Apartment Income REIT Corp (AIRC) 2022 Q1 法說會逐字稿

Good afternoon. My name is Austin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Apartment Income REIT's First Quarter 2022 Earnings Conference Call.

(Operator Instructions)

Lisa Cohn, you may now begin your conference.

Thank you, and good day. My name is Lisa Cohn, and I am President and General Counsel of Apartment Income REIT Corp. or AIR Communities. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2022 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today.

We will also discuss certain non-GAAP financial measures such as funds from operations. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on AIR's website.

Prepared remarks today come from Terry Considine, our CEO; Keith Kimmel, President-in-Charge of Property Operations; John McGrath, our co-CIO and Chairman of our Investment Committee; and Paul Beldin, our Chief Financial Officer. Other members of management are also present and all of us will be available during the question-and-answer session that will follow our prepared remarks.

I will now turn the call to Terry Considine. Terry?

Thank you, Lisa, and thanks to all of you for your interest in AIR. The year is off to an excellent start as detailed in the earnings release. My colleagues will provide further details. My comments will be few. I have 3 chief points: First, business is good, Keith and the ops team continue to deliver outstanding results. Second, our balance sheet will be low leverage, with fixed interest rates, limited repricing risk, great flexibility and simple. Third, we did what we said we would do, focus on property operations where we have a comparative advantage, commit to low leverage, simplify our business, have low G&A in order to be efficient at conversion of rent growth to cash available for shareholders, be transparent and provide a high quality of earnings, establish our relationship with Aimco so that each is independent and stands on its own.

One more point. Now comes growth. Organic growth from a high-quality portfolio improved by the sale of our lower-rated properties, organic growth from focus on AIR's core competencies and customer selection, satisfaction and retention and using productivity to control operating expenses. External growth, funded by pair trades and leverage neutral, where our cost of capital is established by the property sold, where the underwritten accretion is meaningful and the key to success is the excellence of our property operations, which Keith calls the AIR Edge.

We will be good corporate citizens, continuing to be a great place to work, engaging positively with the communities where we do business, conducting our business with sensitivity to its environmental impacts, and we'll measure these results and seek their certification by independent third parties. And we'll do all of this as a team, and I want to thank my teammates for the success of the first quarter that will be discussed on this call. I look forward to working with you to achieve the high goals we have set for the balance of this year and for the years ahead.

I also want to thank our engaged Board, you are most generous with your time. You contribute from your wide range of life experiences, you keep us focused on creating value for shareholders.

Now I'd like to turn the call to Keith Kimmel to discuss our operating results and prospects. Keith?

Thanks, Terry. Our first quarter results exceeded our expectations and reinforced our outlook, that 2022 will be an exceptional year for the business. Occupancy continued at record high levels, with the first quarter result of 98.1%, flat to the fourth quarter and up 270 basis points from last year, rates again reached new high watermarks. We signed new leases up 17.8%, renewals up 11.3% and blended rates up 14.1%. Our world-class customer service remained consistent, with nearly 10,000 surveys during the quarter scoring us 4.3 out of 5 stars.

Our trailing 12-month turnover reached a record low of 38.7%, with 200 fewer move-outs in the first quarter of 2022 than in 2021. Strong operations translated into robust financial results for the quarter. Revenue was up 9.2% from the first quarter of 2021. Bad debt continued its choppy but gradual improvement, reaching 120 basis points for the quarter, 30% lower than 1 year ago. Expenses were up 3.1% year-over-year, with controllable operating expenses up 2.8% due to timing of the increased maintenance of our communities, offset by lower personnel and turn expenses.

We anticipate full year controllable operating expenses will be on plan, flat to last year. Net operating income was up 11.7% from the first quarter of 2021. As a result, our net operating margin was 72.8%, up 160 basis points from 1 year ago.

