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Good day, and welcome to the AIR Communities Third Quarter 2021 Earnings Conference Call. Pleas note, today's event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead, ma'am.

Thank you, and good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2021 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'll 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; and Paul Beldin, AIR's CFO. Other members of management are present and will be available during our question-and-answer session, which will follow our prepared remarks. I would now like to turn the call to Terry Considine. Terry?

Thank you, Lisa, and thanks to all of you for your interest in AIR. This is a great time to be in the multifamily business. Across the country, the economy is healthy and customer demand is strong. There are lingering governmental restrictions in a few markets, but the multifamily business has largely recovered from the damage to the economy caused by last year's lockdown. Rents are above their 2019 peaks and above their long-term trend line, too. Investor demand fueled by low interest rates has driven asset prices to levels above their pre-COVID pricing. It's also been a great time for AIR. Keith and his operating team continue to excel, increasing occupancies, raising rents and amazingly lowering costs, notwithstanding the inflationary environment. John McGrath, about whom more will be said later took advantage of asset pricing, 15% above pre-COVID 2020, and is on track to improve the AIR portfolio by selective sales and, at the same time, raised $1.7 billion. Paul expects to use $1 billion or so of those proceeds to repay debt so that year-end leverage to EBITDA will be 5.3:1, with a weighted average interest rate of 2.4% or 1.7% net of interest income. $380 million of those proceeds plus $130 million of OP units was used to buy 4 properties in Washington, D.C. in the area for $510 million in a fair trade that maintains current income and increases expected future by 50%. With our year-end leverage better than our target of 5.5:1, we have capacity to invest almost $400 million without raising equity. When we do so, we will have delevered substantially with essentially no dilution to earnings. Because 5 properties already acquired this year are more productive when managed by Keith and his team, those investments increased the growth rate we expect for AIR NOI and FFO per share. As always, what is most important is our people. The AIR team has worked hard and done well, and I thank them. I also thank and welcome home John McGrath, an Aimco alumnus who returned after a decade away as a successful entrepreneur to become our EVP, Strategy and Capital Allocation. I thank and welcome Joshua Minix from Partners Group, who joins AIR as an EVP. John and Josh will work together as Co-Chief Investment Officers. In particular, I'd also like to thank Bob Miller, Kathleen Nelson and Mike Stein, long-serving directors, excellent stewards of the AIR business, great contributors, dear friends, who chose not to seek reelection and who will leave AIR well positioned for the future. And I look forward to welcoming to the Board, Tom Bohjalian, Kristin Finney-Cooke and Maggie Hernández. Their considerable accomplishments are detailed in the proxy for their election that was mailed earlier this week. And I'm grateful to Chairman, Tom Keltner, and Kathleen Nelson, Chair of the Nominating Committee, for their good work in making such excellent selections. With no more ado, I turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Thanks, Terry. The third quarter was outstanding. Leasing base and rate continued to accelerate, and we positioned our portfolio well to take advantage of the historic market conditions. As predicted, occupancy increased sharply with the third quarter result of 96.6%, up 120 basis points from the second quarter. Occupancy built throughout the quarter as we increased from 95.8% in July to 97.4% in September. Rates continue to strengthen with our signed blended rate up 10%. Signed new lease rates improved for the 12th consecutive month with September up 14.4%. As a result, revenue increased 5.4% from last quarter, more than 2.5x better than any sequential quarterly growth over the past decade. Still, we see more growth to come. October occupancy is 97.8%, which we expect to maintain or grow through early 2022. And our current loss to lease is 10%, demonstrating continued upside in rate. Our revenue growth translated into strong financial results for the quarter. Revenue was up 6% from the third quarter of 2020. Bad debt showed continued improvement at 1.4% for the quarter, a 20% improvement from last year and 34% better than the second quarter. Most importantly, aside from the 2.8% of our residents who have extended delinquencies, our bad debt is normal at under 30 basis points. Expenses were down 40 basis points year-over-year with controllable expenses down 1.4%. As a result, our net operating income is up 8.6% from the third quarter of 2020. Operating margin is where the AIR edge becomes truly apparent. In the third quarter, our operating margin was 72.4%, 170 basis points better than the second quarter and 140 basis points ahead of last year. That marks our 20th consecutive quarter with margins above 70%. These results are best viewed with the perspective of the cycle since the beginning of 2020. Asking rents as of the quarter end are 8.6% above the pre-pandemic peak and 22% up from the same date 1 year ago. AIR has now recovered revenue to the results achieved in the first quarter of 2020 with an average in-place rent now ahead of the pre-pandemic rent roll. Across the country, individual markets are all improving. Miami and San Diego are our best markets with new lease rates at or above 20% in each. Los Angeles, Washington, D.C., Boston and Denver are achieving double-digit rates. And in the Bay Area and Philadelphia, we're accelerating from the second quarter with rates that are up 3% to 6%. These results are due to strong markets and the AIR advantage, a combination of improvement in all facets of our business; our team with low turnover and high levels of engagement; our properties with smart homes and durable materials; our staffing design with flexibility and centralization; technology with investments in artificial intelligence and automation; and our analytics optimizing every granular detail of our operation. This effort has led to strong revenue growth, more than a decade of flat controllable expenses and peer-leading margins. The AIR edge is particularly impactful on new acquisitions. At center -- at City Center on 7th in Pembroke Pines, Florida, and our first 4 months of ownership, we've raised rents more than $350 on average; transacted more than 50 new leases at an average increase of 25%; maintained average daily occupancy of 97%; and began a program to upgrade the 275 town homes in the community with 10% already underway; and asking rent increases over $1,000, all while implementing AIR operations that will lead to dramatic margin growth. In Washington, D.C., we started the same process of transformation at our 4 recent acquisitions, aligning staff to be supported by our centralized team; optimizing service based on the value created; implementing technology that reduces the time and resources needed to run the business; reducing turn costs through superior customer service; and minimizing repair costs through physical upgrades. October represents a continuation of the momentum we've built in the third quarter. Occupancy has increased to an average of 97.8% for the month. And with our continued low turnover, we anticipate maintaining or growing occupancy in the coming months. Rates continue to be strong with weighted average rates up 13.6%. My thanks to all AIR team members. Your dedication to serving our residents and their drive to continuously improve our business has made this quarter a great success. I look forward to building upon our wins together as we look to 2022. And with that, I'll now turn the call over to John McGrath, our Executive Vice President, Co-CIO. John?

