increase in 30-day LIBOR of 100 basis points with constant credit risk spreads would increase interest expense by $15.1 million on an annual basis. We estimate that a decrease in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce interest expense by, a lesser amount, $4.8 million on an annual basis, due to the existence of LIBOR floors in certain of our floating rate debt agreements.
As of December 31, 2021, we had $92.8 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 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 term loans and revolving credit line, was $3.8 billion as of December 31, 2021, inclusive of a $62.0 million mark-to-market liability. The mark-to-market liability as of December 31, 2020 was $84.5 million.
If market rates for consolidated fixed-rate debt in our portfolio were higher by 100 basis points with constant credit risk spreads, the estimated fair value of consolidated debt discussed above would decrease from $3.8 billion in the aggregate to $3.7 billion. If market rates for consolidated debt discussed above were lower by 100 basis points with constant credit risk spreads, the estimated fair value of consolidated fixed-rate debt would increase from $3.8 billion in the aggregate to $3.9 billion.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 of this Annual Report are filed as part of this report and incorporated herein by this reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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.
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, 2021. 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, 2021, 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 2021 that has materially affected, or is reasonably likely to materially affect, AIR’s internal control over financial reporting.
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, 2021, 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, 2021, 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), consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 1, 2022, 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 AND TOUCHE LLP
Denver, Colorado
March 1, 2022
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, 2021. 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, 2021, 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 2021 that has materially affected, or is reasonably likely to materially affect, the AIR Operating Partnership’s internal control over financial reporting.
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, 2021, 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, 2021, 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, 2021, of the Partnership and our report dated March 1, 2022, 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 AND TOUCHE LLP
Denver, Colorado
March 1, 2022

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Biographical information for our directors follows.
THOMAS N. BOHJALIAN, CFA
Age: 56
Independent Director since December 2021
Experience
•Executive Vice President/Senior Portfolio Manager, the Head of U.S. Real Estate and Trading departments and responsible for investment decisions for $40 billion of the firm’s assets, Cohen & Steers, a $96 billion global asset manager focused on listed Real Assets (2002 - June 2021), during his tenure, was responsible for two 5-Star Morningstar ranked funds, was a five-time winner of the Lipper Fund of the year award, and consistently ranked in the top decile of all real estate fund managers.
Qualifications
•Over 30 years of real estate and finance experience
Committees
•Audit Committee
•Compensation and Human Resources Committee
•Governance and Corporate Responsibility Committee
Other Organizations
•New York Society of Security Analysts, Member
TERRY CONSIDINE
Chief Executive Officer,
AIR Communities
Age: 74
Director since 1994
Experience
•Chief Executive Officer, AIR (2020 - present)
•Chief Executive Officer and Chairman, Aimco Board (July 1994 - December 2020 separation)
•In 1975, founded and subsequently managed the predecessor companies that became Aimco at its initial public offering in 1994
Qualifications
•More than 50 years of experience in real estate, television broadcasting, convenience stores, environmental services, and venture capital
Other Boards
•Aimco (with specific responsibilities during 2021-2022 to support the establishment and growth of the Aimco business, reporting directly to the Aimco board of directors)
KRISTIN R.
FINNEY-COOKE
Managing Director,
JP Morgan Multi Asset
Solutions Group
Age: 51
Independent Director since December 2021
Experience
•Managing Director, JP Morgan Multi Asset Solutions Group (September 2021 - present)
•Senior Consultant and Co-Chair of the Diverse Manager Advisory Committee, NEPC Chicago office, providing investment advice to large asset pools on investment policy development, asset liability modeling, asset allocation, investment manager selection, and performance monitoring (2010 - September 2021)
•Principal, where provided investment consulting services to large public, endowment, healthcare, and corporate fund clients, including three years as the National Public Fund Segment Leader, Mercer (2004 - 2010)
•Spent six years at Credit Suisse First Boston
Qualifications
•23-year career in investment management
•Frequent speaker at conferences and testifies annually at the Illinois State Senate Hearings on behalf of her clients
Committees
•Audit Committee
•Compensation and Human Resources Committee
•Governance and Corporate Responsibility Committee
Other Organizations
•Board of Trustees, Chicago State University Foundation, Member & Investment Committee Chair
•Board of Trustees, Ann & Robert H. Lurie Children’s Hospital of Chicago Medical Center
•Economic Club of Chicago, Member
THOMAS L. KELTNER
Chairman of the Board
Age: 75
Independent Director
since 2007
Experience
•Executive Vice President and Chief Executive Officer - Americas and Global Brands, Hilton Hotels Corporation (March 2007 - March 2008, which concluded the transition period following Hilton’s acquisition by The Blackstone Group); joined in 1999 and served in various roles
•Served in several position, Promus Hotel Corporation, including President, Brand Performance and Development (1993 - 1999)
•Served in various capacities, Holiday Inn Worldwide, Holiday Inns International and Holiday Inns, Inc.
•President, Saudi Marriott Company, a division of Marriott Corporation
•Management consultant, Cresap, McCormick and Paget, Inc.
Qualifications
•More than 20 years of experience in the areas of hotel development, acquisition, disposition, franchising, and management
•Property operations, marketing, branding, development, and customer service expertise
Committees
•Audit
•Compensation and Human Resources
•Governance and Corporate Responsibility
•AIR-AIV Transactions, Chair
Other Boards
•Aimco (April 2007 - December 2020); served as Chairman of Compensation and Human Resources Committee and member of Audit, Nominating and Corporate Governance, and Redevelopment and Construction Committees
DEVIN I. MURPHY
President, Phillips Edison
& Company
Age: 62
Independent Director
since 2020
Experience
•President, Phillips Edison & Company, a Nasdaq-listed real estate investment trust that is one of the nation’s largest owners and operators of grocery-anchored shopping centers (2019 - present); Chief Financial Officer (2013 - 2019)
•Vice Chairman, Morgan Stanley (2009 - 2013)
•Global Head of Real Estate Investment Banking, Deutsche Bank, where his team executed over 500 transactions of all types for clients representing total transaction volume exceeding $400 billion, including initial public offerings, mergers and acquisitions, common stock offerings, secured and unsecured debt offerings and private placements of both debt and equity (2004 - 2007)
•Held a number of senior positions including Co-head of U.S. Real Estate Investment Banking and Head of Real Estate Private Capital Markets and served on the Investment Committee of the Morgan Stanley Real Estate Funds, a series of global private real estate funds with over $35 billion in assets under management, Morgan Stanley (1986 - 2006)
Qualifications
•Real estate finance, capital markets and corporate governance expertise
•Served as an investment banker for 30 years
Committees
•Audit
•Compensation and Human Resources
•Governance and Corporate Responsibility
Other Boards
•CoreCivic, Inc., a NYSE listed REIT that is the nation’s leading provider of high-quality corrections and detention management facilities (2018 - 2021)
•Aimco, member of Audit, Compensation and Human Resources, and Governance and Nominating and Corporate Governance Committees (2020 - 2021)
MARGARITA
PALÁU-HERNÁNDEZ,
ESQ.
Founder and Chief
Executive Officer,
Hernández Ventures
Age: 65
Independent Director since
December 2021
Experience
•Founder and Chief Executive Officer, Hernández Ventures, a privately held enterprise involved in Spanish-language media, business, and real estate ventures (1988 - present)
•Nominated to serve as a Representative of the United States of America to the Seventy-third Session of the General Assembly of the United Nations with the personal rank of Ambassador (2018)
•Attorney, McCutcheon, Black, Verleger & Shea (1985 - 1988), specialized in real estate transactions
Qualifications
•International business experience
•Public and private company board, corporate governance, and leadership experience
Committees
•Audit Committee
•Compensation and Human Resources Committee
•Governance and Corporate Responsibility Committee
Other Boards and Organizations
•Occidental Petroleum (since 2020)
•Xerox Holdings Corporation (since 2021)
•Conduent Incorporated (since 2019)
•Herbalife Nutrition, Ltd. (2018 to 2021)
•ALJ Regional Holdings, Inc. (2015 to 2019)
•Yale School of Management Council of Global Advisors, Chair
•Board of Trustees of the National Museum of the American Latino at the Smithsonian
•Ronald Reagan UCLA Medical Center Board of Advisors
JOHN DINHA RAYIS
Age: 67
Independent Director
since 2020
Experience
•Skadden, Arps, Slate, Meagher & Flom LLP; Partner, Tax, advising clients on a variety of complex corporate, partnership, and REIT tax law matters (1982 - 2016); Of Counsel (2016 - 2018)
•Adjunct Professor of Law, Stetson University College of Law (2021 - present)
Qualifications
•Corporate, tax, REIT and securities law, governance, and strategic alliances expertise
•Admitted to practice before the U.S. Supreme Court
•Repeatedly selected for inclusion in Chambers Global: The World’s Leading Lawyers for Business in the “Capital Markets: REITs” category, in Chambers USA, America’s Leading Lawyers for Business as one of America’s leading REIT tax lawyers, and in The Best Lawyers in America
Committees
•Audit
•Compensation and Human Resources
•Governance and Corporate Responsibility, Chair
•AIR-AIV Transactions
Other Boards
•Board of Trustees of The University of Chicago Medical Center (May 2021 - present), member of the Audit, Development, and Science Advancement Committees
•Aimco, member of Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees (2020 - 2021)
ANN SPERLING
Age: 66
Independent Director
since 2018
Experience
•Senior Director, Trammell Crow Company, the development subsidiary of the public company, CBRE (2013 - 2021)
•President, Markets West, Jones Lang LaSalle, the public real estate investment and services firm (2012 - 2013), Chief Operating Officer, Americas, where she oversaw operations, finance, marketing, research, human resources, legal, and engineering and served on the governance focused Global Operating Committee (2009 - 2012)
•Managing Director, Catellus, then a mixed-use development and investment subsidiary of the public REIT, Prologis, where she was responsible for operations, finance, and marketing, prior to this subsidiary’s preparation for sale (2007 - 2009)
•Held a variety of roles, Trammell Crow Company, the last of which was as Senior Managing Director and Area Director, responsible for all facets of operations, finance, transactions, and marketing for the Rocky Mountain Region (1982 - 2006)
Qualifications
•Real estate investment and development, governance, operations, marketing, and finance expertise
Committees
•Audit
•Compensation and Human Resources
•Governance and Corporate Responsibility, Chair
Other Boards
•SmartRent, a NYSE-listed provider of smart home automation technology
•Aimco, Chairman of Redevelopment and Construction Committees and member of Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees (2018 - 2021)
•Advisory Board of Cadence Capital
•Advisory Board of the Gates Center for Regenerative Medicine
NINA A. TRAN
Chief Financial Officer,
Pacaso
Age: 53
Independent Director
since 2016
Experience
•Chief Financial Officer, Pacaso, a real estate technology company that provides second home co-ownership (2021 - present)
•Chief Financial Officer, Veritas Investments, a real estate investment manager that owns and operates mixed-use-multifamily properties in the San Francisco Bay Area and Southern California (2016 - 2021)
•Chief Financial Officer, Starwood Waypoint Residential Trust, a leading publicly traded REIT that owns and operates single-family rental homes (2013 - 2016)
•Held various positions including Senior Vice President and Chief Accounting Officer, and most recently as Chief Global Process Officer, where she helped lead the merger integration of AMB and Prologis, AMB Property Corporation (now Prologis, Inc.), the largest publicly traded global industrial REIT (1995 - 2013)
•Senior Associate, PricewaterhouseCoopers (1991-1995)
Qualifications
•Accounting, financial control, and business processes expertise
Committees
•Audit, Chair
•Compensation and Human Resources
•Governance and Corporate Responsibility
•AIR-AIV Transactions
Other Boards
•American Assets Trust, a NYSE listed REIT focused on premier office, retail and residential properties
•Aimco, Chairman of Audit Committee and as a member of Compensation and Human Resources, Nominating and Corporate Governance, and Redevelopment and Construction Committees (2016 - 2021)
•Advisory Board, Asian Pacific Fund
Summary of Director Qualifications and Expertise
Below is a summary of the qualifications and expertise of the directors, including expertise relevant to AIR’s business.
Summary of Director
Qualifications and Expertise
Mr. Bohjalian
Mr. Considine
Ms. Finney-
Cooke
Mr. Keltner
Mr. Murphy
Ms. Paláu-
Hernández
Mr. Rayis
Ms. Sperling
Ms. Tran
Accounting and Auditing for Large Business Organizations
•
•
Business Operations
•
•
•
•
•
•
•
Capital Markets
•
•
•
•
•
Corporate Governance
•
•
•
•
•
•
•
•
•
Customer Service
•
Executive
•
•
•
•
•
•
•
•
•
Financial Expertise and Literacy
•
•
•
•
•
•
•
•
•
Information Technology
•
Investment and Finance
•
•
•
•
•
•
•
•
Legal
•
•
•
Marketing and Branding
•
•
•
Property Management and Operations
•
•
•
•
•
•
Real Estate
•
•
•
•
•
•
•
•
•
Talent Development and Management
•
•
•
•
•
•
•
•
•
How We Are Selected & Elected
Board Composition, Board Refreshment, and Director Tenure
AIR is focused on having a well-constructed and high performing board. To that end, the Governance and Corporate Responsibility Committee selects nominees for director based on, among other things, breadth and depth of experience, knowledge, skills, expertise, integrity, ability to make independent analytical inquiries, understanding of AIR’s business environment, and willingness to devote adequate time and effort to Board responsibilities. In considering nominees for director, the Governance and Corporate Responsibility Committee seeks to have a diverse range of experience and expertise relevant to AIR’s business. The Governance and Corporate Responsibility Committee places a premium on directors who work well in the collegial and collaborative nature of the Board (which is also consistent with the AIR culture) and also requires directors who think and act independently and can clearly and effectively communicate their convictions. The Governance and Corporate Responsibility Committee assesses the appropriate balance of criteria required of directors and makes recommendations to the Board.
The Governance and Corporate Responsibility Committee has specifically considered the feedback of some stockholders as well as the discussions of some commentators that suggest lengthy Board tenure should be balanced with new perspectives. The Governance and Corporate Responsibility Committee has structured the Board such that there are directors of varying tenures, with new directors and perspectives joining the Board every few years including three new directors being elected in December 2021. They have done this while retaining the institutional memory of longer-tenured directors.
The average tenure of AIR’s independent directors is approximately three and a half years.
The Governance and Corporate Responsibility Committee believes that longer-tenured directors, balanced with less-tenured directors, enhance the Board’s oversight capabilities. AIR’s directors work effectively together, coordinate closely with senior management, comprehend AIR’s challenges and opportunities, and frame AIR’s business strategy. AIR’s Board members have established relationships with each other and in the business community that allow the Board to apply effectively its collective business savvy in guiding AIR’s enterprise.
When formulating its Board membership recommendations, the Governance and Corporate Responsibility Committee also considers advice and recommendations from others, including stockholders, as it deems appropriate. Such recommendations are evaluated based on the same criteria noted above. During 2021, the Governance and Corporate Responsibility Committee hired a third-party search firm to help identify and review director candidates. All three of our newly elected directors were recommended to the Governance and Corporate Responsibility Committee by our search firm.
The Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of stockholders.
Majority Voting for the Election of Directors
In an uncontested election at the meeting of stockholders, any nominee to serve as a director of AIR will be elected if the director receives a majority of votes cast, which means that the number of shares voted “for” a director exceeds the number of shares voted “against” that director. With respect to a contested election, a plurality of all the votes cast at the meeting of stockholders will be sufficient to elect a director. If a nominee who currently is serving as a director receives a greater number of “against” votes for his or her election than votes “for” such election (a “Majority Against Vote”) in an uncontested election, Maryland law provides that the director would continue to serve on the Board as a “holdover director.” However, under AIR’s Bylaws, any nominee for election as a director in an uncontested election who receives a Majority Against Vote is obligated to tender his or her resignation to the Board for consideration following certification of the vote. The Governance and Corporate Responsibility Committee will consider any resignation and recommend to the Board whether to accept it. The Board is required to take action with respect to the Governance and Corporate Responsibility Committee’s recommendation. Additional details are set out in Article II, Section 2.03 (Election and Tenure of Directors; Resignations) of AIR’s Bylaws.
Proxy Access
Based on stockholder feedback, corporate governance best practices and trends, and particular facts and circumstances, the Board determined to provide in AIR’s bylaws a proxy access right to stockholders. A stockholder or a group of up to 20 stockholders, owning at least 3% of our shares for at least three years, may submit nominees for up to 20% of the Board, or two nominees, whichever is greater, for inclusion in our proxy materials, subject to complying with the requirements contained in our bylaws.
How We Govern and Are Governed
Code of Ethics
The Board has adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to the members of the Board, all of AIR’s executive officers and all teammates of AIR or its subsidiaries, including AIR’s principal executive officer, principal financial officer, and principal accounting officer. The Code of Business Conduct and Ethics is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary. If, in the future, AIR amends, modifies, or waives a provision in the Code of Business Conduct and Ethics, rather than filing a Current Report on Form 8-K, AIR intends to satisfy any applicable disclosure requirement under Item 5.05 of Form 8-K by posting such information on AIR’s website (www.aircommunities.com), as necessary.
