Welcome to Citi's 2024 Global Property CEO Conference. I'm Nick Joseph here with Eric Wolfe with Citi Research, and we're pleased to have with us AIR Communities and CEO Terry Considine. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can go to Live Q&A and enter code GPC24 to submit any questions. Terry, we'll turn it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A. Nick, thank you very much. Nick, thank you very much. I'm here with Paul Beldin. I left my voice in the cubicle, but that I only have two more meetings afterwards, and I think I'll make it through them. But I'm grateful for the chance to be here again and to talk with you about AIR. I would say the most important reasons to invest in AIR are that it's the best at what it does, that we're focused on free cash flow. We're growing it since our separation from AIMCO at a compounded annual growth rate in the mid or upper 7%. And that number is accelerating a little bit. In a time where people are quite concerned about supply, we're not. Supply is normal. It's healthy. What creates risk is concentration in markets where it's coming. We approach the risk of supply by diversification, by price point and market. Our exposure to new supply this year is average. The most important thing we do is pick our customers' neighbors, and we ask them to sign a good neighbor agreement. At the same time, we ask them to sign a lease. It's how we expect them to behave and what they can expect of us. What you can see in looking at the people that we lease to is they have incomes of last quarter $240,000. They have FICO scores of 723. They have rent-to-income ratios of 19%. So they're renters who have lots of choices, and they've chosen to live with us because they are attracted to stable communities. It feels safe, and they feel some connection to their neighbors. So I would say, by comparison to others, we're more relational than transactional. And it defines a lot of things we don't do. We do not have self-guided tours. We did that, as you'll remember, a decade ago and thought it was a good idea until we discovered it wasn't because it was efficient, but it wasn't effective because it bothered our existing residents to have people wandering through the hallways. So we don't have FedEx packages delivered to the door. We don't have pizza delivered to the door. We try and preserve a sense of safety, where the people you see are people you know. I would say that that same stability is reflected in retention rates, where we have the highest retention rate in the sector at 62%. That's growing at about 130 basis points a year for the last five years. About a third of our apartments have retention rates over 65%. So there's a lot of upside to that. And the importance of that is renewal pricing, which is what you get with retention, is 20% more profitable than new lease pricing. And as a result, we have the highest margins. And our costs, our operating costs, excluding taxes and insurance, have been flat for the last 14 years. And people say, "Well, what about insurance? Here we are in Florida. It must be very costly." It certainly felt that way a year ago when I was here. But I'm back to say, having worked at it for the year, because we have a higher Florida allocation than many, our pricing went down 6%. And offset by increase in replacement costs, our net increase was 1.37%, which is fairly flat. It reflects the fact that our property insurers have lower losses, almost no losses. They've had one claim in 10 years. That's a function of management and attention to detail and managing costs. We didn't do that, by the way, by taking more retained risks. That's actually with reduced risks. We've reduced deductibles and retention. So it's just by being able to communicate in a granular way that the insurer's exposure in doing business with AIR was a lower exposure, a more attractive risk to underwrite on their part. So I'd say leverage is a question that people sometimes ask about. I would say that leverage has to be understood in the context of the business model. We have a business model that focuses only on stabilized properties. We don't have development risk. We don't have the effective leverage of cost to complete. We don't do second mortgage loans, which have the leverage of first mortgage loans that, just because they're not consolidated, don't go away. So our actual economic leverage is very similar to our peers. And it's about 30% loan to value. And it's almost entirely fixed rate. It does reprice over time. We have about a 6.5 year weighted average maturity. We have no maturities this year. We have very few maturities until the very end, until December 2025. So we're relatively insulated from interest rate increases for the next 20 months or 22 months. And I have no idea what interest rates will be 22 months from now. But I think that we're also the most active of our peers. I should say we're also the most liquid relative to scale, thanks to Paul's good work. We have $2 billion of liquidity, and we have $3 billion of debt. So we're not going to get in trouble with our leverage. But we're the most active in terms of portfolio transactions, upgrades, paired trades. We have three evergreen joint ventures with a sovereign wealth fund and two large global asset allocators who are attracted to investing with us because we're good at what we do. They have a choice. And they've looked back. I I think a summary would be that they look at the decade after the GFC as one where money was made in contracting or compressed cap rates. But that's not the case that they see now. They see now it's going to turn on operations. And so they want to align themselves with a company they identify as being the best at that. And that's certainly what the data shows. So in the last three years, we've added about $2.5 billion of investment, including about $1 billion of JV capital. And during that time, we've returned about $1 billion to shareholders. So some of that in