Thank you, Keith. We had a busy few months on the transactions front. We are on track to improve the quality of the portfolio and raised $1.7 billion of proceeds through selective selling of assets in a strong market. On average, we have received pricing approximately 15% higher than pre-COVID values, and we are reducing our exposure to locales with regulatory risks and uncertain road law by decreasing our capital allocation to New York, Chicago and in certain California markets. During the quarter, we sold 1 property in Chicago for $40 million. We also have $470 million under contract with $32 million of nonrefundable deposits and another $800 million of properties under contract negotiations. While a degree of execution risk exists, we feel it is minimal. We have run a competitive process. There has been tremendous demand for our offerings, and we have well-qualified backup buyers to our backup buyers. Additionally, earlier this week, we entered into a joint venture with an affiliate of Blackstone to sell in an 80% interest in 3 properties with approximately 1,750 units located in Virginia for $410 million in gross proceeds. AIR retains ownership of the remaining 20% interest in the venture is the venture's general partner and will continue to operate the properties. In aggregate, the completed and pending sales are expected to generate $1.7 billion of gross proceeds by the end of the year at a 2021 NOI cap rate of 4.36%. As Paul will discuss in a few moments, the proceeds will be used for deleveraging and funding paired trades. Turning to acquisitions. We acquired a portfolio of 4 properties located in the Washington, D.C. MSA, with 1,400 apartment homes and 84,000 square feet of office and commercial space for a purchase price of $510 million. The acquisition includes 2 vacant land parcels, which are suitable for development of 498 additional apartment homes and valued at approximately $20 million. AIR will not undertake the development of these parcels but rather expects to sell or lease the land to a third-party developer. The paired trade resulted in a net reduction of capital in the Washington, D.C. market and reallocation from properties with average rents below market to those with significant operating upside, increasing IRR by approximately 50%. In short, this acquisition presented an opportunity to execute a trade we believe will outperform the market. We expect a 4.3% NOI yield in 2022 and expect this yield to approach approximately 6% over the first 3 years due to the effectiveness of Keith's operating platform, investment of an additional $30 million in property upgrades and refreshment and strong local demand. Consistent with our philosophy, we anticipate the acquisition will yield a free cash flow internal rate of return approximately 400 basis points higher than the dispositions made to fund it. Given elevated prices, we are cautious about acquisitions and look for those where Keith's team can create considerable value. The acquisition just discussed is a good example of what we like. Our future portfolio growth will largely be driven by similar opportunistic acquisitions, and we will look to allocate additional capital to Florida, the Southeast and the Front Range. With that, I'll turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thanks, John. Today, I will discuss AIR's balance sheet, including our plans to reduce leverage and fund future growth through the sales of $1.7 billion of properties, our expectations for the remainder of 2021 and conclude with a brief comment regarding our dividend. Starting with the balance sheet. As part of the separation transaction, we set a target leverage to EBITDA ratio of 5.5:1. In the second quarter call, I outlined our plan to achieve this target by year-end. Today, this plan is largely complete. As John mentioned, we've closed $450 million of dispositions of hard money deposits on additional $470 million of property sales and are in contract negotiations on an additional $800 million. The proceeds from these sales and the planned sales of properties currently under contract negotiation are expected to be used to repay $1.1 billion of 3.7% property debt, fund the $435 million necessary to complete the City Center in Washington, D.C. pair trades. We expect the pair trade of selling properties in New York, Maryland and Virginia and using those proceeds to acquire the Washington, D.C. portfolio will be accretive to results in 2022 and beyond. The remaining proceeds will be used to pay transaction costs and reduce borrowings on our revolving credit facility. The net result of the property sales and the $128 million of operating partnership issued in connection with the Washington D.C. portfolio acquisition with an expected leverage to EBITDA ratio of approximately 5.3:1, 2/10 of a turn better than target. I see 4 significant benefits from our fourth quarter deleveraging activities: first, significantly lower interest expense and higher cash flow by repaying debt that is both high cost and amortizing; second, improved credit metrics, making an investment-grade rating for Moody's more likely, thereby opening the door to the public bond market; third, by taking advantage of a strong market to sell more than we need to meet our leverage target, we are pre-funding $380 million of future acquisitions; and fourth, little impact to earnings. The net effect of the acquisitions, leverage reduction and associated property sales necessary to achieve our targeted 5.5x leverage to EBITDA ratio reduces run rate earnings by approximately $0.01 per year. Prefunding approximately $380 million of future acquisitions increased the solution slightly at a rate of approximately $0.01 per quarter until suitable investments are identified. Two last comments before turning to full year guidance. First, it's worth noting that last year's difficult decision to structure the separation from Aimco as taxable was a good one. The resulting increased tax basis sheltered approximately $1 billion of gains in this year alone that would have been otherwise subject to tax. Second, I wanted to comment on the $148 million of prepayment penalties we anticipate incurring in connection with the third and fourth quarter property debt repayments. About half of the prepayment penalty represents the mark-to-market on the debt. The balance is an investment in higher future earnings, increased financial flexibility and an expected improved share price. Next, full year 2021 guidance. For the third time this year, we are increasing our expectations for FFO, same-store revenue and NOI and lowering our expectations for expenses. We now expect full year FFO per share between $2.12 and $2.16. At the midpoint, this is an increase of 8% from the guidance we gave 9 months ago. Fourth quarter FFO is expected to be $0.56 per share at the midpoint, consistent with third quarter results. Sequential growth in same-store operations and incremental NOI from the Washington, D.C. portfolio are offset by NOI loss from property sales and the timing of debt payoffs. Lastly, on October 26, the AIR Board of Directors declared a quarterly cash dividend of $0.44 per share and an FFO payout ratio of 79%. With that, we will now open up the call for questions. Operator, I'll turn it over to you for the first question.