Corporate Responsibility Report
AIR publishes a Corporate Responsibility Report, which highlights our commitment to environmental and social responsibility. A copy of AIR’s current Corporate Responsibility Report is available on AIR’s website (www.aircommunities.com). Nothing on AIR’s website, including the Corporate Responsibility Report, shall be deemed incorporated by reference into this Proxy Statement.
Corporate Governance Guidelines and Director Stock Ownership
The Board has adopted and approved Corporate Governance Guidelines. These guidelines are available on AIR’s website (www.aircommunities.com) and are also available in print to stockholders, upon written request to AIR’s Corporate Secretary. In general, the Corporate Governance Guidelines address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, director orientation and continuing education, the role of the Board in planning management succession, stock ownership guidelines and retention requirements, and an annual performance evaluation of the Board.
With respect to stock ownership guidelines for the independent directors, the Corporate Governance Guidelines provide that by the completion of five years of service, an Independent Director is expected to own, at a minimum, the lesser of 27,500 shares or shares having a value of at least $550,000. Each of AIR’s continuing directors meets the ownership requirement or has not yet completed five years of service.
Majority Voting with a Resignation Policy
AIR requires its directors to be elected by a majority of the votes cast. Directors failing to get a majority of the votes cast are expected to tender their resignation. If a nominee who currently is serving as a director receives a greater number of “against” votes for his or her election than votes “for” such election (a “Majority Against Vote”) in an uncontested election, Maryland law provides that the director would continue to serve on the Board as a “holdover director.” However, under AIR’s Bylaws, any nominee for election as a director in an uncontested election who receives a Majority Against Vote is obligated to tender his or her resignation to the Board for consideration following certification of the vote. The Governance and Corporate Responsibility Committee will consider any resignation and
recommend to the Board whether to accept it. The Board is required to take action with respect to the Governance and Corporate Responsibility Committee’s recommendation.
Retirement Age or Term Limits
Rather than impose arbitrary limits on service, AIR regularly (and at least annually) reviews each director’s continued role on the Board and considers the need for periodic board refreshment.
Transactions in AIR Securities
AIR has a policy and training program focused on compliance with the securities laws, which are designed to prevent insider trading and ensure compliance with fair disclosure regulations. Any transaction in AIR securities by a director, officer or other employee on certain projects requires pre-clearance with the General Counsel and typically such transactions are permitted only during certain open trading windows. In addition, AIR’s policy against insider trading prohibits short sales and provides certain limitations to help ensure that any sort of margin account, pledges, hedges, or option transactions are consistent with the securities laws and aligned with the best interests of stockholders.
How We Are Organized
Board Leadership Structure
The Board has concluded that separating the Chairman and CEO role is most effective for the AIR’s leadership and governance and also responsive to stockholder feedback. Mr. Keltner serves as Chairman of the Board, which includes: presiding over meetings of the Board; presiding over executive sessions of the independent directors, which are held regularly and not less than four times per year; with the CEO, setting meeting agendas and schedules; calling meetings of the independent directors; and being available for direct communication with stockholders.
The Audit, Compensation and Human Resources, and Governance and Corporate Responsibility Committees are composed solely of independent directors so that each independent director hears all information unfiltered and to ensure the most efficient functioning of the Board.
Separate Sessions of Independent Directors
AIR’s Corporate Governance Guidelines (described above) provide that the non-management directors shall meet in executive session without management on a regularly scheduled basis, but no less than four times per year. The non-management directors, which group currently is made up of all directors other than Mr. Considine, met in executive session without management four times during the year ended December 31, 2021.
Meetings and Committees
The Board held six meetings during the year ended December 31, 2021. During 2021, there were three committees: Audit; Compensation and Human Resources; and Governance and Corporate Responsibility. During the year, the Board formed the AIR-AIV Transactions Committee. During 2021, no director attended fewer than 75% of the aggregate total number of meetings of the Board and each committee on which such director served.
The Corporate Governance Guidelines (described above) provide that AIR generally expects that the Chairman of the Board will attend all annual and special meetings of the stockholders. Other members of the Board are not required to attend such meetings. All the then-members of the Board attended AIR’s 2021 Annual Meeting of Stockholders.
Below is a table illustrating the current standing committee memberships and chairmen. Additional detail on each committee follows the table.
Director
AIR-AIV Transactions Committee
Audit Committee
Compensation and Human Resources Committee
Governance and Corporate Responsibility Committee
Terry Considine
Thomas N. Bohjalian
•
•
•
Kristin Finney-Cooke
•
•
•
Thomas L. Keltner

•
•
•
Devin I. Murphy
•
•
•
Margarita Paláu-Hernández
•
•
•
John Dinha Rayis
•
•

•
Ann Sperling
•
•

Nina A. Tran
•

•
•
• indicates a member of the committee
 indicates the current committee chairman
Audit Committee
The Audit Committee currently consists of the eight independent directors. Ms. Tran serves as the chairman of the Audit Committee. The Audit Committee has a written charter that was last reviewed and modified in October 2021. In addition to the work of the Audit Committee, Ms. Tran has regular and recurring conversations with Mr. Beldin, AIR’s Chief Financial Officer (“CFO”), with Ms. Cohn, AIR’s President and General Counsel, with AIR’s controller, with the head of AIR’s internal audit function, and with representatives of Deloitte & Touche LLP. The Audit Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The Audit Committee’s responsibilities are set forth in the following chart.
Audit Committee Responsibilities
Accomplished In 2021
Oversees AIR’s accounting and financial reporting processes and audits of AIR’s financial statements.
✓
Directly responsible for the appointment, compensation, and oversight of AIR’s independent auditor and the lead engagement partner and makes its appointment based on a variety of factors.
✓
Reviews the scope, and overall plans for and results of the annual audit and internal audit activities.
✓
Oversees management’s negotiation with AIR’s independent auditor concerning fees and exercises final approval over all independent auditor fees.
✓
Consults with management and AIR’s independent auditor with respect to AIR’s processes for risk assessment and enterprise risk management. Areas involving risk that are reported on by management and considered by the Audit Committee, the other Board committees, or the Board, include: operations, liquidity, leverage, finance, financial statements, the financial reporting process, accounting, legal matters, regulatory compliance, information technology and data protection, sustainability, ESG, compensation, succession planning, and human resources and human capital.
✓
Consults with management and AIR’s independent auditor regarding, and provides oversight for, AIR’s financial reporting process, internal control over financial reporting, and AIR’s internal audit function.
✓
Reviews and approves AIR’s policy about the hiring of former employees of independent auditors.
✓
Reviews and approves AIR’s policy for the pre-approval of audit and permitted non-audit services by the independent auditor, and reviews and approves any such services provided pursuant to such policy.
✓
Receives reports pursuant to AIR’s policy for the submission and confidential treatment of communications from teammates and others concerning accounting, internal control, and auditing matters.
✓
Reviews and discusses with management and AIR’s independent auditor quarterly earnings releases prior to their issuance and quarterly reports on Form 10-Q and annual reports on Form 10-K prior to their filing.
✓
Reviews the responsibilities and performance of AIR’s internal audit function, approves the hiring, promotion, demotion, or termination of the lead internal auditor, and oversees the lead internal auditor’s periodic performance review and changes to his or her compensation.
✓
Reviews with management the scope and effectiveness of AIR’s disclosure controls and procedures, including for purposes of evaluating the accuracy and fair presentation of AIR’s financial statements in connection with the certifications made by the CEO and CFO.
✓
Meets regularly with members of AIR management and with AIR’s independent auditor, including periodic meetings in executive session.
✓
Performs an annual review of AIR’s independent auditor, including an assessment of the firm’s experience, expertise, communication, cost, value, and efficiency, and including external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports on AIR’s independent auditor and its peer firms.
✓
Performs an annual review of the lead engagement partner of AIR’s independent auditor and the potential successors for that role.
✓
Periodically evaluates independent audit service providers.
✓
Pursuant to a competitive process, on September 23, 2021, the Audit Committee approved the appointment of Deloitte & Touche LLP to serve as AIR’s independent registered public accounting firm for the remainder of the fiscal year ended December 31, 2021. During the competitive process, on September 22, 2021, Ernst & Young LLP resigned as AIR’s independent registered public accounting firm, effective immediately.
The Audit Committee held six meetings during the year ended December 31, 2021. As set forth in the Audit Committee’s charter, no director may serve as a member of the Audit Committee if such director serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such director to effectively serve on the Audit Committee. No member of the Audit Committee serves on the audit committee of more than two other public companies.
Audit Committee Financial Expert
AIR’s Board has designated Ms. Tran as an “audit committee financial expert.” In addition, all of the members of the Audit Committee qualify as audit committee financial experts. Each member of the Audit Committee is independent, as that term is defined by Section 303A of the listing standards of the New York Stock Exchange relating to audit committees.
Compensation and Human Resources Committee
The Compensation and Human Resources Committee currently consists of the eight independent directors. Mr. Rayis serves as the chairman of the Compensation and Human Resources Committee. Mr. Rayis meets regularly with Ms. Cohn. Mr. Rayis also has regular conversations with AIR’s independent compensation consultant, FPL Associates (“FPL”) and with outside counsel with expertise in executive compensation and compensation governance related matters. The Compensation and Human Resources Committee has a written charter that was last reviewed and modified in July 2021. The Compensation and Human Resources Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The Compensation and Human Resources Committee’s responsibilities are set forth in the following chart.
Compensation and Human Resources Committee Responsibilities
Accomplished In 2021
Responsible for succession planning in all leadership positions, both in the short term and the long term, with particular focus on CEO succession in the short term and the long term.
✓
Oversee AIR’s management of the talent pipeline process.
✓
Oversee the goals and objectives of AIR’s executive compensation plans.
✓
Annually evaluate the performance of the CEO.
✓
Determine compensation for the CEO and other executive officers.
✓
Negotiate and provide for the documentation of any employment agreement (or amendment thereto) with the CEO, as applicable.
✓
Review with the CEO the CEO’s performance evaluation of the other executive officers.
✓
Approve and grant any equity compensation.
✓
Review and discuss the Compensation Discussion & Analysis with management.
✓
Oversee AIR’s submission to a stockholder vote of matters relating to compensation, including advisory votes on executive compensation and the frequency of such votes, incentive and other compensation plans, and amendments to such plans.
✓
Consider the results of stockholder advisory votes on executive compensation and take such results into consideration in connection with the review and approval of executive officer compensation.
✓
Review stockholder proposals and advisory stockholder votes relating to executive compensation matters and recommend to the Board AIR’s response to such proposals and votes.
✓
Review compensation arrangements to evaluate whether incentive and other forms of pay encourage unnecessary or excessive risk taking.
✓
Review and approve the terms of any compensation “claw back” or similar policy or agreement between AIR and AIR’s executive officers.
✓
Review periodically the goals and objectives of AIR’s executive compensation plans, and amend, or recommend that the Board amend, these goals and objectives if appropriate.
✓
Oversee AIR’s culture, with a particular focus on collegiality, collaboration, and team building.
✓
One of the most important responsibilities of the Compensation and Human Resources Committee is to ensure a succession plan is in place for key members of AIR’s executive management team, including the CEO. Based on the work of the Compensation and Human Resources Committee, the Board has a succession plan for the CEO position, is prepared to act in the event of a CEO vacancy in the short term, and the Compensation and Human Resources Committee has also identified candidates for succession over the long term. The Board will select the successor taking into consideration the needs of the organization, the business environment, and each candidate’s skills, experience, expertise, leadership, and fit. AIR maintains a robust succession planning process, as highlighted in the following chart.
Management Succession
AIR maintains an executive talent pipeline for every executive officer position, including the CEO position, and every other officer position within the organization.
The executive talent pipeline includes “interim,” “ready now,” and “under development” candidates for each position. AIR has an intentional focus on those formally under development for executive roles. Management is also focused on attracting, developing, and retaining strong talent across the organization.
The executive talent pipeline is formally updated annually and is the main topic of at least one of the Compensation and Human Resources Committee’s meetings each year. The Compensation and Human Resources Committee also reviews the pipeline in connection with year-end performance and compensation reviews for every executive officer position. The pipeline is discussed regularly at the management level, as well.
Talent development and succession planning is a coordinated effort among the CEO, the Compensation and Human Resources Committee, and AIR’s Human Resources team, as well as each succession candidate.
The Board is provided exposure to succession candidates for executive officer positions.
Multiple internal succession candidates have been identified for the CEO position.
All executive succession candidates have formal development plans.
All internal CEO succession candidates receive one-on-one development from a professional executive coach.
All internal CEO succession candidates receive annual 360-degree feedback.
Mr. Considine provides formal updates to the Compensation and Human Resources Committee annually, and informal updates at least quarterly, on internal CEO succession candidates’ development plan progress.
An executive coach provides formal updates to the Compensation and Human Resources Committee annually, and informal updates more frequently, on internal CEO succession candidates’ development plan progress.
AIR maintains a forward-looking approach to succession. Positions are filled considering the business strategy and needs at the time of a vacancy and the candidate’s skills, experience, expertise, leadership and fit.
AIR has a proven track record on the development of talented leaders and succession.
The Compensation and Human Resources Committee held five meetings during the year ended December 31, 2021.
Governance and Corporate Responsibility Committee
The Governance and Corporate Responsibility Committee currently consists of the eight independent directors. Ms. Sperling serves as the chairman of the Governance and Corporate Responsibility Committee. The Governance and Corporate Responsibility Committee has a written charter that was last reviewed and modified in August 2021. The Governance and Corporate Responsibility Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary. During 2021, the Board determined to change the name of the Governance and Corporate Responsibility Committee (from the Nominating and Corporate Governance Committee) to emphasize AIR’s and the Board’s commitment to consideration of environmental, social, sustainability, and corporate responsibility matters. AIR also appointed its first Chief Corporate Responsibility Officer, Patti Shwayder, a Senior Vice President reporting to the CEO and 19-year veteran of AIR.
The Governance and Corporate Responsibility Committee’s responsibilities are set forth in the following chart.
Governance and Corporate Responsibility Committee Responsibilities
Accomplished In 2021
Focuses on Board candidates and nominees, and specifically:
•Plans for Board refreshment and succession planning for directors;
•Identifies and recommends to the Board individuals qualified to serve on the Board;
•Identifies, recruits, and, if appropriate, interviews candidates to fill positions on the Board, including persons suggested by stockholders or others; and
•Reviews each Board member’s suitability for continued service as a director when his or her term expires and when he or she has a change in professional status and recommends whether or not the director should be re-nominated.
✓
Focuses on Board composition and procedures as a whole and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, and expertise required for the Board as a whole.
✓
Develops and recommends to the Board a set of corporate governance principles applicable to AIR and its management.
✓
Reviews corporate governance trends, best practices, and applicable laws and regulations and considers other corporate governance matters and develops recommendations for the Board.
✓
Maintains a related party transaction policy and oversees any potential related party transactions.
✓
Oversees a systematic and detailed annual evaluation of the Board, committees, and individual directors in an effort to continuously improve the function of the Board.
✓
Oversees AIR’s commitment to policies and strategies related to environmental, social, sustainability, and corporate responsibility matters and disclosures related thereto.
✓
Provides guidance to the Board and management about the framework and the forum for the Board to consider important matters of public policy and vet stockholder input.
✓
Reviews annually AIR’s public policy advocacy efforts and political and charitable contributions.
✓
The Governance and Corporate Responsibility Committee held three meetings during the year ended December 31, 2021.
AIR-AIV Transactions Committee
In addition to the three standing committees, the Board established the AIR-AIV Transactions Committee. The AIR-AIV Transactions Committee consists of at least three independent directors, Messrs. Keltner and Rayis and Ms. Tran. Mr. Keltner serves as the chairman of the AIR-AIV Transactions Committee. The AIR-AIV Transactions Committee meets regularly with Ms. Cohn, AIR’s President and General Counsel, along with other members of AIR’s management team. The AIR-AIV Transactions Committee has a written charter that is reviewed annually.
The AIR-AIV Transactions Committee charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The AIR-AIV Transactions Committee’s responsibilities are set forth in the following chart.
AIR-AIV Transaction Committee
Oversee all prospective contracts or transactions to be entered into by and between AIR and Aimco (each an “AIR-AIV Transaction”) to ensure that all AIR-AIV Transactions are on an arms-length basis and on commercially reasonable terms and provide recommendations to the Board regarding the same.
Review any proposed material modifications, extensions, and terminations (other than by the terms of an agreement) to any contract entered into between AIR and Aimco in connection with the Separation or since such time and provide recommendations to the Board regarding the same.
Consider and make periodic recommendations to the Board with regard to the relationship between AIR and Aimco.
Receive a regular report of all material activities between AIR and Aimco, including those pursuant to agreements approved and entered into at the time of the Separation.
Exercise such additional powers and duties as may be reasonable, necessary, or desirable, in the AIR-AIV Transaction Committee’s discretion, to fulfill its duties under its charter.
Perform such other functions as assigned by law, AIR’s charter or bylaws or the Board.
The AIR-AIV Transactions Committee was formed in July 2021. During the year ended December 31, 2021, the AIR-AIV Transactions Committee met twice since its formation and reported regularly to the full Board.
The following table sets forth the number of meetings held by the Board and each committee during the year ended December 31, 2021.