In our acquisitions portfolio, performance and income growth outpaced our stabilized assets during the first quarter as we continue to see the impact of implementing the AIR Edge. Our 2021 class of acquisitions performed well with 275 leases signed in the first quarter, new leases increased 28% above the prior lease, renewals were up 19% for a weighted average increase of 23%. At these acquisition properties, occupancy was above 96%, while both rate increases and lease pace exceeded that of our same-store communities. As a result, our 2021 class has financial results above our expectations. We anticipate further upside as the AIR Edge is fully implemented across every aspect of these communities, leading to income growth this year, 50% higher than our stabilized communities and accelerating to a higher multiple in future years.

In April, we've seen momentum build as we enter peak leasing season. Occupancy during the month was 97.4%, in line with our expectation of frictional vacancy associated with the start of peak leasing season. Lease space was strong, with the seasonal increase of demand coming earlier than ever. Signing new lease rates increased 18.8% from the prior lease, renewals increased 10.3%, leading to blended rate growth of 14.9%. Our loss to lease is currently in the low double digits, and we expect healthy rate increases throughout the remainder of peak and the balance of the year.

Our customer selection is such that despite historically large rent increases, our affordability ratios are actually improving, with rent to income at 20.1% in the first quarter, down from 20.7% last year and with median resident income up to nearly $150,000. Perhaps most notably, in April we may have reached an inflection point for bad debt. California recently reduced some of the limitations of our ability to collect unpaid rent. And we've seen a corresponding shift in resident behavior with an additional $1.4 million in payments from residents in April. As a result, April bad debt is outperforming our expectations by $500,000. And while there is much work yet to be done, there is now more indicators that any time, post pandemic, that we are on the road back towards recovery to normal bad debt.

In summary, we expected the business to be exceptional, and through 4 months of the year it is outperforming our lofty expectations. Our leading indicators continue to show strength for the balance of the year, fueling our optimism as we head into the peak months ahead. My thanks to all of the AIR team members, your dedication to serving our residents and your drive to continuously improve our business has made this quarter a great success.

And with that, I'll now turn the call over to John McGrath, the Chairman of our Investment Committee. John?

Thank you, Keith. It was another busy quarter on the transaction's front. I am pleased to announce that we have completed $1.7 billion of dispositions over the past 8 months at prices above our reported GAV with a boost from historically low interest rates. All of the proceeds from these sales was used for deleveraging and strengthening our balance sheet, positioning us well for future accretive growth.

During the first quarter and at very opportune timing and pricing, we sold 8 apartment communities for $578 million with approximately 1,330 apartment homes located in San Diego, Los Angeles County, the Bay Area and Chicago. Additionally in April, we sold 3 apartment communities for $161 million with approximately 560 apartment homes located in San Diego, Orange County and the Bay Area. In aggregate, we raised equity capital at a current NOI cost of 4.3% and long-term expected IRR cost of 6.4%. Completion of these sales increased our allocation of capital to higher-growth markets with lower regulatory risk and improve the quality of our portfolio of significantly higher rents.

Turning to growth. AIR was designed to create shareholder value by bringing properties onto our platform, where the AIR Edge will drive outsized growth and incremental value for shareholders. Over the past 10 months, we invested in 5 properties at a total cost of $730 million before property upgrades or approximately 6% of our portfolio value today. These acquisitions will produce a long-term IRR of 9% and a spread of more than 260 basis points for the paired trades used to fund them. Encouraged by these results, we continue to execute a capital allocation strategy that utilizes our paired trade philosophy, while maintaining leverage in our targeted range. Pair trades allow us to be agnostic to periods of market volatility while also establishing the cost and availability of our equity capital.

We remain firmly committed to disciplined capital allocation. We look to invest in top-rated submarkets, maintain broad portfolio diversification and earn IRR spreads of 200 basis points or more above our cost of capital. In short, we are focused on the continued systematic enhancement of our portfolio through disciplined accretive growth funded by pair trades for properties, which will benefit from the AIR Edge. Our future acquisitions will build upon a track record of creating shareholder value by delivering predictable performance of above-market growth.

With that, I'll turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thank you, John. Today, I will discuss our strong and flexible balance sheet, our updated expectations for 2022 and conclude with a brief comment regarding 2 recent board actions.