And the first question we have comes from Haendel St. Juste with Mizuho.

Terry, you've been pretty busy on the portfolio management side. And you addressed some of the why and why now question in your remarks. I guess I'm curious on why fund your new investments more on the disposition side versus just say equity. You used some OP units as part of the -- one of the transactions, so I guess you're comfortable enough to a degree there. So curious, and then maybe if you guys could illuminate on the 50% increase in returns you alluded to in your comments. I'm assuming that was an IRR, long-term IRR differential, but some color there would be appreciated.

Well, my dear friend, Haendel, you've asked 10 questions that will fit comfortably inside our 1 question at a time rule. And for some of those, I'll call on John McGrath, who will be more knowledgeable. Let's just start at the beginning with why are we doing it now, and I would say there are 2 reasons. The first is we said we would. We said that we would delever the company, and we try to do what we say. The second reason is that we thought there was an unusually attractive confluence of low interest rates and high -- and rising rents that made buyers very aggressive and provided very attractive pricing, 15% above what we had valued these properties 1.5 years ago, and we thought it was a good time to take chips off the table. The second question was what? Help me Haendel. Oh, IRRs...

Exactly...

I'm sorry? The increase in IRRs in Washington D.C. comes from taking advantage of our comparative advantage in . Keith and his team, talented team, Kevin Mosher, who runs the East Coast, are very good operators. And the same properties, whether in Florida or in Washington, D.C., are more productive in their hands. And as you can see in our margins across the portfolio and in the cost control that applying those same techniques and disciplines and technologies to the 4 properties we acquired in Washington, D.C. will increase the IRR, you're right, it's a free cash flow internal rate of return, by about 50%. John, would you want to add to that?