Board
Non-Management
Directors
Audit
Committee
Compensation
and Human
Resources
Committee
Governance
and Corporate
Responsibility
Committee
AIR -AIV Transactions Committee
Number of Meetings
How We Are Paid
Director Compensation
In formulating its recommendation for director compensation, the Governance and Corporate Responsibility Committee reviews director compensation for independent directors of companies in the real estate industry and companies of comparable market capitalization, revenue and assets and considers compensation trends. The Governance and Corporate Responsibility Committee also considers the relatively small size of the AIR board as compared to other boards, the participation of each independent director on each committee, and the resulting workload on the directors. In addition, the Governance and Corporate Responsibility Committee considers the overall cost of the Board to AIR and the cost per director.
For 2021, compensation for the independent directors remained consistent with their compensation for 2020. Specifically, director compensation included a fixed annual cash retainer of $90,000 and an award of 4,000 shares of fully vested AIR Common Stock. No meeting fees were paid to the independent directors for attending meetings of the Board and the committees on which they serve. For the year ended December 31, 2021, the independent directors were paid as follows:
Name
Fees Earned or
Paid in Cash
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Change in Pension Value and Nonqualified Deferred Compensation Earnings
All Other
Compensation
($)
Total
($)
Terry Considine(3)
-
-
-
-
-
-
-
Thomas N. Bohjalian
-
-
-
-
-
-
-
Kristin Finney-Cooke
-
-
-
-
-
-
-
Thomas L. Keltner
90,000
156,840
-
-
-
-
246,840
Devin I. Murphy
90,000
156,840
-
-
-
-
246,840
Margarita Paláu-Hernández
-
-
-
-
-
-
-
John Dinha Rayis
90,000
156,840
-
-
-
-
246,840
Ann Sperling
90,000
156,840
-
-
-
-
246,840
Nina A. Tran
90,000
156,840
-
-
-
-
246,840
(1)For 2021, each independent director received a cash retainer of $90,000, except Mr. Bohjalian and Mses. Finney-Cooke and Paláu-Hernández, who joined the Board on December 7, 2021.
(2)For 2021, each independent director was awarded 4,000 shares of AIR Common Stock, which shares were awarded on January 25, 2021, and the closing price on that date was $39.21. Mr. Bohjalian and Mses. Finney-Cooke and Paláu-Hernández, who joined the Board on December 7, 2021, were not awarded any equity for 2021. The dollar value shown above represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 and is calculated based on the closing price of AIR’s Common Stock on the date of grant.
(3)Mr. Considine, who is not an independent director, does not receive any additional compensation for serving on the Board.
Compensation for each of the independent directors in 2022 includes an annual fee of 3,000 shares of AIR Common Stock or partnership units, which equity was awarded on February 4, 2022. The closing price of AIR’s Common Stock on the New York Stock Exchange on February 4, 2022, was $52.78. The independent directors also received an annual cash retainer of $90,000, paid quarterly. Directors will not receive meeting fees in 2022.
How to Communicate With Us
Stockholder Engagement
Under the direction of the Board and including participation by Board members when requested by stockholders, AIR regularly engages with stockholders on governance, pay and business matters, and systematically and at least annually canvasses its largest stockholders.
Communicating with the Board of Directors
Any interested parties desiring to communicate with AIR’s Board, the Chairman of the Board, any of the other independent directors, any committee chairman, or any committee member may directly contact such persons by directing such communications in care of AIR’s Corporate Secretary. All communications received as set forth in the preceding sentence will be opened by the office of AIR’s General Counsel for the sole purpose of determining whether the contents represent a message to AIR’s directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board or any group or committee of directors, the General Counsel’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.
To contact AIR’s Corporate Secretary, correspondence should be addressed as follows:
Corporate Secretary
Office of the General Counsel
Apartment Income REIT Corp.
4582 South Ulster Street, Suite 1700
Denver, Colorado 80237
corporatesecretary@aircommunities.com
OUR EXECUTIVES
Please see Mr. Considine’s bio above.
Paul L. Beldin. Mr. Beldin is AIR’s Chief Financial Officer and also an Executive Vice President. Mr. Beldin joined Aimco in 2008 as Senior Vice President and Chief Accounting Officer and became Aimco’s Executive Vice President and Chief Financial Officer in 2015. Prior to joining Aimco, from October 2007 to March 2008, Mr. Beldin served as Chief Financial Officer of APRO Residential Fund. Prior to that, from May 2005 to September 2007, Mr. Beldin served as Chief Financial Officer of America First Apartment Investors, Inc., then a publicly traded company. From 1996 to 2005, Mr. Beldin was with the firm of Deloitte & Touche, LLP, serving in numerous roles, including Audit Senior Manager and in the firm’s national office as an Audit Manager in SEC Services. Mr. Beldin is a certified public accountant.
Lisa R. Cohn. Ms. Cohn is AIR’s President and also its General Counsel. Ms. Cohn has specific responsibility for governance, information technology and process innovation, human resources, and legal. Ms. Cohn was appointed Executive Vice President, General Counsel and Secretary of Aimco in December 2007. In addition to serving as general counsel, Ms. Cohn had responsibility for construction services, asset quality and service, human resources, insurance, and risk management. She was also responsible for Aimco’s acquisition activities in the western region and disposition activities nationwide. Ms. Cohn has previously served as chairman of Aimco’s investment committee. From January 2004 to December 2007, Ms. Cohn served as Aimco’s Senior Vice President and Assistant General Counsel. She joined Aimco in July 2002 as Vice President and Assistant General Counsel. Prior to joining Aimco, Ms. Cohn was in private practice with the law firm of Hogan & Hartson LLP with a focus on public and private mergers and acquisitions, venture capital financing, securities, and corporate governance.
Keith M. Kimmel. Mr. Kimmel is President of AIR Property Operations. Mr. Kimmel was appointed Aimco’s Executive Vice President of Property Operations in January 2011. From September 2008 to January 2011, Mr. Kimmel served as Aimco’s Area Vice President of property operations for the western region. Prior to that, from March 2006 to September 2008, he served as Aimco’s Regional Vice President of property operations for California. He joined Aimco in March of 2002 as a Regional Property Manager. Prior to joining Aimco, Mr. Kimmel was employed with Casden Properties from 1998 through 2002 and was responsible for the operation of the new construction and high-end product line. Mr. Kimmel began his career in the multifamily real estate business in 1992 as a leasing consultant and on-site manager.
John McGrath. Mr. McGrath serves as EVP Strategy, Capital Allocation, Co-Chief Investment Officer, and is Chairman of the Investment Committee. Prior to joining AIR, Mr. McGrath founded and served as President & Chief Executive Officer of McGrath Investments, a privately held investment company that manages multiple asset classes including real estate, venture capital, and credit. From 2005-2011, Mr. McGrath served as a Senior Vice President at Aimco where held various leadership roles, with increasing levels of responsibility, within the company’s investment management and transactions division. Additionally, he held the position of Chief Executive Officer of National Partnership Investments Corporation (NAPICO) - the affordable housing business he subsequently acquired, through a management buyout, from Aimco in 2011. Mr. McGrath earned an M.B.A. (Distinction) from the University of Oxford and a B.S. (Honors) from The Johns Hopkins University.
Joshua Minix. Mr. Minix is AIR’s EVP and Co-Chief Investment Officer. Mr. Minix joined AIR in October 2021. Prior to joining AIR, Mr. Minix led private direct real estate investments for the Americas Partners Group in the Americas. Before joining Partners Group, he was a Managing Director at Avesta Communities and InvestRes where he focused on acquisitions. Previously Mr. Minix practiced law as a commercial litigation attorney at Wiley Rein LLP in Washington D.C. Mr. Minix received a B.S. in Economics, summa cum laude, from George Mason University and a J.D. from Harvard Law School where he was an Olin Fellow in Business, Economics, and Law.
Matthew O’Grady. Mr. O’Grady joined AIR Communities in 2021 as Senior Vice President, Capital Markets. Prior to joining AIR, Mr. O'Grady was a member of the Real Estate & Lodging group at Lazard since 2013 where he worked on a variety of engagements including strategic advisory, M&A, capital raising and restructuring assignments for clients across the full range of property sectors. Prior to graduate school, Mr. O'Grady held the role of Associate at Capital Dynamics where he provided investment consulting services for pension funds and insurance companies and invested on behalf of discretionary funds into private equity fund, co-investment and secondary opportunities. Mr. O'Grady also serves on the Board of Directors for Row New York. Mr. O'Grady earned a JD and MBA from Northwestern University and an AB from Harvard University and is admitted to practice law in the state of New York.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
Executive Summary
•Mr. Considine’s compensation is largely tied to outperformance as measured by relative Total Stockholder Returns over three year periods.
•Mr. Considine voluntarily capped his compensation. Mr. Considine volunteered and AIR accepted his commitment that his combined target compensation from AIR and Aimco during 2021 and 2022 would not exceed his target compensation prior to the Separation. As described in more detail below, to the extent he receives compensation directly from Aimco, compensation paid to him by AIR in relation to his role as CEO of AIR will be reduced in a manner to ensure that his combined aggregate annual compensation paid from both companies will not exceed his annual compensation prior to the Separation.
•Mr. Considine voluntarily reduced his compensation. Mr. Considine volunteered and AIR accepted his commitment to reduce his compensation if G&A expenses exceed 15 basis points of gross asset value, as determined by AIR’s Board of Directors and Mr. Considine. Mr. Considine did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Mr. Considine made this commitment without any adjustment or makeup of any sort. Consistent with this commitment, Mr. Considine forfeited approximately $2.5 million of compensation: returning his $0.4 million base salary, foregoing his earned STI of $1.8 million, and making a cash payment to AIR of $0.3 million.
•AIR delivered strong operational performance in 2021 despite COVID-19. Our NOI margin was a peer-leading 72%, and despite the pandemic, we also led coastal peers in same-store revenue growth in 2021.
•Annual incentive plan was based on financial, operational, and strategic objectives. Financial and operational results are weighted at 75% of the total incentive, with balance sheet, capital allocation, and employee engagement metrics comprising the remainder.
•Annual incentive payout. Based on outperformance on all KPIs (Operations Performance, Portfolio Quality, Financial Performance, Balance Sheet and Team Engagement), the calculated payout was 147.72%.
•Performance equity granted in 2019 earned at 48% of target. Across the 2019-2021 period, Aimco and AIR combined Total Stockholder Return (TSR) under-performed relative to the NAREIT Equity Apartments Index, but favorably relative to the MSCI US REIT Index.
•2022 compensation in line with 2021. The AIR compensation philosophy and general compensation program structure has not changed. AIR remains committed to long-term, stockholder-aligned, performance-based compensation for senior executives and with more CEO compensation tied to TSR than any peer CEOs.
•70.9% 5-Year Cumulative TSR, vs 66.2% for the MSCI US REIT Index and 60.38% for the NAREIT Equity Apartments Index for the period ending December 31, 2021.
•72.1% NOI Margin, vs 66.3% peer average.
•3.2% 10-year revenue CAGR.
•98.0% 5-year average Say-on-Pay support rate.
Our Company
Apartment Income REIT Corp., known as AIR Communities, is the owner and operator of best-in-class apartment communities across the United States. AIR Communities professionally manages high-quality properties in top markets including eight important geographic concentrations: Boston; Philadelphia; Greater Washington, D.C.; Miami; Denver; the San Francisco Bay Area; Los Angeles; and San Diego. Our communities are managed by outstanding team members who provide unbeatable customer service.
Our Named Executive Officers
This CD&A describes the compensation programs and practices regarding our Named Executive Officers (“NEOs”) for the 2021 fiscal year. Our NEOs for 2021 were our Chief Executive Officer, Chief Financial Officer and the next two most highly compensated officers:
Name
Age
First Elected
Position
Terry Considine
July 1994
Chief Executive Officer and Director
Paul L. Beldin
September 2015
Executive Vice President and Chief Financial Officer
Lisa R. Cohn
December 2007
President, General Counsel, and Secretary
Keith M. Kimmel
January 2011
President, Property Operations
2021 Say-on-Pay Vote Result and Stockholder Engagement Regarding Executive Compensation
At our 2021 Annual Meeting of Stockholders, approximately 97% of the votes cast in the advisory vote on executive compensation (also commonly referred to as “Say on Pay”) approved the compensation of our NEOs as disclosed in the 2021 proxy statement. The AIR Compensation and Human Resources Committee (the “AIR Committee”) and AIR’s management remain committed to extensive engagement with stockholders as part of ongoing efforts to formulate and implement an executive compensation program designed to align the long-term interests of our executive officers with those of our stockholders. Over the last five years, AIR has had the highest support on “Say on Pay” of all of its multi-family peer companies.
We have continued to emphasize stockholder engagement during 2021. We regularly engage with stockholders regarding pay, governance, and in particular the during the spring and summer of 2021, the path that we were taking when selecting new director nominees for election.
Overview of Pay-for-Performance Philosophy and 2021 Business Performance Results
We are a pay-for-performance organization. We start by setting target total compensation near the median of target total compensation for our peers as identified in Item 11. 2022 Compensation Targets, both as a measure of fairness and also to provide an economic incentive to remain with AIR. Actual compensation varies from target compensation based on AIR's results. Each officer’s annual cash incentive compensation, “short term incentive” or "STI", is based in part on AIR's performance against corporate, rather than personal, goals. The more senior the officer, the greater the percentage of his or her STI that is based on AIR’s performance against its corporate goals. Longer term compensation, “long term incentive” or "LTI", follows a similar tiered structure. Each officer’s LTI is based in part on AIR’s “total stockholder return” or TSR, relative to its peers, with executive officers having a greater share of their LTI based on relative TSR. In the case of Mr. Considine, his entire LTI award is “at risk” based on AIR’s relative TSR. LTI is measured over three years and vests over time, typically a period of four years, so that officers bear longer term exposure to the decisions they make.
To reinforce alignment of stockholder and management interests, we also have stock ownership guidelines that require substantial equity holdings by executive officers, as described further below. Stock Ownership Guidelines and Required Holding Periods After Vesting.	
Summary of Executive Compensation Program and Governance Practices
What We Pay and Why: Components of Executive Compensation
Total compensation for AIR named executive officers is comprised of the following components:
Compensation Component
Form
Purpose
Base Salary
Cash
Provide a salary that is competitive with market.
STI
Cash
Reward executive for achieving short-term business objectives.
LTI
Restricted stock, LTIP I or LTIP II units, or stock options, subject to performance and/or time vesting, typically over four years.
Align executive’s compensation with stockholder objectives and provide an incentive to take a longer-term view of AIR’s performance.
LTI compensation directly ties the interests of executives to the interests of our stockholders, and comprises a substantial proportion of compensation for AIR NEOs, as follows:
CEO Pay Overview
The Committee determines the compensation for the CEO. In setting Mr. Considine’s target total compensation for 2021, the Committee considered, among other things, the peer group compensation data as discussed below and Mr. Considine’s expertise and experience. The Committee continued a compensation plan for Mr. Considine that resulted in approximately 10% base salary, 27% based on AIR’s performance against its 2021 corporate goals, and 63% based on relative TSR, making more of Mr. Considine’s target compensation tied to TSR than is the case for any of his peers. Mr. Considine’s target compensation mix is illustrated as follows:
After setting target total compensation, Aimco determined to pay Mr. Considine $1.8M in a combination of base, STI, and LTI. Accordingly, Mr. Considine voluntarily reduced his target total compensation at AIR by comparable amounts, making his target total compensation:
$400,000 - Base Salary (reduced by $300,000)
$1,200,000 - STI (reduced by $600,000)
$3,400,000 - LTI (reduced by $900,000)
After making these voluntary reductions, Mr. Considine’s target compensation became approximately 8% base salary, 24% based on AIR’s performance against its 2021 corporate goals, and 68% based on relative TSR, making Mr. Considine’s target compensation even more tied to TSR than is the case for any of his multi-family peers.
Total Compensation for 2021
For 2021, total compensation is the sum of base compensation earned in 2021, STI earned in 2021, and LTI awards granted in 2021.
Base Compensation for 2021
For 2021, Mr. Considine’s base compensation was $400,000, reduced from $700,000 which amount is well below the median for CEOs of his experience, expertise, and tenure in AIR’s peer group. For 2021, base compensation for all other NEOs was set at $450,000, near the median base compensation paid by our peer companies to executives in similar positions.
Short-Term Incentive Compensation for 2021
The Committee determined Mr. Considine’s STI by the extent to which AIR met five designated corporate goals, which are described below and are referred to as AIR’s Key Performance Indicators, or KPIs.
For the other NEOs, calculation of STI was determined by two components: AIR’s performance against the KPI; and each officer’s achievement of his or her individual Managing AIR Performance (“MAP”) goals. For example, if an executive’s target STI was $400,000 and weighted 75% on KPIs, then 75% of that amount, or $300,000, varied based on KPI results and 25% of that amount, or $100,000, varied based on MAP results. As actual KPI results were 147.72% of target in 2021, then the executive would receive 147.72% of $300,000 ($443,160) for the KPI portion of his STI, and if MAP results were 100%, such hypothetical executive would receive 100% of the $100,000, for a total STI payment of $543,160.
AIR’s 2021 KPIs reflected our five areas of strategic focus, as set forth below. Specifically, AIR’s KPIs consisted of the following five corporate goals that were reviewed with, and approved by, the Committee, each weighted as described.
These goals aligned executive officers with AIR’s publicly communicated, long-term goals without encouraging them to take unnecessary and excessive risks. Threshold performance paid out at 50%; target performance paid out at 100%; and maximum performance paid out at 200%.