Starting with the balance sheet. We've taken 2 significant steps to improve our balance sheet. First, after reducing leverage by $330 million last year and $630 million year-to-date through April, we plan to reduce total leverage by another $557 million in the second quarter, with proceeds from June's anticipated collection of the Aimco note, together with the prepayment penalty. The prepayment penalty varies with the exact time of prepayment and with interest rates on short-term treasury notes. We estimate that the prepayment penalty will be approximately $23.5 million. Pro forma these repayments, our March 31 leverage to EBITDA is 5.4x, well within our targeted leverage between 5 and 6:1.

Next, we fixed interest rates on $800 million of previously floating rate debt. To do so, we first entered into $400 million of floating to fixed rate swaps at an all-in cost of 3.99% and a weighted average duration of 4.5 years. And second, we entered into a $400 million treasury lock in anticipation of the second quarter refunding of currently outstanding term loans with proceeds from a private placement of a debenture whose terms are: an expected amount of $400 million; expected duration of 10 years; and expected pricing of around 170 basis points over the 10-year treasury now locked at 2.39%, 59 basis points below yesterday's closing 10-year rate.

Pro forma the debt reduction that I have just described, there has no unhedged floating rate exposure. Additionally, our weighted average maturity was 8.2 years, an increase of almost 2 years. As a result, the balance sheet transformation is complete and 18 months ahead of plan. Since our IPO, we will have reduced gross leverage by $1.5 billion or 40%, such that gross and net leverage are now the same with leverage to EBITDA at 5.4x. We will have increased our pool of unencumbered properties to $7.9 billion, almost tripling from $2.8 billion. We will have increased liquidity by over $600 million to over $1 billion available under our credit facility and cash on hand, and we will have reduced refunding and repricing risk through balanced maturity and repricing ladders. In fact, only $146 million or approximately 6% of our debt will reprice through the end of 2024.

Additionally, we intend to limit any future floating rate debt to 60% or less of apartment revenues, which we consider to be an indirect hedge of interest rates. Today, that limit is about $380 million or 14% of total debt and less than 3% of our gross asset value. These characteristics strengthened our investment-grade, BBB flat rating from S&P and will bolster our case when we seek an investment-grade rating from Moody's later this year. We are well positioned to access the public bond market when doing so makes sense.

Now turning to our expectations for the balance of 2022. First quarter FFO was $0.57 per share, $0.02 ahead of the midpoint of guidance due to $0.01 of stronger-than-anticipated operating results and $0.01 of items that may reverse during the balance of the year. For the full year, we expect FFO between $2.37 and $2.45 per share. We now expect same-store NOI growth of 12.5%, up 50 basis points from our expectations 1 quarter ago, adding $0.01 per share to FFO. The early collection of the Aimco loan adds interest income of $0.14 in the second quarter from the prepayment penalty, offset by interest income of $0.09 loss in the second half for a net increase in 2022 of $0.05 per share, and lower borrowings reduced interest expense by $0.04 while higher rates increased interest expense by $0.09 for a net increased costs in 2022 of $0.05 per share.

Our same-store guidance range contemplates the potential for continued same-store revenue and NOI outperformance driven by higher rental rate achievement, lower bad debt expense and lower property operating expenses. There is also the potential for lower general and administrative expenses. Accordingly, we see a path where the $0.05 of incremental interest expense is offset by these items. At the midpoint, the result is 2022 FFO of $2.27 before consideration of the prepayment penalty income, and $2.41 inclusive of it. We anticipate that our second quarter FFO will be between $0.66 and $0.70 per share, including the estimated $0.14 of onetime income from the early repayment of the Aimco note.

In the second half of the year, which reflects no contribution from Aimco note and does reflect higher interest expense associated with fixing $800 million of debt, we anticipate FFO between $1.13 and $1.19 per share.

Finally, the Board recently authorized both a common stock repurchase program of up to $500 million and an at-the-market offering program, also up to $500 million. To date, neither has been used.