a dividend and some of that by repurchasing about 8% of the company in share buybacks. So today, every shareholder owns a bigger piece of the pie. So looking forward, I'm very excited. I mean, we've looked at guidance. Guidance is something I take with a certain amount of skepticism. But to the extent we have that, or we could look actually at the first couple of months of the year now. But in front of me, Paul's provided a handy calendar that shows the expected NOI growth of the apartment REITs that are here this last few days. Going from bottom to top in terms of the alphabet, the expected NOI is flat, -130, +70 bps, +180 bps, flat, +125 bps, and +380. So you could take the top two or three and add them together to get to our growth rate. So we're growing faster. That's in same-store. We've got more assets outside of same-store that are growing at two and three times as fast. So I think it's likely that this year, like last year, we will grow free cash flow faster than our peers. I think the last point I might make is the stability of the business and the stability of the customers is reflected in the stability of the team. It's one of the differences that comes from, again, a more relational point of view, that our productivity is so high that we have the lowest labor costs but also the highest wages on site because our retention is typically where our average retention right now is about 10 years, which is probably three times the industry average. And so our service managers, the most important job at AIR is the service manager. We'll make six figures, and it'll have been with us for 10 years. So it's a stable, predictable business and one that is doing well. I think that people say, "Well, there must be risks." And of course, there are. There are property risks. There are weather events at the company level. Keith makes it look so easy, but it's not. Some markets' regulatory overreach erodes property rights and limits the freedom to compete, innovate, and serve customers. At the macro level, whether or not we're going to have a soft landing, I don't know. Whether inflation will be stubborn, I don't know. Whether or not federal borrowing will put a floor on interest rates, I don't know. But all of those things are going to be the same for all of us that are in this particular segment. And I think it's very likely that next year when we're here, we'll report again that we had the best year. That's why you should buy it. Thank you. You mentioned all the great things you're doing on operations, and I think it shows up in the numbers. I think you've also done some great things to sort of simplify the company, make it more investor-friendly in terms of transparency and communication. Looking at your growth rate, and you brought this up, it is higher than your peers this year, but there's still a disconnect between sort of that growth and the valuation of the stock. We're 2.5 days into this, I think one of the last sessions. Is there any consistent things that you're hearing or consistent ideas that you're talking about internally to keep trying to close this gap? Because, like you said, you are producing the growth, but the stock is still trading at a pretty material discount to peers. I would say, Eric, there are two things that come up when people have come to see me and Paul. The first is they tend to go through what I just went through and what you just described. They said, "You're doing the best," and so on and so on. I like that part of it. And then they say the stock's sick. It's not trading well. There's too much noise. There's a surprise to the street, those kinds of things. And on Monday, I was probably defensive about that and felt, "Well, I'm just no good at IR." And the fact that we had told people to correct their models, not all of them did. The noise was something that had been called out both in 2022 when we took the second separation, if you will, from AIMCO and in 2023 when we had non-recurring income coming from refinancing and extending the duration of $400 million of debt. But I don't know how to report income without telling my shareholders what's recurring, what's non-recurring. That's what we've done. The recurring part has continued to compound at a nice rate. I've asked people instead on Tuesday and now Monday or Wednesday, and now I think, "Well, you have a choice of buying a company that's the best operator but not good at IR, or you could buy the ones that's good at IR, not the best operator. That's kind of a choice." But over time, I know which is the better place to be. So we're a little bit out of fashion. I've done it long enough to know that there are seasons to this. But I also know that over time, free cash flow is the way to keep score. We will continue to generate more free cash flow. We'll use it to buy more properties or on the margin, maybe 10% or 20% of our capital allocation will go to share buybacks. Eventually, it'll get good. One of the keys to that, obviously, is not only on the margin side and everything you're doing in terms of retention and on the expense control side. We'll get into that. But if I think about some of the excess growth that you're generating today, certainly part of it is this paired trading strategy. I was just curious if you kind of give a little bit of a history around that. I mean, obviously, over time, every time you're going to buy something, you have to sell something. But I'm just curious, when did you sort of formalize this into a strategy and sort of help investors understand how that strategy has changed over time? Well, I would say it's been decades that I've done it that way. I think in articulating it to the street, maybe the last five or 10 years, I'm not sure of a date. But what you find if you're running an investment business is that people become optimistic about what they're buying and pessimistic about what they're selling. And sometimes they will make different assumptions even on macro events that are