For some goals, where performance was between threshold and target or between target and maximum, the amount of the payout was interpolated.
The following is a tabular presentation of the performance criteria and results for 2021, explained in detail in the paragraphs that follow:
Performance Measures
Goal Weighting
Threshold 50%
Target 100%
Maximum 200%
Actual
Payout
Operations Performance
35%
SSS NOI Performance as compared to 2021 Budget
35%
3% below Budget
Budget
3% above Budget
2.33% favorable to Budget
62.16%
Operations Subtotal:
62.16%
Portfolio Quality
5%
Transactions That Enhance AIR’s Objectives Regarding Portfolio Quality
5%
-
Based on transactions that enhance portfolio quality.
-
Accretive acquisitions that improved the growth, average rent, and average age of the portfolio and dispositions that reduced AIR’s allocation to markets with lower growth or other risks.
8.00%
Portfolio Quality Subtotal:
8.00%
Financial Performance
40%
Performance Against Overall FFO Budget
35%
$2.02
$2.12
$2.22
$0.02/share favorable vs budget
42.00%
G&A Costs At Budget
5%
-
$15.4M
$14.4M
$1.1M Favorable vs Budget
10.00%
Financial Performance Subtotal:
52.00%
Balance Sheet
10%
Leverage/Balance Sheet Safety & Cost
10%
Based on balance sheet activities that add financial flexibility.
Increased financial flexibility and debt reduction to achieve leverage target ahead of schedule.
15.00%
Balance Sheet Subtotal:
15.00%
Team Engagement
10%
Team Engagement
5%
$4.00
$4.30
$4.75
4.35
5.56%
On-Site Team Moral, Engagement, Turnover, and Productivity
5%
-
Based on on-site team engagement scores, team member retention ratios, and efficiency gains
-
On-site team member engagement for 2021 was a record 4.57 out of 5. Reduced overall on-site turnover by 25%
5.00%
Team Engagement Subtotal:
10.56%
Grand Total
147.72%
An explanation of the objective of each metric is set forth below.
Operations Performance - Same Store NOI Achievement (35% of KPI). The primary objective of this metric was to fulfill our strategic objective of driving rent growth based on high levels of resident retention, through superior customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to maximize NOI margins. For 2021, the range for the Same Store NOI achievement goal was as follows: “Threshold” equated to achievement of three percent unfavorable to 2021 budgeted Same Store NOI; “Target” equated to achievement of 2021 budgeted Same Store NOI; and “Maximum” equated to three percent favorable to 2021 budgeted Same Store NOI. The Same Store NOI for 2021 was 2.33% favorable to budgeted Same Store NOI. This resulted in a payout on the Same Store NOI achievement goal of 62.16% for each of the NEOs.
Portfolio Quality (5% of KPI). The primary objective of this metric was to fulfil our strategic objective of closing transactions (“Acquisitions” and “Dispositions”) that enhance our portfolio quality, require lower recurring capital replacement spending, and have a greater allocation to states with greater economic growth and a more reliable rule of law. Our portfolio of apartment communities is diversified across primarily “A” and “B” price points, averaging “B/B+” in quality, and is also diversified across several of the largest markets in the United States. During 2021, we exited the Chicago and New York markets and, subsequent to year-end, reduced our exposure to California. We added to our portfolio in Florida through a $223 million acquisition, and improved the quality of our Washington, D.C. portfolio through selling some properties and partial interests in others while acquiring four properties, whose NOI growth we expect will exceed market NOI growth by more than 10% during each of the next two years and will exceed that of the properties we sold. Overall, we believe we have upgraded the locations of our Washington D.C. portfolio. Our 2021 portfolio management activities increased our average rents by approximately $150 per home and reduced the portfolio's average age by one year. Our current portfolio is of a higher quality and is expected to require lower recurring capital replacement spending.
Acquisitions: During 2021, we acquired five properties for approximately $730 million, including four properties in the Washington D.C. area and one in Pembroke Pines, Florida, with 2,083 apartment homes. The Washington D.C. acquisition included 84,000 square feet of office and commercial space, and two vacant land parcels suitable for development of 498 additional apartment homes, valued at approximately $20 million. The acquisitions were funded with property sales, the issuance of OP Units, and the assumption of existing property debt. We expect a 4.3% NOI yield in 2022 which is anticipated to approach ~6% by 2024, approximately 130 basis points greater than the properties sold to fund the acquisitions, adding ~$0.04 to FFO per share. This spread is expected to increase over time as the long-term internal rate of return (“IRR”) is expected to be 9.0%, as compared to the IRR of the sold properties of 6.4%, which represents a 40% increase.
Dispositions: During 2021, we sold 16 apartment communities located in New York City, Washington, D.C., and Chicago with 1,395 apartment homes for gross proceeds of $512 million. Net sales proceeds from these transactions were $472 million.
Also during 2021, we formed a joint venture with an affiliate of Blackstone by selling for $408 million an 80% interest in three multi-family properties with 1,748 units located in Virginia. AIR is the general partner with 20% ownership and earns various fees for providing property management and corporate services.
After year end, we sold an additional seven apartment communities located in San Diego, Los Angeles, and the Bay Area for gross proceeds of $507 million. We are under contract to sell an additional $267 million of properties located in Chicago, New York City, and California. In aggregate, the $1.7 billion of property sales are priced at an approximate 15% premium to their estimated 2020 fair market value, pre-COVID, an implied NOI cap rate of 4.3%, and a free cash flow cap rate of 4.0%.
These outcomes resulted in a payout of this goal of 8.0% for each of the NEOs.
Financial Performance - Performance against overall FFO budget (35% of KPI) and G&A Costs at budget (5% of KPI). We created AIR to be the most efficient and effective way to invest in U.S. multi-family real estate, due to its simplified business model and diversified portfolio of stabilized apartment communities and to maintain an efficient cost structure. For 2021, the range for the FFO performance goal was as follows: “Threshold” equated to achievement of $2.02 per share; “Target” equated to achievement of $2.12 per share; budgeted Same Store NOI; and “Maximum” equated to $2.22 per share. FFO performance was $0.02 per share favorable to budget. This resulted in a payout on the FFO performance goal of 42.00% for each of the NEOs. For 2021, the G&A costs at budget goal, the “Target” equated to achievement on of $15.4 million and “Maximum” equated to achievement of $14.4 million. G&A costs were $1.1 million favorable to budget. This resulted in a payout the G&A costs at budget goal of 10.00% for each of the NEOs. G&A for these purposes is based on G&A expenses computed in accordance with GAAP, less asset management fees earned from our joint ventures, and was consistent with our internal definition of G&A as of the beginning of the year. During 2021, we expanded what we considered in the calculation of G&A expenses, most significantly to include property management costs in excess of 3% of property revenues, removing potential distortions caused by geography. In the determination of G&A expenses as a percentage of gross asset value, described in Results of Operations within Item 7, we used the new and expanded definition.
Leverage Ratios and Other Balance Sheet Activities Adding Financial Flexibility (10% of KPI). The primary objective of this goal was to fulfil our strategic objective of using safe property debt that is low-cost, long-dated, amortizing, and non-recourse, limiting entity and refunding risk while maintaining asset flexibility. For 2021, AIR’s performance against this goal was based on leverage to EBITDAre, and other balance sheet activities that further strengthen AIR’s balance sheet and add financial flexibility. We set out at the beginning of 2021 to achieve a leverage to EBITDAre target of 5.5:1 in late 2022 or early 2023. With proceeds of our 2021 equity issuance, property sales, the Blackstone joint venture, and pro forma the first quarter 2022 sales, we will have leverage to EBITDAre of 5.3:1. Achieving this leverage target is roughly six months ahead of the plan established at the start of 2021. The Blackstone joint venture not only reduced leverage, it also diversified our sources of capital and provided an opportunity to build a relationship for future opportunities. The above outcomes significantly improved AIR’s strong and flexible balance sheet. This resulted in a payout on the balance sheet goal of 15.00% for each of the NEOs.
Team Member Engagement Scores (5% of KPI). The primary objective of this metric was to fulfil our strategic objective of producing a strong, stable team that is the enduring foundation of our success. Every team member is surveyed via a third-party, confidential survey on his or her annual anniversary of employment. The team member 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 during the year. For 2021, the range for team member engagement scores was as follows: “Threshold” equated to 4.00; “Target” equated to 4.30; and “Maximum” equated to 4.75. For 2021, our team member engagement was 4.35, resulting in a payout of 5.56% for each of the NEOs.
On-Site Team Moral, Engagement, Turnover and Productivity (5% of KPI). The primary objective of this metric was to maintain a highly engaged, stable workforce at our communities, enhanced by innovations in efficiency, all of which further the strategic objective of maximizing NOI margins. Achievement was based on on-site team engagement scores, team member retention ratios, and efficiency gains. Our on-site team member engagement score was a record 4.57 out of 5. On-site overall turnover decreased by 5% in 2021 as
compared to 2020. We had proportionally more voluntary turnover and less involuntary turnover in 2021 than in 2020. This resulted in a payout on the on-site engagement, retention, and efficiency goal of 5.0%.
The total KPI result was 147.72%.
Goal setting
For all numeric metrics, the target performance goals were aligned with our 2021 budget goals. We have a rigorous budgeting process that includes an evaluation of prior performance, market data, and peer performance. Our budget strategy is to set ambitious, achievable goals. Our 2021 budget and KPI goals were finalized in January 2021. As described in detail below, we ensured that our business remained open throughout the pandemic, with teammates across the country providing residents safety, a refuge from the virus, good neighbors, respectful treatment for all, and a helping hand to those in need.
Various of the 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, described and, where appropriate, reconciled to the most comparable financial measures computed in accordance with GAAP under the Non-GAAP Measures heading within Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Long-Term Incentive Compensation Awards for 2021
Under the 2021 LTI program for executive officers, three forms of LTI were granted to NEOs on January 25, 2021, as follows: (1) performance-based profit participation incentive units in our operating partnership (“LTIP II Units”), which were granted to Mr. Considine, representing 100% of his 2021 LTI award; (2) performance-based restricted stock, which was granted to Messrs. Beldin, and Kimmel and Ms. Cohn, representing two-thirds of their 2021 LTI awards; and (3) time-based restricted stock, which was granted to Messrs. Beldin, and Kimmel and Ms. Cohn, representing one-third of their 2021 LTI awards, with 25% of the awards vesting on each anniversary of the grant date.
For the purpose of calculating the number of LTIP II Units granted, the target dollar amount was divided by $6.67, which price was calculated by a third-party financial firm with particular expertise in the valuation of such LTIP II Units.
For the purpose of calculating the number of shares of performance-based restricted stock to be granted to each of Messrs. Beldin and Kimmel and Ms. Cohn, the dollar amount allocated to restricted stock was divided by $39.14 per share, which was the average of the closing trading prices AIR’s Common Stock on the five trading days up to and including the grant date. The five-day average was used to mute the effect of any single day spikes or declines. The share award agreements to which the performance-based restricted shares were granted do not provide for the payment of dividends until the shares are earned. Dividends accrue during the performance period.
The performance-based LTIP II Units, and the performance-based restricted stock, are referred to as “performance-based LTI awards,” because the number of such LTIP II Units and the amount of restricted stock that vest, if any, is determined based on relative TSR performance during a forward looking, three-year performance period, as described in detail below.
Metric and Performance Level(1)
(relative performance stated as
basis points above or below index performance)(2)
Threshold
Target
Maximum
Relative to NAREIT Equity Apartments Index
-250 bps
+50 bps
+400 bps
Relative to MSCI US REIT Index
-350 bps
+50 bps
+500 bps
(1)The relative metrics above reflect the metrics used for the awards made in 2021 for the three-year forward-looking performance period ending on December 31, 2023.
(2)If absolute TSR for the three-year forward-looking performance period is negative, any portion of the LTI award achieved above target will not vest until absolute TSR is once again positive.
Such metrics apply to the LTIP II Units granted to Mr. Considine, all of which are performance based, and the performance-based restricted stock granted to Messrs. Beldin, and Kimmel and Ms. Cohn. The Committee set threshold performance to pay out at 50%; target performance to pay out at 100%; and maximum performance to pay out at 200%, which means that Messrs. Considine, Beldin, and Kimmel and Ms. Cohn may earn nothing or up to 200% of the target award. If performance is between threshold and target or between target and maximum, the amount of the payout will be interpolated. Performance-based LTI awards vest 50% following the end of the three-year performance period (based on attainment of TSR targets), and 50% one year later, for a four-year plan from start to finish, illustrated below, subject to the grantee’s continued service to AIR, and subject to a delay if absolute TSR for the three-year forward looking performance period is negative.
Mr. Considine’s LTIP II Units are intended to constitute profits interests within the meaning of the Code. Mr. Considine was granted the ability to participate in the appreciation of value of AIR that took place after these LTIP II Units were granted, subject to their vesting. Once vested and until the 10-year anniversary of the grant date, the LTIP II Units may be converted at Mr. Considine’s election into a number of units whose value is determined based on the market price of AIR’s Common Stock on the conversion date less the closing price of AIR’s Common Stock on the date of grant, which was $39.21. Additional details regarding the structure of LTIP II Units can be found in the Amended and Restated Agreement of Limited Partnership of the AIR Operating Partnership, the Form of Performance Vesting LTIP Unit Agreement, and the Form of Performance Vesting LTIP II Unit Agreement, all of which are incorporated by reference into AIR’s Annual Report on Form 10-K for the year ended December 31, 2021, as Exhibits 10.1, 10.18 and 10.20, respectively.
NEO Compensation for 2021
The Committee determined Mr. Considine’s STI for 2021 would be based entirely on AIR’s performance against the five designated corporate goals, described above. The Committee calculated Mr. Considine’s STI by multiplying his STI target of $1.2 million by 147.72%, which was the Committee’s payout determination having reviewed overall performance on the five corporate goals. The Committee granted Mr. Considine’s LTI in the form of LTIP II Units on January 25, 2021, for the three-year performance period from January 1, 2021, through December 31, 2023; the LTI grant is entirely at risk, based on relative returns over the performance period.
As described above, Mr. Considine volunteered and AIR accepted his commitment to reduce his compensation if G&A expenses exceed 15 basis points of gross asset value, as determined by AIR’s Board of Directors and Mr. Considine. Mr. Considine did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Mr. Considine made this commitment without any adjustment or makeup of any sort.
Consistent with this commitment, Mr. Considine forfeited $2,527,000 of compensation: returning his $400,000 base salary, foregoing his earned STI of $1,772,640, and making a cash payment to AIR of $354,360.
For Messrs. Beldin and Kimmel and Ms. Cohn, an allocation of the target STI was made as follows: 75% of the target STI was calculated based on AIR’s performance against KPI and 25% of the target STI was calculated based on each executive’s achievement of his or her individual MAP goals. As noted above, AIR’s KPI performance was 147.72%. Accordingly, each was awarded 147.72% of the portion of his or her STI attributable to KPI (i.e., 75% of the target STI amount shown below for Messrs. Beldin and Kimmel and Ms. Cohn).
In determining the MAP achievement component of 2021 STI, Mr. Considine determined that: Mr. Beldin’s MAP achievement would be paid at 100% of target for his contributions to finance and accounting and to AIR's balance sheet; Ms. Cohn’s MAP achievement would be paid at 125% for her leadership over various AIR initiatives post-Separation; Mr. Kimmel’s MAP achievement would be paid at 155% for his contributions to AIR’s operating results. The Committee reviewed Mr. Considine’s determinations with respect to Messrs. Beldin, Kimmel, and Ms. Cohn. As described above, LTI for the NEOs including the CEO was granted on January 25, 2021, in the form of LTIP II Units or restricted stock. Target compensation and incentive compensation for 2021 for the other NEOs is summarized as follows:
Target Total Incentive
2021 Incentive Compensation ($)
Compensation
STI
LTI
Target Total Compensation
($)
Paid Base
($)
STI
($)
LTI
($)
($) (1)
Time-Based
LTI
($)(2)
Performance-
Based Equity-
Stock
($)(3)
Performance-
Based Equity-
Stock Options
($)(3)
Mr. Considine
6,800,000(4)
-(5)
1,200,000
3,400,000
-(5)
-
3,400,000
-
Mr. Beldin
1,070,000
450,000
250,000
370,000
339,475
123,333
246,667
-
Ms. Cohn
2,100,000
450,000
550,000
1,100,000
781,220
366,667
733,333
-
Mr. Kimmel
1,700,000
450,000
500,000
750,000
747,700
250,000
500,000
-
(1)Amounts shown reflect the 2021 STI paid to each of Messrs. Beldin and Kimmel and Ms. Cohn.
(2)For Messrs. Beldin, and Kimmel and Ms. Cohn, comprises one-third of the LTI target, vesting ratably over four years, and is for the purpose of attracting and retaining key talent integral AIR's success. For Messrs. Beldin, and Kimmel and Ms. Cohn, time-based LTI was in the form of restricted stock.
(3)Amounts shown reflect a 100% payout of the performance-based shares resulting from achieving “target” performance. Actual payouts will be in a range of 0% to 200% of these amounts, depending on performance results for the three-year performance period from January 1, 2021, through December 31, 2023.