With that, we will now open up the call for questions. Please limit your questions to 2 per time in the queue. Austin, I'll turn it over to you for the first question.

(Operator Instructions)

Our first question is from Rob Stevenson from Janney.

Keith, what are you running in terms of average fees per unit per month? And how much are you guys increasing fees in addition to the current rent increases?

Rob, thanks for the question. When we think about fees, we -- there's probably a couple of things to think about. The first one is maybe like parking and storage, those types of fees. We try to increase those that follow a commensurate of how we're raising rents. And so we will see similar impacts. But when you look at the actual fees, it represents just about 10% of the total revenue. So it's not a big impact.

Okay. And then, Paul, on the guidance, what's going to drive any of the G&A and the other savings that you talked about over the remainder of the year? Is that just not replacing people because of technology? Is that targeted headcount? Is that something else that you guys are doing? Can you elaborate a little bit in terms of the expense savings that you could realize over the remainder of the year relative to previous guidance.

You bet, Rob, and thank you for the question. As you know, we designed AIR to be very efficient, and so that more of our revenue will flow through to the bottom line of our shareholders. And part of that efficiency is maintaining G&A expenses equal to 15 basis points or less of our GAV.

And for the current year, at the original guide of $17 million, we anticipated not only achieving that 15 basis point benchmark but coming in well under that. In the first quarter, we have updated our range. We do have some efficiency projects that are ongoing, that might provide some benefit this year.

But also, I would just call out that our incentive compensation program is variable and dependent upon our results. So there is the allowance in that G&A range for maybe a performance target that might not fully achieve them at the budgeted levels.

And are the property people -- I mean, if you guys wind up doing 10% plus or minus revenue growth this year on a same-store basis, is that going to impact the bonuses, et cetera, paid to the property operation staff? Is that going to -- could that cancel out any of this G&A savings you guys hit the upper end of your range?

Well, Rob, I'll start and then I'll turn it over to Keith if he wants to add anything. We have separate bonus programs for our on-site teams, from our corporate teams. And so those on-site teams are incentivized based upon the performance of their properties relative to their budgets.

And so any incremental costs that would run through our property operating results because of property performance will be more than offset by higher revenues.

And Rob, I would just add that the way that our incentives are handled on site is they're actually individual -- individually associated with position and community by community. So each one has an individual goal to achieve and outperform.. .

Our next question is from John Kim from BMO Capital Markets.

There's a big difference in leases signed, new versus renewal. I was wondering how much of that is AB 1482 related given the top line exposure?

John, it's Keith. You're seeing it relatively correctly. So what we see is that when we think about renewals, they go out and we really focus on not just what market rents are today, but what they will be in the future periods when we send the increase out. And so you'll see varying degrees of results.

I point you maybe to Florida, where you might see increases that could go out as high as 50%, where you could see increases in Denver go out in the teens, and then you would see increases in California that will have some restrictions from 1482 that would be between 8% and 10%. So between the combination of those things, that's how you get to those numbers.

And Keith, you mentioned Southeast Florida. Miami has been a very strong market. How concerned are you concerning you of rent controls in that market? And conversely, what's your appetite or ability to expand your presence in Miami?

Well, I'll start with -- there's certainly concern about rent control that comes up in a lot of scenarios. But I'll let Patti Shwayder in a moment chime in on a particular in Miami. But what we've seen most recently is that it was more about an extension of time to give inclinations of how much -- when the increase will go into place and there hasn't been any limitations around how much we can push the rents. But of course, we recognize that there's lots of talk about that. Patti, anything you would add to that?

Sure. John, Florida has prohibited rent control at the state level. And if it is to be enacted at a local level, it requires 2 things: one is that there's a state of emergency; and two, that there's a vote of the people. So that is sort of hard barriers to cross. And for now, we (inaudible) there.

And this is John McGrath. On your question about increasing our presence, we're looking for market anomalies to give us an opportunity to have a comparative advantage from our AIR Edge, and where we can invest in deals where IRR spreads are 200 bps or greater than our cost of capital. And if we find those deals in Southeast Florida, we will certainly pursue them.