No, Terry, I think you're right. It comes down to Keith and his team and the platform is what's driving our advantage.

Haendel, did you have a third or a fourth question that I skipped over?

No, we get our money's worth, Terry. No, I think that covered a lot of bases there. Maybe if I could use that last comment to transition to my next question. Keith, the operating platform, obviously, you've done a very, very effective job over the last few years painting and keeping your expenses low. Clearly, we're in a rising cost environment with the taxes, R&M, wages. I guess maybe can you talk about your ability to effectively control those costs as we move into a higher cost environment here and maybe some potential offsets in the portfolio with things like you're thinking might offset some of those relevant costs?

Sure, Haendel. Well, the ability is in the track record, right? And we can go back and look over the past 10 years and seeing that we've held them, particularly when you look at our controllable operating expenses. And what we do is essentially, as we evaluate an acquisition like this, our on-the-ground team goes in and looks at many, many things that we see as opportunities. And it can be everything from the way that we price the units, the way that we staff them, efficiencies, materials, of course, technology and a variety of other things. As we look forward, we know there's more work to be done, in fact. And so while we've been able to do many things that improve the valuation of these buildings we're talking about, but we think that even within our current portfolio, there's opportunity to get even better.

Sure. No, I appreciate that, but also curious on your kind of assessment of the tide, I guess, the headwinds that are taking us from the various cost pressures, the big expense that drives the portfolio, the R&M, wages, taxes, et cetera. Any color on the near-term prospects or maybe a sense of how meaningful those costs could be but also where potentially in the portfolio that could be offset to maybe higher turnover of your technology platform?

Sure. I'll speak to the operations piece. And if Paul wants to add anything in, I'll let him get there. But I think what you're referring to, Haendel, in some of this question about inflation and cost of goods and different things like that. What I would tell you is there's no question there will be some of that impact, but we have a plan about how we're going to continue to find ways to be even better. And so one of the things I'll just give you an example is that we focus on our on-site team. We think that they're one of the most important parts of the success that happens. And so we put a lot of energy on creating better jobs for team members by reducing work, making -- using durable goods and things that make things happen faster and easier. And in fact, the result of that is we have less turnover with our team members because we provide better jobs and higher wages, which then in turn, turns into better customer satisfaction that turns into lower turnover with our residents. And so when we have less residents moving out, we have less costs. And so those are the types of things that when we look at an inflationary environment, we're going to put our energy around customer satisfaction, customer selection, and areas like that will reduce cost, not just a onetime hit, but over a long period of time.

We now have the next question from Alex Kalmus of

I want to touch upon the JV with the Blackstone affiliate. How did it come about? And what are the economics like on the fee side for you there?

John, you might want to speak to that, but it came about because we've long known each other and relationship between the 2 companies, and we founded a useful strategic relationship. What more would you add?

That's right, Terry. The only thing I would add to it is that, as I mentioned, we have the relationship where we were able to enter into an agreement with Blackstone to take advantage of market pricing to retain the assets that we have that we believe are an advantage because of Keith's platform. On the fee side, as I mentioned, we are at the GP, and we are the property manager, and we will have the fees associated with those positions.

Okay. Got it. Is there any, I guess, run rate looking ahead that you anticipate that these will generate on the fee side?

No.

Okay. And just looking at the loss to lease, I appreciate the commentary on the portfolio. Is there any market-by-market specifics where the loss to lease is greatest in the portfolio?

Alex, it's Keith. I'll take it. As you point out, the loss to lease at 10% really demonstrates our ability to have even future growth. And one of the comments I just would add to that is we look at our customer selection in our current resident profile, and what we've seen is the fact that our residents actually have increasing wages. And even though like a year ago, we were at 20%, rent to income ratio has dropped 1 year later to 19%, which even demonstrates that incomes are rising just as quickly as our rents. And when we look at our loss to lease, a couple of places that really would stand out, maybe obvious or not, but Miami, of course. Denver is a place that we see a lot of opportunity that is at the top of the market as well as Boston.

We now have John Pawlowski from Green Street.

Keith, just one specific follow-up to your comment on Boston. Could you provide some context what drove almost 13% sequential revenue in the market? Curious if there's any large CapEx programs that are increasing the revenues rapidly there?

Good question. Really 3 pieces. The first, we've been running at an even stronger occupancy. We're in the high 97s that built up over the year. In addition to that, as we look at our blended rates that were in the mid-teens, those 2 components were a big part. And then third, we had a payment from a commercial tenant that gave us a catch-up. And so when you combine those things, that's the growth.