(4)After setting target total compensation, Aimco determined to pay Mr. Considine $1.8 million in combination of base, STI, and LTI. Accordingly, Mr. Considine voluntarily reduced his target total compensation at AIR by comparable amounts, making his target total compensation: $400,000 - base salary (reduced by $300,000), $1,200,000 - STI (reduced by $600,000), and $3,400,000 - LTI (reduced by $900,000).
(5)As described above, Mr. Considine volunteered and AIR accepted his commitment to reduce his compensation if G&A expenses exceed 15 basis points of gross asset value, as determined by AIR’s Board of Directors and Mr. Considine. Mr. Considine did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Mr. Considine made this commitment without any adjustment or makeup of any sort. Consistent with this commitment, Mr. Considine forfeited $2,527,000 of compensation: returning his $400,000 base salary, foregoing his earned STI of $1,772,640, and making a cash payment to AIR of $354,360.
Determination Regarding 2019 Performance Share Awards. As part of the 2019 LTI program, Aimco granted performance-share awards that might be earned based on relative TSR as compared to the NAREIT Equity Apartments Index (60% weighting) and the MSCI US REIT Index (40% weighting) over a three-year performance period ending on December 31, 2021, with awards vesting 50% following the end of the three-year performance period (based on attainment of TSR targets) and 50% one year later, for a four-year plan from start to finish. On February 1, 2022, the Committee determined that AIR and Aimco’s combined three-year TSR was 860 basis points lower than the NAREIT Equity Apartments Index and 140 basis points higher than the MSCI US REIT Index for the three-year performance period ending on December 31, 2021, resulting in the number of shares being earned at 48% of target for Messrs. Considine, Beldin, and Kimmel and Ms. Cohn.
The chart below summarizes the results for the 2019 performance share awards, and provides performance as of December 31, 2021, for the “in progress” 2021 and 2020 and performance share awards.
Long Term Incentive Plan Award Status
Three-Year
Performance Period
Status
CEO % Payout(1)
Other NEOs(2)
2021 - 2023
33% Completed
Tracking Between
Threshold and Target
80%
87%
2020 - 2022
67% Completed
Tracking Between
Target and Maximum
116%(3)
111%(3)
2019 - 2021
100% Completed
Payout Achieved
Between Threshold and Target
48%(3)
75%(3)
(1)100% of the LTI award for Mr. Considine is performance-based, or at risk, based entirely on relative TSR.
(2)Two-thirds of the LTI awards for the other NEOs are performance-based, or at risk, based on relative TSR, and the remaining one-third of the LTI awards are for the purpose of retention, or time-based. Payouts shown include the time-based portion of the awards.
(3)Amounts reflect performance of “in progress” awards as of December 31, 2021, and for the period from December 11, 2020, through December 31, 2020, include the sum of Aimco and AIR TSR for purposes of AIR’s TSR performance.
Compensation Governance
Below we summarize certain executive compensation program and governance practices, including practices we have implemented to drive performance and practices we avoid because we believe they would not serve our stockholders’ long-term interests.
What AIR Does
Pays for performance. A significant portion of executive pay is not guaranteed, but rather is at risk and tied to key financial and value creation metrics that are set in advance and disclosed to stockholders. All of the incentive compensation (both STI and LTI) for Mr. Considine is subject to the achievement of various performance objectives. For the other NEOs, all STI compensation, and two-thirds of target LTI compensation (other than with respect to the CIO, who was promoted to an executive officer position in December 2020), is subject to the achievement of various performance objectives.
Balances short-term and long-term incentives. The incentive programs provide a balance of annual and longer-term incentives, with LTI compensation vesting over multiple years comprising a substantial percentage of target total compensation.
Uses multiple performance metrics. These mitigate the risk of the undue influence of a single metric by utilizing multiple performance measures. Such measures differ for STI and LTI.
Caps award payouts. Amounts or shares that can be earned under the STI plan and LTI plan are capped.
Uses market-based approach for determining NEO target pay. Target total compensation for NEOs is set near the median for peer comparators. The Committee reviews the peer comparator group annually.
Maintains stock ownership guidelines and holding periods after vesting until ownership guidelines are met. We have the following minimum stock ownership requirements: CEO - lesser of five times base salary or 150,000 shares; President and General Counsel and CFO - lesser of five times base salary or 75,000 shares; and other executive officers - lesser of four times base salary or 25,000 shares. All NEOs who are currently employed with AIR meet these requirements.
Includes double-trigger change in control provisions. Equity awards include “double trigger” provisions requiring both a change in control and a subsequent termination of employment (other than for cause) for accelerated vesting to occur.
Uses an independent compensation consulting firm. The Committee engages an independent compensation consulting firm that specializes in the REIT and real estate industry.
Maintains a claw back policy. In the event of a financial restatement resulting from misconduct by an executive, the claw back policy allows AIR to recoup incentive compensation paid to the executive based on the misstated financial information. The policy covers all forms of bonus, incentive, and equity compensation.
Conducts a risk assessment. The Committee annually conducts a compensation risk assessment to determine whether the compensation policies and practices, or components thereof, create risks that are reasonably likely to have a material adverse effect on AIR.
Acts through an independent Compensation Committee. The Committee consists entirely of independent directors.
What AIR Does Not Do
Guarantee salary increases, bonuses or equity grants. AIR does not guarantee annual salary increases or bonuses. AIR makes no guaranteed commitments to grant equity-based awards.
Provide excise tax gross-up payments. AIR will not enter into contractual arrangements that include excise tax gross-up payments.
Reprice options. AIR has never repriced the per-share exercise price of any outstanding stock options. Repricing of stock options is not permitted under AIR’s equity compensation plan without first obtaining approval from AIR’s stockholders.
Pay dividends or dividend equivalents on unearned performance shares. Performance share award agreements provide for the payment of dividends only if and after the shares are earned. Dividends, if any, accrue during the performance period and are paid once shares are earned.
Provide more than minimal personal benefits. AIR does not provide executives with more than minimal perquisites, such as reserved parking spaces.
How the Committee determines the amount of target total compensation for executive officers
In addition to reviewing the performance of, and determining the compensation for, the CEO, the Committee also reviews the decisions made by the CEO as to the compensation of the other executive officers. Base salary, target STI, and target LTI are generally set near the median base salary, target STI, and target LTI for peer comparators.
How peer comparators are identified
The Committee considered enterprise Gross Asset Value (“GAV”), as reported by Green Street Advisors, to be an imprecise, but reasonable representation of the complexity of a real estate business and of the responsibilities of its leaders. In addition to GAV, the Committee also reviewed other factors, including gross revenues, number of properties, and number of employees, to determine if these factors provided any additional insight into the work and requirements of its leaders. Based on this analysis, we included as “peers” for 2021 compensation the following 20 real estate companies:
Peer Group
American Campus Communities, Inc.
Hudson Pacific Properties, Inc.
American Homes 4 Rent
JBG Smith Properties
Americold Realty Trust
Kilroy Realty Corp.
Brixmor Property Group, Inc.
Kimco Realty
CyrusOne Inc.
Macerich Company
Douglas Emmett, Inc.
MGM Growth Properties
Equity LifeStyle Properties
Omega Healthcare Investors
Federal Realty Investment Trust
Park Hotels & Resorts, Inc.
Gaming & Leisure Properties
Regency Centers Corp.
Healthcare Trust of America
Taubman Centers, Inc.
At the time 2021 compensation targets were established, approximately half of these real estate companies had a larger GAV, and approximately half of these real estate companies had a smaller GAV, than AIR. Due to changes in GAV for AIR and its peers during 2020, Americold Realty Trust, CyrusOne Inc., Gaming & Leisure Properties, Healthcare Trust of America, and MGM Growth Properties were added to the peer group for 2021 in replacement of Camden Property Trust, Duke Realty Corp., Extra Space Storage, Inc., Liberty Property Trust, and Sun Communities, Inc.
For Mr. Kimmel, whose position as President of Property Operations, does not have a good benchmark outside of the multi-family industry, we used a multi-family peer group for benchmarking his 2021 compensation, consisting of the following six multi-family real estate companies: AvalonBay Communities, Inc., Camden Property Trust, Essex Property Trust, Equity Residential, Mid-America Apartment Communities, Inc., and UDR, Inc.
Risk analysis of compensation programs
The Committee considers risk-related matters when making decisions with respect to executive compensation and has determined that neither our executive compensation program nor any of our non-executive compensation programs create risk-taking incentives that are reasonably likely to have a material adverse effect on the organization. Our compensation programs align management incentives with AIR's long-term interests.
AIR’s - Compensation Program Discourages Excessive Risk-Taking
Limits on STI. The compensation of executive officers and other teammates is not overly weighted toward STI. Moreover, STI is capped.
Use of LTI. LTI is included in target total compensation and typically vests over a period of four years. The vesting period encourages officers to focus on sustaining AIR’s long-term performance. Executive officers with more responsibility for strategic and operating decisions have a greater percentage of their target total compensation allocated to LTI. LTI is capped at two times target, or 200%, for the CEO, and 1.67 times target, or 167%, for the other NEOs.
Stock ownership guidelines and required holding periods after vesting. Our stock ownership guidelines require all executive officers to hold a specified amount of AIR equity. Any executive officer who has not yet satisfied the stock ownership requirements for his or her position must retain LTI after its vesting until stock ownership requirements are met. These policies ensure each executive officer has a substantial amount of personal wealth tied to long-term holdings in AIR stock.
Shared performance metrics across the organization. A portion of 2021 STI for AIR NEOs was based upon our performance against our publicly communicated corporate goals, which were core to the long-term strategy of our business and are reviewed and approved by the Committee. One hundred percent of Mr. Considine’s 2021 STI, and up to 75% of the STI for the other NEOs, was based upon our performance against our corporate goals. In addition, having shared performance metrics across the organization reinforces our focus on a collegial and collaborative team environment.
LTI based on TSR. A portion of 2021 LTI for all the NEOs was based on relative TSR. In general, the more senior level the officer, the greater the percentage of LTI that is based on relative TSR rather than time-vesting. One hundred percent of Mr. Considine’s LTI, and a substantial proportion of the LTI for the other NEOs, was based on relative TSR.
Multiple performance metrics. We had five corporate goals for 2021. In addition, through our performance management program, Managing AIR Performance, or MAP, which set and monitored performance objectives for every team member, each team member had several different individual performance goals that are set at the beginning of the year and approved by management. Each of the NEOs had an average of seven individual goals for 2021. Having multiple performance metrics inherently reduces excessive or unnecessary risk-taking, as incentive compensation is spread among a number of metrics rather than concentrated in a few.
Post-Employment Compensation and Employment and Severance Arrangements
401(k) Plan
We provide a 401(k) plan that is offered to all teammates. In 2021, we matched 25% of participant contributions to the extent of the first 4% of the participant’s eligible compensation. For 2021, the maximum match was $2,900, which was the amount matched for each of Messrs. Considine, Beldin, Kimmel, and Ms. Cohn’s 2021 401(k) contributions. We provided an additional discretionary match in the amount of $1,150 to all team members in 2021 for our achievement of greater than 125% on our 2021 corporate goals. We did not provide a discretionary match in 2020 as we did not achieve greater than 105% performance of our 2020 corporate goals.
Other than the 401(k) plan, we do not provide post-employment benefits. Additionally, we do not maintain a defined benefit pension plan, a supplemental executive retirement plan or any other similar arrangements.
Executive Employment Arrangements
2017 CEO Employment Agreement. On December 21, 2017, the AIR Operating Partnership entered into an employment agreement with Mr. Considine (the “2017 Employment Agreement”). The Committee at the time evaluated the terms of the 2017 Employment Agreement in comparison to those of the CEOs of Aimco’s peers and other comparable companies. The 2017 Employment Agreement was for a two-year term. On December 19, 2019, the Committee extended the term of the 2017 Employment Agreement for an additional two years, from January 1, 2020, through December 31, 2021. The remaining terms and conditions of the 2017 Employment Agreement remained unchanged. On December 15, 2020, Mr. Considine and the AIR Operating Partnership amended the 2017 Employment Agreement to provide that references to the “Company” in the 2017 Employment Agreement would be to AIR (rather than Aimco) following the Separation.
On October 29, 2021, AIR and AIR’s chief executive officer, Terry Considine, entered into an amendment to Mr. Considine’s 2017 Employment Agreement pursuant to which the term of his employment under the agreement was extended by an additional year, through December 31, 2022. Mr. Considine volunteered and AIR accepted his commitment to reduce his compensation for 2021 and 2022 if G&A expenses exceed 15 basis points of gross asset value, as determined by AIR’s Board of Directors and Mr. Considine. Mr. Considine did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Mr. Considine made this commitment without any adjustment or makeup of any sort.
The 2017 Employment Agreement provides for a base salary of $700,000, subject to future increase. Mr. Considine also continues to be eligible to participate in AIR’s performance-based incentive compensation plan with a target annual short-term incentive award
opportunity of not less than $1.4 million (the “Target STI”), and a target long-term incentive award opportunity of not less than $4.025 million, both subject to future increase.
Pursuant to the 2017 Employment Agreement, upon termination of Mr. Considine’s employment by AIR without cause, by Mr. Considine for good reason, or upon a termination for reason of disability, Mr. Considine is generally entitled to: (a) a lump sum cash payment equal to the sum of (i) three times the sum of his base salary at the time of termination, and (ii) the Target STI; (b) any short-term incentive bonus earned but unpaid for a prior fiscal year (the “Prior Year STI”); (c) a pro-rata portion of the short-term incentive bonus he would have earned for the year in which the termination occurs, based on the actual achievement of the applicable performance targets (the “Pro Rata STI”); and (d) immediate and full acceleration of any outstanding unvested equity awards, with all outstanding stock options (including options previously vested) remaining exercisable until the expiration of the applicable option term. In the event of Mr. Considine’s retirement, Mr. Considine will be entitled to: (a) the Prior Year STI; (b) the Pro Rata STI; and (c) accelerated vesting of outstanding and unvested equity awards, if any, that vest solely on a time basis and continued vesting of all outstanding unvested equity awards that vest based on the achievement of performance targets according to actual achievement of the applicable performance targets. If Mr. Considine’s employment is terminated due to his death, Mr. Considine’s estate will receive payment of any earned but unpaid base salary and vested accrued benefits, the Prior Year STI, and the Pro Rata STI, and all outstanding equity awards will become immediately and fully vested and be treated in accordance with the terms of the applicable award agreement.
Under the 2017 Employment Agreement, Mr. Considine is not entitled to any additional or special payments upon the occurrence of a change in control.
In the event payments to Mr. Considine are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the payments will be either (a) delivered in full, or (b) delivered as to such lesser extent that would result in no portion of such payments being subject to the excise tax, whichever results in the receipt by Mr. Considine of the greater amount on an after-tax basis.
The 2017 Employment Agreement also contains customary confidentiality provisions, a limited mutual non-disparagement provision, and non-competition, non-solicitation, and no-hire provisions.
In addition, as part of the Separation, AIR and Aimco entered into the Employee Matters Agreement, which provides that Mr. Considine will continue to serve Aimco with specific responsibilities through 2022 to support the establishment and growth of the Aimco business, reporting directly to the Aimco board of directors and in connection with such role at Aimco, Mr. Considine proposed, and the Compensation and Human Resources Committee agreed, that to the extent he receives compensation directly from Aimco, compensation paid to him by AIR in relation to his role as CEO of AIR will be reduced in a manner to ensure that his combined aggregate annual compensation paid from both companies will not exceed his annual compensation prior to the Separation.
None of Messrs. Beldin, or Kimmel or Ms. Cohn has an employment agreement.
Executive Severance Arrangements
Executive Severance Policy. We adopted the Apartment Income REIT Corp. Executive Severance Policy (the “Executive Severance Policy”). The Executive Severance Policy supersedes and replaces any employment agreement or other plan, policy or practice involving the payment of severance benefits to participants under the Executive Severance Policy. Our senior officers as defined in the policy and as determined on the records of AIR and any other entities through which our operations are conducted, are eligible to participate in the Executive Severance Policy. All of our executive officers, including Messrs. Beldin and Kimmel and Ms. Cohn are participants under the Executive Severance Policy; however, the Chief Executive Officer, Mr. Considine, is not a participant under the Executive Severance Policy.
The Executive Severance Policy provides that if we terminate a participant’s employment without “Cause,” or if the participant terminates his or her employment for “Good Reason” (each as defined in the Executive Severance Policy), then the participant will be eligible to receive the following benefits:
•a lump sum payment equal to the sum of (i) the annual base salary for the calendar year of the date of termination, and (ii) the average annual bonus paid to the participant in the most recent three years; and
•18 months of continued health benefits coverage at AIR’s expense.
The vesting and exercise of any equity awards held by a participant on the date of termination will be determined in accordance with the applicable incentive plan and award agreement.
Pursuant to the terms of the Executive Severance Policy, if we terminate a participant’s employment without Cause, or if the participant terminates his or her employment for Good Reason, in either case, within the period commencing six months prior to and
ending 12 months following a “Change in Control” (as defined in the Executive Severance Policy), then in lieu of the severance benefits described above the participant will be eligible to receive the following benefits:
•a lump sum payment equal to two times the sum of (i) the annual base salary for the calendar year of the date of termination, and (ii) the average annual bonus paid to the Eligible Executive in the most recent three years;
•18 months of continued health benefits coverage at AIR’s expense; and
•100% accelerated vesting of any unvested equity awards then-held by the participant.