going to be the same. And so it's very useful to know your cost of capital and to neutralize those biases. And a paired trade's very easy to decide. Sometimes it's hard to know what to buy and what to sell. But when you compare which you'd rather own and which you'd rather not own, those decisions get easier. So if you look at the ones we did last year where we were selling properties that were 40 years old, that we had operated for 20 or more years, that had clearly had the benefit of what we could bring to it in terms of platform, and taking that money and investing in newer assets, sometimes brand new assets that had a higher expected growth because they were new to our platform at two and three times the rate of growth and maybe 10% of the capital spending, it became easy decisions. So that's what I like. It just simplifies the investment decision. Got it. And just given the illiquid markets, right? I mean, I think we've been in every meeting, and everyone expects the bid-ask spread to get narrower and be more transaction activity later on. But I guess the nature of my question is, given the illiquidity in the market today, given the uncertainty around the capital markets, you see interest rates moving up and down kind of quickly, is it more difficult to sort of execute on that paired trading strategy? Because if you buy something, you don't necessarily know what your cost of capital is going to be later on if you need to sell something, and then vice versa? Ideally, you do them at the same time. We're active enough in the market so we know what we're selling and we know what we're buying. I would say that the markets are highly illiquid, and volumes are reduced 75% to 80% over previous years. When people talk about cap rates and pricing today, they remind me of the old saga of I spent time in Russia after Perestroika training political candidates for office in this newly liberated country. And there are long queues outside of every grocery store. And one of them said, "Bananas, $2 a bunch." And there's a long line. You get to the head of the line, and they say, "Well, we don't have any bananas." But if we did, that's how much we'd charge. So that's what you're mostly hearing when you hear about people saying what cap rates are. It's on one side what they would hope to have if they were to transact, and the other what they would require to have if they could find a deal. But there are deals, and we've done several of them. And the discount rates are brutal. I mean, I think the public markets have correctly captured that higher discount rates, absent income change, would have reduced values by 30% with income changes, maybe 15%, something like that. And so when we did our joint venture last summer, which was a recap joint venture, we raised capital at a 6.2% NOI cap rate, sort of a high 4.9 free cash flow cap rate, an 8.2 IRR. So that sounds expensive. But we invested at that double-digit free cash flow IRR, so 250 basis points higher. And the reason we can do that is because of the ability to add value through what we call the AIR Edge so that the incomes of what we bought prove twice as fast as the incomes of what we sold, as well as having lower capital replacement spending. Right. And there's some good slides in the presentation on that, so I want to talk about it in a second. I mean, you have the slide showing the in a 5% to 6% NOI cap rate to the seller effectively becomes a 6% to 7% NOI cap rate to AIR and the NOI up that you get. And I want to talk about how we sort of get there. But one really I'm a simple person, right? I mean, at the end of the day, I see your stock trading north of 6.5%. I kind of have an understanding of where you can sell assets, especially in your joint venture. To me, I guess the question is, is there just any more attractive paired trading opportunity than just repurchasing your stock? I know you're already doing it, right? You bought back 2% in the fourth quarter. But sort of like why all this other stuff when it's immediate accretion, the math is so simple from just selling assets and buying back stock? Well, the math is very simple. And certainly, by comparison to any peer, we've bought back far more. We've bought back 8% of the company in the last two years. And we look at it on a look-through basis as though we're buying unlevered free cash flow, and we compare it to the opportunities outside. I would say the one balancing point on that is we don't want to shrink the operating scale of the company because of the fact that we have a platform that we think has a lot of value add to it. And so we want to maintain that even as we take advantage of share buybacks. The JVs have allowed us to do that by adding $1 billion of capital to our scale and to AUM, if you will, at the same time as we've, in effect, privatized 8% of the company with private money. Gotcha. Can you continue to use sort of not JVs? I guess where are you going to source capital going forward? Well, we have three evergreen JVs with the three largest global real estate investors. And they're eager to partner with us. But they're disciplined, demanding. And that's good. And we're performing for them. And so looking at the slide that you have here in the deck about the 30% NOI uplift going from, call it, 5% to 6% NOI cap rate to 6% to 7%, you talk about the revenue initiatives, the expense initiatives, the capital projects, and kind of outline which are the biggest components of how you get to a starting 63% NOI margin up to, call it, 77%. Maybe we could just talk about some of them just so it's really clear for people. So the revenue initiatives looks like the bigger piece of it. So you have align with market rents, unit premiums, and then upgrade resident mix. I would imagine that's the bulk of it. Could you maybe talk about sort of what that means in sort of practical terms? It's just sort of theoretical looking at it on a presentation. What does that really mean in reality? How does that get