One final question, if I may. What are your expectations as far as the resident relief funds that you'll be receiving for the remainder of the year?

John, it's Keith. Can you -- I'm not sure I'm clear on your question. Are you talking about government assistance on rents? Or what is it that you're looking for there?

I mean just the improvement in bad debt. I think in the first quarter, you had $1.9 million from the California rent relief program. I was just wondering, do you expect that pace to continue for the rest of 2022?

Okay, I got you. So well, here's how I would describe it. What we've seen recently is that in April, we were allowed to start giving notices for folks that had not paid their month -- paid the rent for actually the month of April. So unless they had COVID protection, we were able to start serving notices for nonpayment.

As a result of that, what we're seeing is that not only do we have residents coming in that are paying the rent for April, but if they've had back payments we're getting in combination of -- well, let me just, I guess I'm going to have to pay it out. So let me pay the whole thing. Or I can pay $20,000, can I come up with a payment plan. So it's early days, but we're seeing some really good results of that.

And what we've sort of said all along is our average FICO score for our Los Angeles resident is at 735. They have high incomes and we believe that they will be good for their dollars. So more to become. We know there's a lot of work in front of us, but we do believe it will continue to improve.

Your next question comes from Nick Joseph from Citi.

Terry, can you walk through the conversations and the decisions around the prepayment of the Aimco note versus just letting them mature in January 2024, and then the benefits for AIR of doing it now?

You bet. The -- I guess the way we thought about it was, first, that the market -- and at least a number of the analysts and shareholders who spoke to me, priced the spread income at a low multiple, even onetime, knowing that it would end in 2 years. And we could see that the loan was losing profitability even sooner as higher interest rates narrowed the spread between interest income on the Aimco loan and the interest expense on the AIR borrowings to fund the loan.

And we also thought that higher interest rates would increase Aimco's refunding risk, and therefore, our credit exposure. So waiting seemed to bet on interest rates a year from now, and that's just not our business. Most important, we were able to do what we said we'd do by moving AIR to low leverage and now AIR has it, just a little bit more than $2 billion against a $13 billion GAV.

So the combination of timeliness and doing what we said motivated us. And we feel good about our balance sheet, which is, I think, bulletproof. So we're committed to keep it that way.

And then after, obviously, the repayment of the note, what's the remaining relationship with AID.

The remaining relationship will be cordial, collaborative and independent, that we will contract with them.

I guess -- yes, so I guess more on the contractual side.

Yes, we'll contract with them when it's to our advantage to new development activities. But at their risk, not ours because we've said we won't take that on. But we'll do that with third parties, too.

And so we'll be able to see our pricing with people without a historic relationship to know that our pricing vis-a-vis Aimco is at market. And we think they will do good work, and we think the third parties will do good work.

Your next question is from Haendel St. Juste from Mizuho.

I guess my first question is on the, I guess, operating strategy here, Keith, as we push further into peak leasing season. I guess I'm curious how you're thinking about occupancy versus the rate. The occupancy is down 100 basis points versus January, while blended rates have accelerated. So I guess I'm curious how far you might be willing to let occupancy flex here as you (inaudible) rates, and what's the underlying turnover assumptions this year?

Haendel, thanks for the question. This is by design and on plan. So what we do is we want to have frictional vacancy to be occurring when we have the greatest demand in the market with the greatest pricing opportunities to push rates. And so we've moved from 98 into the 97s, call it when we get into the peak the peak July, August. We could go into the 96s and then we will build back up and recover from there.

And then as we think about turnover, I would tell you that we anticipate and expect that we're going to continue to have low turnover, much like you've grown to become accustomed to you. And as a result of it, it's something that we feel like we can backfill quicker if we do have churn during the peak season.

Okay, fair enough. I get it, I get it. Maybe one on the ATM, the new $500 million ATM. I guess just curious kind of the scenarios under which you might consider issuing equity. You don't have any real debt maturities near term. You've lowered your leverage here. Sounds like match funding is still going to be the capital plan going forward. So I guess I'm curious if maybe best to talk about under what scenarios or maybe guide us that you would consider issuing equity.