The Executive Severance Policy provides that if the employment of the participant is terminated by reason of the participant’s death or disability, then the participant will be eligible to receive a pro-rated bonus for the year of termination. In addition, the vesting and exercise of any equity awards held by the participant at the time of his or her death or disability will be determined in accordance with the applicable incentive plan and award agreement.
In the event that any payment or benefit payable to a participant under the Executive Severance Policy would result in the imposition of excise taxes under the “golden parachute” provisions of Section 280G of the Internal Revenue Code, then such payments and benefits will either be made and/or provided in full or will be reduced such that the excise tax under Section 280G is not applicable, whichever is least economically disadvantageous to the participant. The Executive Severance Policy does not provide for any excise tax or other tax “gross-up” payment.
All severance payments and benefits under the Executive Severance Policy are subject to applicable withholding obligations, the participant’s execution and non-revocation of a release of claims, and compliance with certain non-competition, non-disclosure and non-solicitation covenants set forth in a restrictive covenant agreement that is appropriate for the participant’s position.
The Executive Severance Policy will remain in effect, subject to amendment, until terminated by the Board. The Board may terminate or amend the Executive Severance Policy at any time, so long as at least 90 days’ prior notice is provided to any participant if the termination or amendment of the Executive Severance Policy would materially or adversely affect the rights of the participant.
Non-Competition and Non-Solicitation Agreements
Effective in January 2002 for Mr. Considine, and in connection with their employment or promotions by AIR for Messrs. Beldin and Kimmel and Ms. Cohn, we entered into certain non-competition and non-solicitation agreements with each executive, this is generally true for all of our executive officers. Mr. Considine’s 2002 non-competition and non-solicitation agreement was replaced by his 2008 and 2017 Employment Agreements. Pursuant to these agreements, each of these NEOs agreed that during the term of his or her employment with AIR and for a period of two years following the termination of his or her employment, except in circumstances where there was a change in control of AIR, he or she would not (i) be employed by a competitor of AIR named on a schedule to the agreement, (ii) solicit other employees to leave AIR’s employment, or (iii) solicit customers of AIR to terminate their relationship with AIR. The agreements further required that the NEOs protect trade secrets and confidential information. For Messrs. Beldin and Kimmel and Ms. Cohn, the agreements provide that in order to enforce the above-noted non-competition condition following the executive’s termination of employment by AIR without cause, each such executive will receive, for a period not to extend beyond the earlier of 24 months following such termination or the date of acceptance of employment with a non-competitor, (i) non-compete payments in an amount, if any, to be determined by AIR in its sole discretion and (ii) a monthly payment equal to two-thirds of such executive’s monthly base salary at the time of termination. For purposes of these agreements, “cause” is defined to mean, among other things, the executive’s (i) breach of the agreement, (ii) failure to perform required employment services, (iii) misappropriation of AIR funds or property, (iv) conviction, plea of guilty, or plea of no contest to a crime involving fraud or moral turpitude, or (v) negligence, fraud, breach of fiduciary duty, misconduct or violation of law.
Equity Award Agreements
Double Trigger Vesting Upon Change in Control. The award agreements pursuant to which restricted stock, LTIP I or LTIP II Unit, or stock option awards have been granted to Messrs. Considine, Beldin and Kimmel, and Ms. Cohn, as applicable, and to our other executive officers, provide that if (i) a change in control occurs and (ii) the executive’s employment with AIR is terminated either by AIR without cause or by the executive for good reason, in either case, within 12 months following the change in control, then (a) for time-based options or restricted stock, all outstanding shares of restricted stock or unvested stock options shall become immediately and fully vested and exercisable, and all vested options will remain exercisable for the remainder of the term of the option, and (b) for performance-based options, restricted stock, LTIP I Units, LTIP II Units will vest based on the higher of actual or target performance through the truncated performance period ending on the date of the change in control, and all vested options will remain exercisable for the remainder of the term of the option.
Accelerated Vesting Upon Termination of Employment Due to Death or Disability. Pursuant to the 2017 Employment Agreement, as set forth above, if Mr. Considine’s employment is terminated due to his death or disability, and all outstanding equity awards will become immediately and fully vested and be treated in accordance with the terms of the applicable award agreement. The award agreements pursuant to which restricted stock, LTIP I Units, LTIP II Units, or stock option awards have been granted to Messrs. Considine, Beldin, and Kimmel and Ms. Cohn, as applicable, provide that upon a termination of employment due to death or disability, then (a) for time-based options or restricted stock, all outstanding shares of restricted stock or unvested stock options shall become immediately and fully vested and exercisable, and all vested options will remain exercisable for the remainder of the term of the option, and (b) for performance-based options, restricted stock, LTIP I Units, or LTIP II Units will vest based on the higher of actual or target performance through the date of termination, and all vested options will remain exercisable for the remainder of the term of the option.
Other Benefits; Perquisite Philosophy
Our executive officer benefit programs are substantially the same as for all other eligible officers and employees. We do not provide executives with more than minimal perquisites, such as reserved parking places.
Stock Ownership Guidelines and Required Holding Periods After Vesting
We believe that it is in the best interest of our stockholders for our executive officers to own AIR stock. Every year, the Committee and Mr. Considine review our stock ownership guidelines, each executive officer’s holdings in light of the stock ownership guidelines, and each executive officer’s accumulated realized and unrealized stock option and restricted stock gains.
Equity ownership guidelines for all executive officers are determined as a minimum of the lesser of a multiple of the executive’s base salary or a fixed number of shares. The Committee and management have established the following stock ownership guidelines for AIR’s executive officers:
Officer Position
Ownership Target
Chief Executive Officer
Lesser of 5x base salary or 150,000 shares
President & General Counsel
Lesser of 5x base salary or 75,000 shares
Chief Financial Officer
Lesser of 5x base salary or 75,000 shares
Other Executive Officers
Lesser of 4x base salary or 25,000 shares
Any executive officer who has not satisfied the stock ownership guidelines must, until the stock ownership guidelines are satisfied, hold 50% of any restricted stock that vests, after deduction of restricted stock sold for payment of income taxes related to the vesting for at least three years from the date of vesting, and hold shares equal to 50% of (i) the value realized upon option exercises less (ii) related income taxes for at least three years from the date of exercise.
Each of Messrs. Considine, Beldin, Kimmel and Ms. Cohn exceeded the ownership targets established in our stock ownership guidelines as of February 25, 2022.
Role of Outside Consultants
The Committee has the authority under its charter to engage the services of outside advisors, experts, and others to assist the Committee. In 2021, the Committee engaged FPL Associates, L.P. (“FPL”) to review our executive compensation plan. FPL did not provide other services to AIR. The Committee instructed FPL to compile and provide data on both total pay and individual elements of compensation among companies in the peer groups, as well as trends in compensation practices that they observed within the peer groups and generally among public companies. The Committee has assessed the independence of FPL pursuant to SEC rules and has concluded that FPL is independent.
Base Salary, Incentive Compensation, and Equity Grant Practices
Base salary adjustments typically take effect on January 1. The Committee determines incentive compensation in late January or early February. STI is typically paid in February or March. LTI is granted on a date determined by the Committee, typically in late January or early February.
We generally grant equity in three scenarios: in connection with its annual incentive compensation program, as discussed above; in connection with certain new-hire or promotion packages; and for purposes of retention.
With respect to LTI, the Committee sets the grant date for the restricted stock, LTIP I Unit, LTIP II Unit, and stock option grants. The Committee sets grant dates at the time of its final compensation determination, generally in late January or early February. The date of determination and date of award are not selected based on share price. In the case of new-hire packages that include equity awards, grants are made on the employee’s start date or on a date designated in advance based on the passage of a specific number of days after
the employee’s start date. For non-executive officers, the Committee has delegated the authority to make equity awards, up to certain limits, to the Chief Financial Officer (Mr. Beldin) and/or Corporate Secretary (Ms. Cohn). The Committee and Mr. Beldin and Ms. Cohn time grants without regard to the share price or the timing of the release of material non-public information and do not time grants for the purpose of affecting the value of executive compensation.
2022 Compensation Targets
Based on comparison to compensation paid to CEOs at our peers, the Committee set Mr. Considine’s target total compensation (base compensation, STI and LTI) for 2022 at $6.8 million. Because Mr. Considine voluntarily capped his compensation, the Committee reduced Mr. Considine’s target total compensation to $5.0 million, unchanged from 2021.
Mr. Considine, in consultation with the Committee, set target total compensation (base compensation, STI and LTI) for 2022 for the other NEOs as follows:
Mr. Beldin - $1.07 million; Ms. Cohn - $2.1 million; and Mr. Kimmel - $1.7 million. Our performance will determine the amounts paid for 2022 STI and the portion of LTI awards that vest, and such amounts may be less than, or in excess of, these target amounts. STI will be paid in cash. The LTI granted to Ms. Cohn and Messrs. Beldin and Kimmel on February 1, 2022, was in the form of performance-based restricted stock and time-based restricted stock.
Accounting Treatment and Tax Deductibility of Executive Compensation
The Committee generally considers the accounting treatment and tax implications of the compensation awarded or paid to our executives. Grants of equity compensation awards under our long-term incentive program are accounted for under FASB ASC Topic 718. Section 162(m) of the Internal Revenue Code was amended on December 22, 2017, by the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, Section 162(m) applies to each employee who serves as the principal executive officer or principal financial officer during the taxable year, each other employee who is among the three most highly compensated officers during such taxable year, and any other employee who was a covered employee for any preceding taxable year beginning after December 31, 2016. The Tax Act also eliminated the performance-based compensation exception with respect to tax years beginning after December 31, 2017, but includes a transition rule with respect to compensation that is provided pursuant to a written binding contract in effect on November 2, 2017, and not materially modified after that date. AIR will continue to award compensation as it considers appropriate that does not qualify for deductibility under Section 162(m).
Compensation and Human Resources Committee Report to Stockholders
The AIR Compensation and Human Resources Committee held five meetings during the year ended December 31, 2021. The AIR Compensation and Human Resources Committee has reviewed and discussed the Compensation Discussion & Analysis with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the AIR Compensation and Human Resources Committee, the AIR Compensation and Human Resources Committee has recommended to the Board that the Compensation Discussion & Analysis be included in this filing.
Date: February 23, 2022
THOMAS N. BOHJALIAN
KRISTIN FINNEY-COOKE
THOMAS L. KELTNER
DEVIN I. MURPHY
MARGARITA PALÁU-HERNÁNDEZ
JOHN DINHA RAYIS (CHAIRMAN)
ANN SPERLING
NINA A. TRAN
The above report 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.
Summary Compensation Table
The table below summarizes the compensation attributable to the principal executive officer, principal financial officer, and the three other most highly compensated executives in 2021, for the years 2021, 2020, and 2019.
Name and
Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
Total
($)
Terry Considine -
2021(5)
-(5)
-
3,400,000
(6)
-
-(5)
2,900
3,402,900
Chief Executive Officer
700,000
-
4,300,006
-
1,800,000
2,850
6,802,856
700,000
-
4,275,005
-
2,326,450
4,000
7,305,455
Paul L. Beldin -
450,000
-
393,547
(8)
-
339,475
2,900
1,185,922
Executive Vice
450,000
250,000(7)
309,027
61,671
250,000
2,850
1,323,548
President and Chief
Financial Officer
450,000
-
410,214
-
311,763
4,000
1,175,977
Lisa R. Cohn -
450,000
-
1,169,864
(9)
-
781,220
2,900
2,403,984
President,
450,000
550,000(7)
955,356
146,667
687,500
2,850
2,792,373
General Counsel
and Secretary
450,000
-
1,219,532
-
685,878
4,000
2,359,410
Keith M. Kimmel -
450,000
-
797,626
(10)
-
747,700
2,900
1,998,226
President of
450,000
125,000(7)
752,070
-
500,000
2,850
1,829,920
Property Operations
450,000
-
803,764
-
593,746
4,000
1,851,510
(1)This column represents the aggregate grant date fair value of stock awards in the year granted computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respect to the grants reflected in this column for 2021, refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021.
The amounts shown in this column for 2021 include the grant date fair value of the performance-based restricted stock awards or performance-based LTIP II Unit awards, as applicable, granted in 2021 based on the probable outcome of the performance condition to which such awards are subject, which was calculated by a third-party consultant using a Monte Carlo valuation model in accordance with FASB ASC Topic 718. Based on the foregoing, the grant date fair value is $6.67 per LTIP II Unit as to Mr. Considine’s performance-based LTI award, $42.83 per share for the performance-based restricted stock awards granted to each of Messrs. Beldin and Kimmel, and Ms. Cohn that are based on relative TSR Performance. The grant date fair value of the performance-based LTIP II Unit award assuming achievement at the maximum level of performance, is $6,800,005 for Mr. Considine. The grant date fair value of the performance-based restricted stock awards, assuming achievement at the maximum level of performance, is $539,915 for Mr. Beldin, $1,605,011 for Ms. Cohn, and $1,094,307 for Mr. Kimmel.
(2)This column represents the aggregate grant date fair value of the option awards in the year granted computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respect to the grants reflected in this column for 2021, refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021.
The amounts shown in this column for 2020 include the grant date fair value of the performance-based stock options granted in 2020 based on the probable outcome of the performance condition to which such option is subject, which was calculated by a third-party consultant using a Monte Carlo valuation model. Based on the foregoing, the grant date fair value is $8.15 per underlying share of the options. The grant date fair value of the options, assuming achievement at the maximum level of performance, is $123,342 for Mr. Beldin, and $293,335 for Ms. Cohn.
(3)For 2021, the amounts shown for Messrs. Beldin, and Kimmel, and Ms. Cohn represent the 2021 STI amounts that were paid on February 22, 2022.
(4)Includes discretionary matching contributions under AIR’s 401(k) plan.
(5)As described above, Mr. Considine volunteered and AIR accepted his commitment to reduce his compensation if G&A expenses exceed 15 basis points of gross asset value, as determined by AIR’s Board of Directors and Mr. Considine. Mr. Considine did this in the best long-term interest of AIR to maintain investment in other corporate costs while also meeting a goal of efficiency in converting rents to cash available for investment in AIR’s business or payment of cash dividends to our stockholders. Mr. Considine made this commitment without any adjustment or makeup of any sort. Consistent with this commitment, Mr. Considine forfeited $2,527,000 of compensation: returning his $400,000 base salary, foregoing his earned STI of $1,772,640, and making a cash payment to AIR of $354,360.
(6)Mr. Considine’s 2021 LTI award consists of 509,746 performance-based LTIP II Units (at target) for the forward looking, three-year performance period from January 1, 2021, through December 31, 2023, with the number of units earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later.
(7)Mr. Considine awarded a discretionary cash award to each of Messrs. Beldin, Kimmel, and Ms. Cohn for their significant contributions in connection with the Separation.
(8)Equity awards for Mr. Beldin in 2021 include a 2021 LTI award consisting of the following: (i) 3,152 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; (ii) 6,303 shares of performance-based restricted stock (at target) for the forward looking, three-year performance period from January 1, 2021, through December 31, 2023, with the number of shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later.
(9)Equity awards for Ms. Cohn in 2021 include a 2021 LTI award consisting of the following: (i) 9,369 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; (ii) 18,737 shares of performance-based restricted stock (at target) for the forward looking, three-year performance period from January 1, 2021, through December 31, 2023, with the number of shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later.
(10)Stock awards for Mr. Kimmel in 2021 include a 2021 LTI award consisting of the following: (i) 6,388 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; (ii) 12,775 shares of performance-based restricted stock (at target) for the forward looking, three-year performance period from January 1, 2021, through December 31, 2023, with the number of shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later.
Grants of Plan-Based Awards in 2021
The following table provides details regarding plan-based awards granted to the NEOs during the year ended December 31, 2021.
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
All Other Stock Awards: Number of Shares of
All other Option Awards
Number of Securities
Underlying Options
Exercise or Base Price of Option
Grant Date Fair Value of Stock and Option
Name
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Stock or Units (#)(3)
Threshold
(#)
Target
(#)
Maximum
(#)
Awards
($/Sh)
Awards ($)(4)
Terry Considine
1/25/21
600,000
1,200,000
2,400,000
1/25/21
254,873
509,746
1,019,492
3,400,000
Paul L. Beldin
1/25/21
125,000
250,000
500,000
1/25/21
3,152
123,590
1/25/21
3,152
6,303
12,606
269,957
Lisa R. Cohn
1/25/21
275,000
550,000
1,100,000
1/25/21
9,369
367,358
1/25/21
9,369
18,737
37,474
802,506
Keith M. Kimmel
1/25/21
250,000
500,000
1,000,000
1/25/21
6,388
250,473
1/25/21
6,388
12,775
25,550
547,153
(1)On January 25, 2021, the Committee made determinations of target total incentive compensation for 2021 based on achievement of our five corporate goals for 2021, and achievement of specific individual objectives. Target total incentive compensation amounts were as follows: Mr. Considine - $4.6 million; Mr. Beldin - $620,000; Ms. Cohn - $1.65 million; Mr. Kimmel - $1.25 million. The awards in this column indicate the 2021 STI portion of these target total incentive amounts - at threshold, target, and maximum performance levels. The actual 2021 STI awards earned by each of Messrs. Considine, Beldin, Kimmel, and Ms. Cohn are as disclosed in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.” See the discussion above under “CD&A - Total Compensation for 2021 - Short-Term Incentive Compensation for 2021.”