you such a lift? Why can't others do that? Well, I mean, first of all, this is an example. So I wouldn't want anyone to think that there's a formula that we follow. But there are common questions that we ask ourselves about each property we buy. And the first one, the most important one, is who's our customer? And often, it's a different customer. An extreme example, just a few miles south of here in Miami Beach, when we bought Southgate a year ago, 40% were smokers. And we're a nonsmoking company. And so rather than give up the habit, they moved out. And we bid them to buy. The remaining 60%, many of them would not have met our credit criteria. And so we look through who's the customer we want and how do we attract them? And so that is the key to it all or the most important factor. In doing that, that takes a couple turns of the rent roll because they don't all come in the first time because maybe the neighbors aren't there. That's probably a big factor. Or we haven't done the property upgrades. So it takes two or three turns of the rent roll. But by having highly qualified, stable neighbors, you have a highly qualified, stable resident who's more likely to renew. That renewal fact is the most important thing in apartment profitability. So, I mean, just take a minute and process it that a renewal lease is 20% more profitable than a new lease. People talk about their leasing activity. But if it's all new, it's one number. If it's all renewal, it's a different number. We're the highest at renewal by good margin. That margin is growing. So the margin you talk about reaching there is average for us at 77%. Our average last year was what? We ended the year at just over 75%. Yeah. So 75%. So that's not an atypical, exaggerated number. That's just what we're able to do. That's true in A's and B's and with higher rents and lower rents. And it comes from customer selection, satisfaction, and retention. So many of you will know of websites like Apartments.com or Rent.com. And if you advertise there, you get a cross-section of humanity. And you have a broad reach. But we don't do that because you're reaching a lot of people we don't want. And so we'd be more likely to advertise in Etsy or in geofencing. And so to select if we have a particular property and we want to market it to people at a particular hospital, we'll geofence that site and communicate with them. Or, if we, at the risk of politically incorrect behavior, but women are more stable than men and are better customers. And you pick that up in credit scores and in behavior. And so income is not quite as good a measure of stability. It's an important measure. But the measure of character is shown up in credit. And so we'll advertise in ways that reach the people we want. Got it. Great. I have some audience questions coming in on operations. I'm going to get to that in one second. Just last question on sort of AIR Edge and the portfolio. I think you sort of segmented it this way, your AIR Edge portfolio, sort of non-same-store portfolio, if you will, is about 20% of your overall, I think, NOI right now. I guess your view is that later this year, we're going to start seeing that sort of grow materially faster than your current same-store pool, and it'll be a contributor to 2025? Well, two things. One, with the change of the calendar, our allocation outside of same-store was reduced because things aged into same-store. So I think the current allocation outside of same-store would be 8%. 8%. Okay. So 20% AIR Edge, but of that, 40% of it is not. By the end of the year, that will build up as we transact. Then again, we'll have a reduction. The properties that we bought in 2023 will go into same-store in 2025. There's that kind of ebb and flow during the year. It's not just my expectation that we report on it every quarter. You can see that the properties, the more recently acquired properties, the ones that we call AIR Edge properties, are growing at two and three times the growth rate of same-store. I just note for the record, the same-store is growing at roughly twice the average of the peers. It adds to faster growth. I don't mind a show-me attitude of the street saying, "Well, we want to wait and see that." But the ones that see it sooner will benefit more. Yeah. So switching to operations, and I'll ask these questions in a second. I saw that lease rate growth in February came down a little bit from January on a signed basis. I was just curious, was that expected? Was that due to a shift in strategy? I believe typically, you start pushing a bit harder at this time of year, and you sort of let occupancy fall as you go into the sort of peak demand months. So maybe just talk about what you saw in February, if that's a little bit of a shift or not, or just part of generally what you expected. Eric, Eric, I hate to disagree, but we push hard all the time. We don't start in January. We run through the tape. There's so few transactions the first couple of months, they're subject to noise. The important thing to remember is the seasonality of the business is quite high, notwithstanding that most of us are long away from school. The housing business in general, single-family and multifamily, is very seasonal. And so we do most of our business during that season. And it is as predictable as the fact that it's going to get dark tonight that rates will probably get better this summer. And that's when we do most of our business. When we look at our growth rate, Paul's guidance for the year is something like three. 3.5. 