Haendel, this is Terry. We don't have any current plans to issue equity at these prices. We're just putting in place the, sort of, typical corporate infrastructure to have options to do either to buy or sell our issue equity.

Okay. No -- I understand that, Terry. I was just curious as to if they would perhaps be a change in funding going forward, if perhaps new equity could play a role, which perhaps could change the approach, given your match funding strategy in the past. I was just curious if that could be something in the future that we would be seeing?

Sure, you bet. I think divisions like that always churn on the use of proceeds. And so having the ATM in place does give us optionality. But that's a general thought, and therefore, a little hypothetical and not a current application.

Okay. Fair enough. And then maybe one last one, maybe some commentary on the transaction market. You guys have been fairly active here. Maybe discuss how the surge of interest rates has impacted the market as you perceive are you seeing a pause, maybe a change in bio type and by demand, changing cap rates.

This is John. Thanks for your question. First is I can't predict the future. But what I can say is that there's a lot of capital still out in the market, and we've not seen significant changes to our values. Those assets in the best markets are still trading at high end of estimates.

At the end of the day, apartment fundamentals remain very strong. And any cap rate expansion is being outpaced by the historically high NOI growth. We are seeing the buyer pools becoming a little more shallow, but they are very competitive still. Highly levered buyers are the ones that are having a harder time making their deals pencil.

And what we're seeing is this becomes particularly true in larger transactions, say, $300 million plus. From our own perspective, I'm comforted by the fact that we have a pair trade philosophy which we're executing, which allows us to lock in a cost of capital. We are going to be out in the market, looking for opportunistic acquisitions, which we have a comparative advantage because of the AIR Edge. And we're going to be looking to invest where we can earn spreads, as I mentioned earlier, about 200 bps or more above that cost of capital.

So it sounds like that the margin you're not seeing any change in value yet, but that's not to say that underwriters started underwriting them today, putting that in that there's so much demand and perhaps going to take less of the churn? Or is this translating into lower expected returns as the capital is still foreseeing (inaudible)?

Again, I don't have a crystal ball to say what the future will be. We are seeing values are holding right now. I can't speak to other people's underwriting. We're underwriting ours the way we always have based on our opportunity to have the advantage through our operating platform, and we'll continue to do so.

Your next question is from Chandni Luthra from Goldman Sachs.

So just building up on that last question. I mean now that leverage is where you want it to be, is there a potential for more acquisitions in 2022? And how would you -- would that trade be still be kind of the right way that should go about it?

This is John. The first is I'd say our guidance includes $500 million of accretive acquisitions. It's an amount which we already have under some form of agreement. We'll provide more information on those transactions when they close.

But beyond that guidance, we have no fixed goal for further acquisitions. As I mentioned, that we are continuing to look at systematic enhancement of our portfolio through accretive growth, which will be funded through those paired trades we mentioned.

To your question about the pair trades, pair trades give us an opportunity to lock in our equity capital today. But we will also obviously always look at what the best cost of capital could be so that we are able to make the best investments and create the most shareholder value.

And as a follow-up to that, speaking of cost of capital, so you expect to go to Moody's soon. Could you talk about what kind of cost of capital advantages you'd get down the line as you get to IG?

Chandni, this is Paul. Yes, what we look for is to have the broadest options possible when it comes to financing our activities. And so we are currently a mid-tier investment-grade rating from S&P at BBB flat.

Moody's has a different metric that they use for the ratings methodology, one that was very focused -- is very focused on the percentage of nonrecourse debt as compared to underappreciated book value basis. And so one thing we've been very focused on during the past 15 months has been to improve that metric, and we have done so. And now it's less than 20% of our underappreciated book value.

So we're in great shape from a ratings perspective. And it doesn't mean that once we get those ratings, we'll definitely tap the public bond market, but it gives us greater optionality. And that's, as the CFO, something that's very important to me.

And Paul, one housekeeping one. There are no changes to the master lease agreement and kind of that cash lease payment from redevelopment properties from Aimco, is that correct?