(2)For each of Messrs. Considine, Beldin, and Kimmel, and Ms. Cohn, the amounts in this column include the number of shares underlying performance-based LTIP II Units (in the case of Mr. Considine) or performance-based restricted stock (in the case of Messrs. Beldin, and Kimmel and Ms. Cohn) granted on January 25, 2021, pursuant to their 2021 LTI award that may be earned - at threshold, target and maximum performance levels - based on relative TSR (60% of each award is based on AIR’s TSR relative to the NAREIT Equity Apartments Index and 40% of each award is based on AIR’s TSR relative to the MSCI US REIT Index) over a three-year period from January 1, 2021, to December 31, 2023, with the number of units or shares earned, if any, vesting 50% on the later of the third anniversary of the grant date or the date on which performance is determined (but no later than March 15, 2024), and 50% on the fourth anniversary of the grant date.
(3)The amounts in this column reflect the number of shares of time-based restricted stock granted pursuant to the 2021 LTI award, vesting 25% on each anniversary of the grant date. The number of shares of restricted stock was determined based on the five trading days up to and including the grant date, or $39.14.
(4)This column represents the aggregate grant date fair value of equity awards in the year granted computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respect to the grants reflected in this column, refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021.
The amounts shown in this column include the grant date fair value of the performance-based restricted stock awards or LTIP II Unit awards, as applicable, based on the probable outcome of the performance condition to which such awards are subject, which was calculated by a third-party consultant using a Monte Carlo valuation model in accordance with FASB ASC Topic 718. Based on the foregoing, the grant date fair value is $6.67 per LTIP II Unit as to Mr. Considine’s performance-based LTI award, $42.83 per share for the performance-based restricted stock awards granted to each of Messrs. Beldin and Kimmel, and Ms. Cohn that are based on relative TSR performance. The grant date fair value of the performance-based LTIP II Unit award, assuming achievement at the maximum level of performance, is $6,800,005 for Mr. Considine. The grant date fair value of the performance-based restricted stock awards, assuming achievement at the maximum level of performance, is $539,915 for Mr. Beldin, $1,605,011 for Ms. Cohn, and $1,094,307 for Mr. Kimmel.
Outstanding Equity Awards at Fiscal Year-End 2021
The following table shows outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2021, for the NEOs. The table also shows unvested and unearned stock awards assuming a market value of $54.67 per share (the closing market price of AIR’s Common Stock on the New York Stock Exchange on December 31, 2021).
Name
Number of Securities Underlying Unexercised Options (#) Exercisable
Number of Securities Underlying Unexercised Options (#) Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Option Exercise Price ($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested (#)
Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
Terry Considine
127,217
(2)
39.00
1/31/2027
1,019,491
(3)
15,761,331
(3)
384,809
(4)
34.28
1/26/2026
1,011,766
(5)
7,618,598
(5)
238,530
(6)
34.56
2/12/2025
170,574
(7)
1,891,666
(7)
206,615
(8)
3,807,914
(8)
41,007
(9)
2,241,853
Paul L. Beldin
15,134
(10)
47.14
1/28/2030
6,303
(11)
344,585
1,580
(12)
1,580
(12)
39.00
1/31/2027
3,457
(13)
188,994
15,845
(14)
2,264
(14)
34.28
1/26/2026
3,152
(15)
172,320
1,728
(16)
94,470
1,280)
(17)
69,978
2,459
(18)
134,434
5,989
(19)
327,419
10,193
(20)
557,251
4,241
(21)
213,855
3,664
(22)
200,311
2,660
(23)
145,422
2,062
(24)
112,730
(25)
48,875
Lisa R. Cohn
35,992
(10)
47.14
1/28/2030
18,737
(11)
1,024,352
10,960
(13)
599,183
9,369
(15)
512,203
5,137
(16)
280,840
3,807
(17)
208,129
7,310
(18)
399,638
2,096
(26)
114,588
14,271
(20)
780,196
Keith M. Kimmel
14,588
(4)
34.28
1/26/2026
12,775
(11)
698,409
9,341
(13)
510,672
6,388
(15)
349,232
3,503
(16)
191,509
2,509
(17)
137,167
4,818
(18)
263,400
1,448
(26)
79,162
9,853
(20)
538,664
(1)Effective December 15, 2020, in connection with the Separation, the executive officers received a share or partnership unit of AIR for every share or partnership unit of Aimco, and both stock options and partnership units were adjusted to preserve their pre-Separation value. The amounts in this table reflect only the AIR awards, and, in the case of stock options, the post-Separation exercise price. Amounts reflect the number of shares subject to the award that have not vested multiplied by the market value of $54.67 per share, which was the closing market price of AIR’s Common Stock on December 31, 2021.
(2)This option was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% vested on January 31, 2021.
(3)This performance-based LTIP II Unit award was granted on January 25, 2021, and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum. Once vested and until the 10-year anniversary of the grant date, LTIP II Units may be converted at the holder’s election into a number of units determined based on the market value of AIR’s Common Stock on the conversion date less the closing price of AIR’s Common Stock on the date of the grant which was $39.21. Because this value assumes a December 31, 2021, conversion date, that amount does not reflect the value of having the ability to control the timing of conversion and the ultimate value that may be realized.
(4)This option was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, of which 50% vested on January 26, 2019, and the remaining 50% vested on January 26, 2020.
(5)This performance-based LTIP II Unit award was granted on January 28, 2020, and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum. Once vested and until the 10-year anniversary of the grant date, LTIP II Units may be converted at the holder’s election into a number of units determined based on the market value of AIR’s Common Stock on the conversion date less the conversion price of $47.14. Because this value assumes a December 31, 2021, conversion date, that amount does not reflect the value of having the ability to control the timing of conversion and the ultimate value that may be realized.
(6)This option was granted on February 12, 2015, and vested 25% on each anniversary of the grant date.
(7)This performance-based LTIP II Unit award was granted on January 29, 2019, and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. Once vested and until the 10-year anniversary of the grant date, LTIP II Units may be converted at the holder’s election into a number of units determined based on the market value of AIR’s Common Stock on the conversion date less the conversion price of $43.58. Because this value assumes a December 31, 2021, conversion date, that amount does not reflect the value of having the ability to control the timing of conversion and the ultimate value that may be realized.
(8)This performance-based LTIP II Unit award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the roughly three-year performance period from January 1, 2018, through December 11, 2020, of which 50% vested on January 30, 2021, and the remaining 50% will vest on January 30, 2022, as described in the CD&A. Once vested and until the 10-year anniversary of the grant date, LTIP II Units may be converted at the holder’s election into a number of units determined based on the market value of AIR’s Common Stock on the conversion date less the conversion price of $36.24. Because this value assumes a December 31, 2021, conversion date, that amount does not reflect the value of having the ability to control the timing of conversion and the ultimate value that may be realized.
(9)This performance-based LTIP I Unit award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for roughly the three-year performance period from January 1, 2018, through December 11, 2020, of which 50% vested on January 30, 2021, and the remaining 50% will vest on January 30, 2022, as described earlier in the CD&A. An LTIP I Unit is equivalent to a common partnership unit.
(10)This option was granted on January 28, 2020 and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward-looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum.
(11)This performance-based restricted stock award was granted on January 25, 2021 and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at target.
(12)This option was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% will vest on January 31, 2022.
(13)This performance-based restricted stock award was granted on January 28, 2020 and, subject to achievement of relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at target.
(14)This option was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, of which 50% vested on January 26, 2019, 37.5% vested on January 26, 2020, and 12.5% vests on January 26, 2022.
(15)This restricted stock award was granted on January 25, 2021, and vests 25% on each anniversary of the grant date.
(16)This restricted stock award was granted on January 28, 2020, and vests 25% on each anniversary of the grant date.
(17)This restricted stock award was granted on January 29, 2019, and vests 25% on each anniversary of the grant date.
(18)This performance-based restricted stock award was granted on January 29, 2019, and, subject to achievement of relative TSR metrics, vests 50% following the end of the three-year forward-looking performance period and 50% on the fourth anniversary of the grant date.
(19)This restricted stock award was granted on January 30, 2018, and vests 100% on the fourth anniversary of the grant date.
(20)This performance-based restricted stock award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the roughly three-year performance period from January 1, 2018, through December 11, 2020, of which 50% vested on January 31, 2021, and the remaining 50% will vest on January 31, 2022.
(21)This restricted stock award was granted on January 31, 2017, and vested 25% on the first anniversary of the grant date and 75% will vest on the fifth anniversary of the grant date.
(22)This performance-based restricted stock award was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% will vest on January 31, 2022.
(23)This restricted stock award was granted on January 26, 2016, and vested 25% on each of the first, second anniversaries of the grant date and 50% will vest on the sixth anniversary of the grant date.
(24)This performance-based restricted stock award was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, as described in the CD&A, of which 50% vested on January 26, 2019, 37.5% vested on January 26, 2020, and 12.5% vests on January 26, 2022.
(25)This restricted stock award was granted on January 26, 2016, and vested 25% on each of the first, second, and third anniversaries of the grant date and will vest 12.5% on each of the fifth and sixth anniversaries of the grant date.
(26)This restricted stock award was granted on January 30, 2018, and vests 25% on each anniversary of the grant date.
Option Exercises and Stock Vested in 2021
The following table sets forth certain information regarding options and stock awards exercised and vested, respectively, during the year ended December 31, 2021, for the persons named in the Summary Compensation Table above.
Option Awards
Stock Awards
Name
Number of Shares Acquired on Exercise (#)
Value Realized
on Exercise ($)(1)
Number of Shares Acquired on Vesting (#)
Value Realized
on Vesting ($)(2)
Terry Considine
-
-
264,001
(3)
$
3,114,476
Paul L. Beldin
-
-
12,307
$
491,310
Lisa R. Cohn
-
-
27,298
$
1,090,643
Keith M. Kimmel
-
-
19,027
$
760,336
(1)Amounts reflect the difference between the exercise price of the option and the market price at the time of exercise.
(2)Amounts reflect the closing market price of AIR’s Common Stock on the day the equity instrument vested, which in all cases was $40.16.
(3)This is comprised of 57,385 LTIP I Units and 206,616 LTIP II Units. Had those LTIP II Units been converted on the date of vesting, the value would have been $809,935; however, that amount does not reflect the value of having the ability to control the timing of conversion and the ultimate value that may be realized. Once vested and until the 10-year anniversary of the grant date, the LTIP II Units may be converted at the holder’s election into a number of units determined based on the market value of AIR’s Common Stock on the conversion date less the conversion price.
Potential Payments Upon Termination or Change in Control
The NEOs are entitled to certain severance payments and benefits upon a qualifying termination of employment or, in the case of a change in control, double trigger accelerated vesting of equity awards in the event of a qualifying termination of employment that occurs within one year following a change in control. The terms of these arrangements are described under “CD&A - Post-Employment Compensation and Employment and Severance Arrangements - Executive Employment Arrangements, Executive Severance Arrangements and Equity Award Agreements” above.
In the table that follows, potential payments and other benefits payable upon termination of employment and change in control situations are set out as if the conditions for payments had occurred and/or the terminations took place on December 31, 2021. In setting out such payments and benefits, amounts that had already been earned as of the termination date are not shown. Also, benefits that are available to all full-time regular employees when their employment terminates are not shown. The amounts set forth below are estimates of the amounts that could be paid out to the NEOs upon their termination. The actual amounts to be paid out can only be determined at the time of such NEOs’ separation from AIR. The following table summarizes the potential payments under various scenarios if they had occurred on December 31, 2021.
Value of Accelerated Stock and Stock Options ($)(1)
Severance ($)
Name
Change in Control Only
Double
Trigger
Change in Control
Death or
Disability
Termination
Without
Cause
Termination
For Good
Reason
Death
Disability
Termination
Without
Cause
Termination For Good Reason
Termination Without Cause or For Good Reason in Connection with a Change in Control
Non- Compete Payments ($)(2)
Terry Considine
-
20,245,130
20,245,130
20,245,130
20,245,130
-
1,822,463
(3)
3,922,463
(3)(4)
3,922,463
(3)(4)
3,922,463
(3)(4)
-
Paul L. Beldin
-
2,724,406
2,724,406
-
-
-
339,475
(5)
861,185
(6)
861,185
(6)
1,160,986
(7)
600,000
Lisa R. Cohn
-
4,045,128
4,045,128
-
-
-
781,220
(5)
1,163,462
(6)
1,163,462
(6)
2,294,888
(7)
600,000
Keith M. Kimmel
-
2,850,528
2,850,528
-
-
-
747,700
(5)
998,751
(6)
998,751
(6)
1,966,273
(7)
600,000
(1)Amounts reflect value of accelerated restricted stock, LTIP I Units, LTIP II Units and options using the closing market price of AIR’s Common Stock on December 31, 2021, of $54.67 per share. For purposes of this table, the value of restricted stock and LTIP I Units is based on the closing market price and the value of LTIP II Units and options is based on the difference between the closing market price and the conversion or exercise price, as applicable.
(2)Amounts assume the agreements were enforced by AIR and that non-compete payments in an aggregate amount equal to two-thirds of the executive’s monthly base salary would be payable for 24 months following the executive’s termination of employment by AIR without cause.
(3)Amount does not reflect the offset for long-term disability benefit payments in the case of a qualifying disability under AIR’s long-term disability insurance plan.
(4)Amount consists of (i) a lump sum cash payment equal to the sum of (a) three times the sum of Mr. Considine’s base salary, or $2.1 million, and (b) Mr. Considine’s 2021 target STI of $1.8 million, and (ii) 18 months of medical coverage reimbursement at an estimated amount of $22,463, as payable pursuant to the terms of Mr. Considine’s employment agreement with AIR.
(5)Amount consists of a lump sum cash payment equal to the amount of 2021 STI paid, as payable pursuant to the Executive Severance Policy.
(6)Amount consists of (i) a lump sum cash payment equal to the sum of base salary and the average of the amount of STI paid for the previous three years, and (ii) 18 months of medical coverage reimbursement at an estimated amount of $32,036, as payable pursuant to the Executive Severance Policy.
(7)Amount consists of (i) a lump sum cash payment equal to two times the sum of base salary and the average of the amount of STI paid for the previous three years, and (ii) 18 months of medical coverage reimbursement at an estimated amount of $32,036, as payable pursuant to the Executive Severance Policy.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information available to AIR, as of February 18, 2022, with respect to AIR’s equity securities beneficially owned by (i) each director and named executive officer, and (ii) all directors and executive officers as a group. The table also sets forth certain information available to AIR, as of February 18, 2022, with respect to shares of AIR’s Common Stock held by each person known to AIR to be the beneficial owner of more than 5% of such shares. This table reflects options that are exercisable within 60 days. Unless otherwise indicated, each person has sole voting and investment power with respect to the securities beneficially owned by that person. The business address of each of the following directors and executive officers is 4582 South Ulster Street, Suite 1700, Denver, Colorado 80237, unless otherwise specified.
Name and Address of Beneficial Owner
Number of shares of Common Stock(1)
Percentage of Common Stock
Outstanding(2)
Number of Partnership Units(3)
Percentage Ownership of AIR(4)
Directors, Director Nominees, and Named Executive Officers:
Terry Considine
770,026
(5)
0.49%
5,159,702
(6)
3.47%
Paul L. Beldin
118,459
(7)
*
-
*
Lisa R. Cohn
195,772
*
-
*
Keith M. Kimmel
115,487
(8)
*
-
*
Thomas N. Bohjalian
8,000
*
-
*
Kristin Finney-Cooke
-
*
3,000
*
Thomas L. Keltner
51,007
*
-
*
Devin I. Murphy
6,386
*
3,000
*
Margarita Paláu-Hernández
3,000
*
-
*
John D. Rayis
6,912
*
3,000
*
Ann Sperling
13,558
*
3,000
*
Nina A. Tran
19,968
*
3,000
*
All directors and executive officers as a group (15 persons)
1,362,698
(9)
0.86%
5,174,702
3.83%
5% or Greater Holders:
Cohen & Steers, Inc.
26,748,192
(10)
17.02%
-
15.96%
280 Park Avenue 10th Floor
New York, New York 10017
The Vanguard Group, Inc.
22,794,058
(11)
14.51%
-
13.06%
100 Vanguard Blvd.
Malvern, Pennsylvania 19355
BlackRock Inc.
18,252,479
(12)
11.62%
-
10.89%
55 East 52nd Street
New York, New York 10055
* Less than 0.5%
(1)Excludes shares of AIR’s Common Stock issuable upon redemption of common OP Units or equivalents.
(2)Represents the number of shares of AIR Common Stock beneficially owned by each person divided by the total number of shares of AIR Common Stock outstanding. Any shares of AIR Common Stock that may be acquired by a person within 60 days upon the exercise of options, warrants, rights or conversion privileges or pursuant to the power to revoke, or the automatic termination of, a trust, discretionary account or similar arrangement are deemed to be beneficially owned by that person and are deemed outstanding for the purpose of computing the percentage of outstanding shares of AIR Common Stock owned by that person, but not any other person.