3.5, 3.5. We're 3.3 in the first couple of months. Typically, that'll grow by more than 3%. So we're not only on track, we're doing great. Okay. Yeah. I mean, I was just going through the math. I guess what I meant by pushing hard was more like you look at sort of this occupancy curve that you have. It sort of tends to rise at a certain point in the year and then starts kind of coming down. I assume it's a function of pricing. But. No, it's more a function of when we do business. Our occupancy today is probably 97%. Our occupancy will go down in the summer, not because things are worse, but because things are better. We're busy. That's when we do transact. We do have a lot of sort of frictional vacancy. The new leases we make will be made at that time of year. Got it. Okay. And now just to be sure. Go ahead. Terry, just a quick few yes/no questions. You're coming back for a second bite, Jeff. Exactly. I see your equity market cap is trading with a $4 billion handle, similar to where Tricon is right now. It's getting taken out. If I look at Nick and Eric's great work, always robust, looks like you're trading at the biggest discount to any of these as your peers. Is that correct? I don't follow them, but I trust you completely. Okay. I think that's the case. They can verify that. I see a nod over there by Nick. Next question. You're not coming into the conference with a designated heir apparent for your role, correct? No. I feel in perfect health. My current voice is notwithstanding. Yeah. Yeah. Understood. And then just coming back to the points you made earlier about your JV partners, when I look at the size of those entities and the passion they have for investing in real estate, it seems like one, two, or three of them could clearly club up with some others and potentially be a pool to consider taking the company private. Is that fair? Jeff, every time you talk that way, I just hear bells ringing. So I can't. Yeah. Yeah. No, Jeff's asking the sensitive question of would we sell the company. The short answer is my telephone number is 303-691-4330. We're for sale every day. We would do exactly what's best for shareholders. Jeff will remember that when Sarbanes was passed, they wanted to know what perks management had that might entrench us. Mine's assigned parking. I'm a shareholder first. I will do 100% what's best for shareholders. Notwithstanding Betsy's inclinations maybe to do otherwise, what I'll do is I'll just start a ninth company and keep going. It's an economic matter. If that comes to be, it would be because it's a good outcome for all of us. I appreciate that. Just one last follow-up. When I look at the board today, whether it's adding Tom Bohjalian or others, you've actually got 44% of the board women, which is the highest in your peer group. So I applaud you for that. Is the board in a stronger position to act upon good corporate governance today than even in the past year? I didn't get the 44%. 44% of the board today are women, which is the highest among your peer group. It's going to go to 50%, I think, with your Chair-elect and your current chair retiring. It depends if we recruit someone. The independent directors are 50/50. And so that is 44%. Again, I risk being politically incorrect, but I would not ever recruit a director because she's a woman. No, understood. I would never recruit an officer. I have many women in management. I would hate the idea of telling them that they got their jobs because they were women. They got it because they're extremely capable, hardworking. And I think of a lot of people named Lisa and Jennifer and Patti and so forth. And I want to be really clear that we don't have any of that sort of identity behavior at AIR. Understood. Where I'm going is it looks like they've brought more independence to the board in the recent years. Would you agree that you're in a stronger position to act on good corporate governance given the board changes? No, because I think the older board was very independent and very tough-minded. I've been blessed with great directors. I mean, I've had wonderful, wonderful people on the board that are very knowledgeable and have given me lots of good advice. And many companies will treat the board sort of as an obstacle to be contained and held off. And I embrace it. As you know, Tom Bohjalian was here. He's often at meetings. But other directors have come to other meetings too. And I think that's great. We have dinners with shareholders. I think having directors, people that are capable and have more perspective because more distance is very helpful. The independence, if that's meant to say that are they somehow more in charge, I would say, no, it's very collaborative. And I don't think there's a dime worth of difference between what they feel and I feel. We do everything by consensus. Okay. I appreciate that. That's what we think of. Yeah. It's a great board, as you've seen, if you've had occasion to see. You can testify to that. Well, it's very tough to go from that to start to ask about expenses. But I think maybe we'll just any parting remarks. We have rapid-fire questions coming up. But anything else you want to communicate before we go? Well, I would repeat that we've been the best generator of free cash flow and free cash flow growth for the last several years. I expect that to be true going forward. Great. For the rapid-fire, what will same-store NOI growth be for the apartment sector overall next year in 2025? In 2025, it'll be very flat. Flat absolute or flat to this year? Flat to 2024 because you're going to have an earnings of 2024, which is going to be very flat. By flat, if you told me one or 2%, that might be. But I think it'll be flat. Will the apartment sector have more, fewer, or the same number of public companies a year from now? Well, if Jeff goes to all the meetings, it'll be half as many. I don't know. What's the best real estate decision today, buy, sell, build, redevelop, or buy back shares? Well, what I would say is for us, it's been to buy. We're buying brand new properties at discounts to their actual construction costs and in good locations where the property's not distressed, but the seller has some financial constraint. This session, as ever. The next session will begin in five minutes. I love buying back shares too. We try and balance them, as I have said before, on a look-through basis. Thank you very much. Thank you. Thank you, guys.