Yes. Under the leases that are affected with Aimco, there's been no changes to those arrangements. And as long as they continue to own those properties from a accounting sense or lease it from a legal sense, we'll continue to receive those lease payments.

Your next question is from Rich Anderson from SMBC.

So I was looking at the guidance and specifically juxtaposing it to the pro forma run rate that you provided, and I know we talked about this a little bit earlier to make sure I understood it.

But as I look at this, it seems as though you're -- not that you're going to give '23 guidance, but it seems as though your '23-ish sense behind as a starting point, when you say -- when you remove the prepayment penalty income and also take the full allotment of reduced interest income for the full year.

So am I thinking about that logically correct in terms of how to grow off of 241 next year because you're missing 2 chunky things, or 2 chunky things will impact your growth profile in 2023? Now you might not have $0.45 of delta from sales from -- or dilution from sales, but I'm just wondering how the building blocks are starting to stack up when you start to think about formulating your view for 2023 with this pro forma run rate in mind?

Yes, Rich, I don't think it's probably an appropriate time or place to get into too many nitty-gritty details around 2023. But what I'd point out is that AIR is a simple business. And now that our balance sheet is in order, that our -- with fixed rate debt, no floating rate exposure, very limited maturities over the next 3 years. There's not that many moving parts.

The most significant moving part, as you point out, is in same-store operations. And we -- our leasing activity in 2022 should set us up for a very good 2023. As far as what's in our numbers for '22, that won't be there next year, we try to do our best to lay that out on the bottom of Page 9 of our earnings supplemental. I would just point out and try to avoid any potential confusion. We do have a benefit in our numbers this year from the Aimco note that will not reoccur next year.

We also will have higher run rate interest cost from fixing the $800 million of debt -- or excuse me, the majority of those costs will run through our numbers this year. but we'll have a little bit of an earn in next year, and so that's why we provided that 219 run rate. And so if you take that 219, which is a pro forma, assuming that the Aimco was fully paid off in 2021 and that our current balance sheet structure was in place on 1/1/22, that would be our 2022 FFO. And so you could grow your NOI expectations from same-store in there and have a really good starting point to think about 2023.

Okay. Fair enough. I do appreciate the disclosure there. The second question for me is, I've heard this from you and from others about moving away from regulated areas into less regulated areas. And sometimes obvious things to do in the present tense often have negative consequences in the future tense.

In this case, you could be walking into elevated supply. There's a lot of things that aren't perfect in a nonregulated world or area of the country, not forgetting the fact that they could become regulated someday soon, too. So I don't know, for some reason, that sort of escape from regulated areas of the country seems a little reactive and not proactive to me. And talk me off the ledge on this one, why is it the right thing to do to make that step today?

Rich, it's Terry. And first, it's good to hear your voice. I'd say second, that there's nothing reactive today. This is -- of course, we've pursued, for example, in Florida, the last number of years. And like all things in life, it's a question of balance.

And we have felt that under current circumstances, there are some markets the burdens of regulation outweigh the benefits. But we've got plenty of capital invested in California. We've got plenty of capital invested around the District, whether it is -- whether it's in Virginia or rather than Maryland or the District.

So we're exposed to regulation in our portfolio. We just try and find where there's a right balance between, as you point out, the discipline of expected competitive supply and the discipline of government. For example, we have exited from Texas for a decade, having been previously a large landowner there because competitive supply is so burdensome. But we'll look for our spots and try to find the right balance.

I guess I would say regulated areas of the country are also appealing to tenants. So don't want to lose sight of that. But yes, I get it. And I appreciate the balance commentary. So I guess I'll leave it at that. .

There are no further questions at this time. Mr. Considine, I turn the call back over to you.

Thank you, Austin, and thank you for your -- all on this call for your interest in AIR. If you have any questions, please call me or Paul or John or Keith or anyone who's spoken, and we look forward to seeing many of you hopefully at NAREIT in just next month. So thanks again.

This concludes today's conference call. You may now disconnect.