(3)Through wholly-owned subsidiaries, AIR acts as general partner of the AIR Operating Partnership. As of February 18, 2022, AIR held approximately 93.3% of the common partnership interests in 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.” Generally, after a holding period of 12 months, common OP Units may be tendered for redemption and, upon tender, may be acquired by AIR for shares of AIR Common Stock at an exchange ratio of one share of AIR Common Stock for each common OP Unit (subject to adjustment). If AIR acquired all common OP Units for AIR Common Stock (without regard to the ownership limit set forth in AIR’s
Charter), these shares of AIR Common Stock would constitute approximately 8.0% of the then outstanding shares of AIR Common Stock. OP Units are subject to certain restrictions on transfer.
(4)Represents the number of shares of AIR Common Stock beneficially owned, divided by the total number of shares of AIR Common Stock outstanding, assuming, in both cases, that all 10,515,416 OP Units outstanding as of February 18, 2022, are redeemed in exchange for shares of AIR Common Stock (notwithstanding any holding period requirements, and AIR’s ownership limit). See note (3) above. Excludes partnership preferred units issued by the AIR Operating Partnership and AIR preferred securities.
(5)Includes the following shares of which Mr. Considine disclaims beneficial ownership: 16,000 shares held in a trust. Also includes 750,557 shares subject to options that are exercisable within 60 days.
(6)Includes 1,269,208 OP Units and equivalents held by Mr. Considine (of which 114,768 are LTIP I Units and 583,805 are LTIP II Units), 179,735 OP Units held by an entity in which Mr. Considine has sole voting and investment power, 1,591,672 OP Units and equivalents held by Titahotwo Limited Partnership RLLLP, a registered limited liability limited partnership for which Mr. Considine serves as the general partner and holds a 0.5% ownership interest, and 118,148 OP Units held by Mr. Considine’s spouse, for which Mr. Considine disclaims beneficial ownership. Also includes 2,301,122 unvested LTIP II Units, the vesting of which is subject to certain performance criteria. Upon conclusion of the performance period and depending on the results thereof, the reporting person may vest in all, some, or none of the performance-based partnership units. Titahotwo has pledged 695,000 OPU equivalents.
(7)Includes 21,269 shares subject to options that are exercisable within 60 days.
(8)Includes 14,588 shares subject to options that are exercisable within 60 days.
(9)Includes 786,414 shares subject to options that are exercisable within 60 days.
(10)Beneficial ownership information is based on information contained in Amendment No. 2 to Schedule 13G filed with the SEC on February 14, 2022, by Cohen & Steers, Inc. on behalf of itself and affiliated entities. According to the schedule, included in the securities listed above as beneficially owned by Cohen & Steers, Inc. are (i) 19,832,508 shares over which Cohen & Steers, Inc. has sole voting power, 19,727,931 shares over which Cohen & Steers Capital Management, Inc. has sole voting power, 49,614 shares over which Cohen & Steers UK Limited has sole voting power, 42,010 shares over which Cohen & Steers Asia Limited has sole voting power, and 12,953 shares over which Cohen & Steers Ireland Limited has sole voting power and (ii) 26,748,192 shares over which Cohen & Steers, Inc. has sole dispositive power, 26,288,751 shares over which Cohen & Steers Capital Management, Inc. has sole dispositive power, 404,478 shares over which Cohen & Steers UK Limited has sole dispositive power, 42,010 shares over which Cohen & Steers Asia Limited has sole dispositive power, and 12,953 shares over which Cohen & Steers Ireland Limited has sole dispositive power.
(11)Beneficial ownership information is based on information contained in Schedule 13G filed with the SEC on February 9, 2022, by The Vanguard Group, Inc. According to the schedule, The Vanguard Group, Inc. has sole dispositive power with respect to 22,423,216 of the shares and shared voting power with respect to 230,570 of the shares and shared dispositive power with respect to 370,842 of the shares.
(12)Beneficial ownership information is based on information contained in Amendment No. 2 to Schedule 13G filed with the SEC on January 27, 2022, by BlackRock Inc. According to the schedule, BlackRock Inc. has sole voting power with respect to 16,932,682 of the shares and sole dispositive power with respect to 18,252,479 of the shares.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies and Procedures for Review, Approval, or Ratification of Related Person Transactions
AIR recognizes that related person transactions can present potential or actual conflicts of interest and create the appearance that AIR’s decisions are based on considerations other than the best interests of AIR and its stockholders. Accordingly, as a general matter, it is AIR’s preference to avoid related person transactions. Nevertheless, AIR recognizes that there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of AIR and its stockholders. The Governance and Corporate Responsibility Committee, pursuant to a written policy approved by the Board, has oversight for related person transactions. The Governance and Corporate Responsibility Committee will review transactions, arrangements or relationships in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) AIR (or any AIR entity) is a participant, and (3) any related party has or will have a direct or indirect interest (other than an interest arising solely as a result of being a director of another corporation or organization that is a party to the transaction or a less than 10 percent beneficial owner of another entity that is a party to the transaction). The Governance and Corporate Responsibility Committee has also given its standing approval for certain types of related person transactions, such as certain employment arrangements, director compensation, transactions with another entity in which a related person’s interest is only by virtue of a non-executive employment relationship or limited equity position, and transactions in which all stockholders receive pro rata benefits.
Independence of Directors
The Board has determined that to be considered independent, a director may not have a direct or indirect material relationship with AIR or its subsidiaries (directly or as a partner, stockholder or officer of an organization that has a relationship with AIR). A material relationship is one that impairs or inhibits, or has the potential to impair or inhibit, a director’s exercise of critical and disinterested judgment on behalf of AIR and its stockholders. In determining whether a material relationship exists, the Board considers all relevant facts and circumstances, including whether the director or a family member is a current or former employee of AIR, family member relationships, compensation, business relationships and payments, and charitable contributions between AIR and an entity with which a director is affiliated (as an executive officer, partner or substantial stockholder). The Board consults with AIR’s counsel to ensure that such determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent director,” including but not limited to those categorical standards set forth in Section 303A.02 of the listing standards of the New York Stock Exchange. Consistent with these considerations, the Board has affirmatively determined that all the directors (other than Mr. Considine) are independent.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Below is information on the fees billed for services rendered by Deloitte & Touche LLP, AIR’s independent registered public accounting firm during the year ended December 31, 2021, and Ernst & Young LLP, AIR’s former independent registered public accounting firm, during the year ended December 31, 2020.
Year Ended December 31,
DELOITTE & TOUCHE LLP FEES
Aggregate fees billed for services
$4.7 million
Audit Fees: Including fees associated with the audit of our annual financial statements, internal controls, and interim reviews of financial statements
$1.5 million
Audit-Related Fees: Including fees related to benefit plan audits, registration statements, comfort letters, and consents
$0.1 million
Tax Fees:
Tax Compliance Fees (1)
$1.3 million
Tax Consulting Fees (2)
$1.8 million
Total Tax Fees
$3.1 million
All other fees (3)
$-
ERNST & YOUNG LLP FEES
Aggregate fees billed for services
$3.72 million
Audit Fees: Including fees associated with the audit of our annual financial statements, internal controls, interim reviews of financial statements, registration statements, comfort letters, and consents
$2.87 million
Audit-Related Fees: Including fees related to benefit plan audits
$0.03 million
Tax Fees:
Tax Compliance Fees (1)
$0.60 million
Tax Consulting Fees (2)
$0.22 million
Total Tax Fees
$0.82 million
All other fees (3)
$-
(1)Tax compliance fees consist primarily of income tax return preparation and income tax return review fees related to the income tax returns of AIR, the AIR Operating Partnership, and certain of AIR’s subsidiaries and affiliates.
(2)Tax consulting fees consist primarily of amounts attributable to routine advice related to various transactions, and assistance related to income tax return examinations by governmental authorities.
(3)Other fees consist of amounts attributable to due diligence pertaining to acquisitions.
Pursuant to a competitive process, on September 23, 2021, the Audit Committee approved the appointment of Deloitte & Touche LLP for the fiscal year ending December 31, 2021. During the fiscal years ended December 31, 2020 and December 31, 2019, and for the subsequent interim period through September 23, 2021, none of AIR, the Operating Partnership or anyone on their behalf consulted Deloitte & Touche LLP regarding: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided that Deloitte & Touche LLP concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” as that term is defined in Item 304(a)(1)(iv) of Regulation S-K or a “reportable event” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Also during the competitive process, on September 22, 2021, Ernst & Young LLP resigned as AIR’s independent registered public accounting firm, effective immediately. Ernst & Young LLP’s reports on the consolidated financial statements as of and for fiscal year ended December 31, 2020 of AIR and the Operating Partnership did not contain any adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During fiscal years ended December 31, 2020 and 2019, and in the subsequent interim period through September 22, 2021, (i) there were no disagreements with Ernst & Young LLP (within the meaning of Item 304(a)(1)(iv) of Regulation S-K) on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that if not resolved to Ernst & Young LLP’s satisfaction, would have caused Ernst & Young LLP to make reference thereto in its reports; and (ii) there were no reportable events (as defined by Item 304(a)(1)(v) of Regulation S-K).
In its pre-approval of such tax services in accordance with the policies outlined below, the Audit Committee gave appropriate consideration to the applicable independence rules of the SEC and PCAOB. Specifically, the Audit Committee considered:
•The SEC’s three basic principles of independence with respect to services provided by auditors, violations of which would impair the auditor’s independence: (1) an auditor cannot function in the role of management; (2) an auditor cannot audit his or her own work; and (3) an auditor cannot serve in an advocacy role for his or her client;
•The non-audit services specifically prohibited under the SEC’s auditor independence rules:
oBookkeeping or other services related to the accounting records or financial statements of the audit client;
oFinancial information systems design and implementation;
oAppraisal or valuation services, fairness opinions, or contribution-in-kind reports;
oActuarial services;
oInternal audit outsourcing services;
oManagement functions or human resources;
oBroker or dealer, investment adviser, or investment banking services; and
oLegal services and expert services unrelated to the audit.
•The following rules of the PCAOB:
o3521 - Contingent Fees;
o3522 - Tax Transactions; and
o3524 - Audit Committee Pre-approval of Certain Tax Services.
In addition, the Audit Committee considered the SEC’s Release, Strengthening the Commission’s Requirements Regarding Auditor Independence, in which the SEC reiterated “its long-standing position that an accounting firm can provide tax services to its audit clients without impairing the firm’s independence.”
Audit Committee Pre-Approval Policies
The Audit Committee has adopted the Audit and Non-Audit Services Pre-Approval Policy (the “Pre-approval Policy”). A summary of the Pre-approval Policy is as follows:
•The Pre-approval Policy describes the Audit, Audit-related, Tax and Other Permitted services that have the general pre-approval of the Audit Committee.
•Pre-approvals are typically subject to a dollar limit of $75,000.
•The term of any general pre-approval is generally 12 months from the date of pre-approval.
•At least annually, the Audit Committee reviews and pre-approves the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee.
•Unless a type of service has received general pre-approval and is anticipated to be within the dollar limit associated with the general pre-approval, it requires specific pre-approval by the Audit Committee if it is to be provided by the independent registered public accounting firm.
•The Audit Committee will consider whether all services are consistent with the rules on independent registered public accounting firm independence.
•The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with AIR’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance AIR’s ability to manage or control risk or improve audit quality. Such factors are considered as a whole, and no one factor is necessarily determinative.
All of the services described in the Principal Accountant Fee section above were approved pursuant to the annual engagement letter or in accordance with the Pre-approval Policy.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
The financial statements listed in the Index to Financial Statements on Page 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 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
2.1
Separation and Distribution Agreement, effective as of December 15, 2020, by and among Apartment Investment Management Company, Aimco OP L.P., Apartment Income REIT Corp. and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P. ) (Exhibit 2.1 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
3.1
Amended and Restated Charter of Apartment Income REIT Corp. (Exhibit 3.1 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
3.2
Articles Supplementary of Apartment Income REIT Corp. regarding Class A Preferred Stock (Exhibit 3.2 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
3.3
Articles Supplementary of Apartment Income REIT Corp. regarding Opt-Out from the Maryland Unsolicited Takeovers Act (Exhibit 3.3 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
3.4
Amended and Restated Bylaws of Apartment Income REIT Corp. (Exhibit 3.4 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
4.1
Description of AIR’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Exhibit 4.1 to AIR's Annual Report on Form 10-K filed March 12, 2021, is incorporated herein by this reference)
4.2
Credit Agreement, dated as of April 14, 2021, by and among Apartment Income REIT Corp., AIR REIT Sub 1, LLC, AIR REIT Sub 2, LLC, AIMCO SUBSIDIARY REIT I, LLC, Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.), AIMCO/Bethesda Holdings, Inc., the lenders party thereto and PNC Bank, National Association, as administrative agent (Exhibit 10.1 to AIR’s Current Report on Form 8-K filed April 14, 2021, is incorporated herein by this reference)
10.1
Seventh Amended and Restated Partnership Agreement of Apartment Income REIT, L.P. (Exhibit 10.1 to AIR's Current Report on Form 8-K filed July 7, 2021, is incorporated herein by this reference)
10.2
Master Services Agreement, effective as of December 15, 2020, by and among Apartment Investment Management Company, Aimco OP L.P., Apartment Income REIT Corp. and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.) (Exhibit 10.2 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.3
Employee Matters Agreement, effective as of December 15, 2020, by and among Apartment Investment Management Company, Aimco OP, L.P., Apartment Income REIT Corp., and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P. ) (Exhibit 10.3 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.4
Master Leasing Agreement, effective as of December 15, 2020, by and among Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.) and Aimco Development Company, LLC (Exhibit 10.4 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.5
Property Management Agreement, effective as of December 15, 2020, by and between James-Oxford Limited Partnership and AIR Property Management TRS, LLC (Exhibit 10.5 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.6
Mezzanine Note Agreement, effective as of December 14, 2020, by and among Aimco REIT Sub, LLC, AIMCO/Bethesda Holdings, Inc. and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P. ) (Exhibit 10.6 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.7
Form of 5.2% Secured Mezzanine Note, made by Aimco REIT Sub, LLC (included in Exhibit 10.6) (Exhibit 10.7 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)
10.8
Form of Apartment Income REIT Corp. Executive Severance Policy*
10.9
Form of Apartment Income REIT Corp. 2007 Stock Award and Incentive Plan (Exhibit 10.9 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)*
10.10
Form of Restricted Stock Agreement (2007 Stock Award and Incentive Plan) (Exhibit 10.10 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.11
Form of Non-Qualified Stock Option Agreement (2007 Stock Award and Incentive Plan) (Exhibit 10.11 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.12
Form of Apartment Income REIT Corp. 2020 Employee Stock Purchase Plan (Exhibit 10.10 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)*
10.13
Form of Apartment Income REIT Corp. 2020 Stock Award and Incentive Plan (Exhibit 10.11 to AIR’s Current Report on Form 8-K, filed December 15, 2020, is incorporated herein by this reference)*
10.14
Form of Performance Restricted Stock Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.14 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.15
Form of Restricted Stock Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.15 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.16
Form of Non-Qualified Stock Option Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.16 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.17
Form of LTIP Unit Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.17 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.18
Form of Performance Vesting LTIP Unit Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.18 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.19
Form of Non-Qualified Stock Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.19 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.20
Form of Performance Vesting LTIP II Unit Agreement (2020 Stock Award and Incentive Plan) (Exhibit 10.20 to AIR’s Registration Statement on Form 10-12B/A, filed November 24, 2020, is incorporated herein by this reference)*
10.21
AIR 401(k) Retirement Plan (f/k/a AIMCO 401(k) Retirement Plan) (Exhibit 99.1 to AIR’s Form S-8, filed December 15, 2020, is incorporated herein by this reference)*
10.22
Employment Agreement, dated December 21, 2017, by and between Terry Considine and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.)( Exhibit 10.1 to Aimco’s Current Report on Form 8-K filed December 21, 2017, is incorporated herein by this reference)*
10.23
Amendment, dated October 29, 2021, to the Employment Agreement by and between Terry Considine and Apartment Income REIT, L.P. (f/k/a AIMCO Properties, L.P.) (Exhibit 10.2 to AIR's Quarterly Report on Form 10-Q filed November 2, 2021, is incorporated herein by this reference)*
16.1
Letter of Ernst & Young, LLP, dated September 27, 2021 (Exhibit 16.1 to AIR's Current Report on Form 8-K, filed September 27, 2021, is hereby incorporated by this reference)
21.1
List of Subsidiaries
23.1
Consent of Deloitte & Touche LLP - AIR
23.2
Consent of Deloitte & Touche LLP - AIR Operating Partnership
23.3
Consent of Ernst & Young LLP - AIR
23.4
Consent of Ernst & Young LLP - AIR Operating Partnership
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - AIR
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - AIR
31.3
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - AIR Operating Partnership
31.4
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - AIR Operating Partnership
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - AIR
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - AIR
32.3
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - AIR Operating Partnership
32.4
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - AIR Operating Partnership
99.1
Agreement regarding disclosure of long-term debt instruments - AIR
99.2
Agreement regarding disclosure of long-term debt instruments - AIR Operating Partnership
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, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) consolidated balance sheets; (ii) consolidated statements of operations; (iii) consolidated statements of comprehensive income (loss); (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
Cover 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 is 001-39686 (AIR) and 000-24497 (the AIR Operating Partnership).
* 	Management contract or compensatory plan or arrangement