Okay. Obviously, fundamentals are very healthy across the portfolio. Just Keith, from your lens, as you look at just your operating dashboard, what's the most concerning change you've seen in the business in the last few months?

John, I wouldn't say there's anything that I would say that I'd point out that's a concerning change. I would say that I'd point out things that we're excited about, which is greater opportunity, that there's a great spread in our loss to lease. I'll tell you, when we look at the rent, the income ratio, that was a big opportunity for us to look at and say not just is there a spread in the current asking rates versus the in-place rents but the opportunity that our residents are highly qualified with great incomes that they have the ability to move, and that we're going into the end of the year and building into next year with high occupancies that we believe will build even further strength.

We now have a question from Chandni Luthra of Goldman Sachs.

Congratulations on a strong quarter. My first question is basically around the relationship with Aimco. So the 4 redevelopment properties that you have there, could you provide -- could you perhaps provide an update on timing if any of those properties are expected to come by, say, in the near future? And how should we think about how you will consider them now that your leverage is where you wanted it to be?

Hi, Chandni, this is Paul. Nice to hear from you. And I'll start with that question and see if anybody else wants to fill in. But you're right, we have 4 properties that are currently leased to Aimco. And 2 of those properties are in the lease-up and stabilization process. Under the terms of our lease agreement, those -- that lease can be terminated at Aimco's option. And if that is done, once those properties are stabilized, we have the option of reacquiring those properties. And so right now, that lease has not been terminated. And so we'll cross that bridge when we come to it, and those are -- that's a decision we'll make at that time.

Got it. And then just a follow-up question on -- back to the Blackstone JV that you talked about. Are there more such deals that you're perhaps considering? Just trying to understand what the future landscape looks like?

Chandni, this is Terry. We look at all sources of capital. We see great opportunity in the environment to buy properties where Keith's team adds a lot of value, and we'll fund those from the lowest cost of capital we can find.

We have now a question from John Kim of BMO Capital Markets.

The cap rate on dispositions seems a little high relative to market cap rates. Is there any way to break down and to calculate it by the different portfolio results?

John, this is John McGrath. First, we can't break down the cap rates by market. But what I'll say is that cap rates are a perspective. If I look at it from a buyer's perspective, particularly if I look at California, where they have a Prop 13 hit, the cap rates will be lower than what we're seeing without the Prop 13. And so when you look at it, what you're seeing in our numbers and what I mentioned is what we see from our portfolio and our financials for 2021.

Okay. But the cap rate is a trailing number, not a forward number. The forward presumably would be 5% to 10% higher. It just seems like for the sale not as low as what we heard on another transaction.

Hey, John. Sorry to interrupt you, John, this is Paul Beldin. I was just going to jump in and comment on the numerator we're using for the cap rate calc. And so we're using our expectations for the full year 2021. So it's kind of a hybrid between a trailing and forward cap rate, and so that is influencing the quoted pricing somewhat. And another thing I would reinforce is John's commentary around the California assets that are being sold. And so from a buyer's perspective, who's underwriting a reset and the valuation of the property and, therefore, a different level of property taxes than what we experienced, that would have a very significant effect on the cap rate for that portfolio of assets.

I think Keith mentioned in the prepared remarks exiting certain markets within California. Can you elaborate on that?

This is John. What we're looking at is not necessarily exiting certain markets, but looking at markets which have higher regulatory risk and some uncertainty of law, but also from an asset perspective, those where they are underperforming, if you will, from a -- rent is lower than market and have high capital needs. So what we're looking at is opportunities to increase the portfolio quality by again using Keith's platform to acquire assets where we will have significant upside.

Okay. I mean, were there certain cities that you felt like the jurisdiction has been more difficult to -- more challenging to operate in over the last couple of years?

Not really. We looked across our whole portfolio and did things on an asset by asset basis, and that's where we came up with the list of sales. And John, you'll recall that on previous calls, we've talked about reducing our overall allocation to California, and this is part of that process.

We now have Nick Joseph with Citi.

For those California asset sales, will those be outright sales? Or could some of those be in JVs?

Great question. Thanks, Nick. This is John. They will all be outright sales.

So I guess my next question would just be on the strategy of the Blackstone JV then. I guess one of the objectives of AIR JVs are pretty simple. But why not just do an outright sale of those assets and keep the kind even more simple?

It's weighing and balancing opportunities to maintain the platform, add value, levered returns, equity leverage on our returns on capital. It's just -- there are multiple factors that we weigh, Nick. And in this case, we found it advantageous to have that relationship.

And then just finally, what was the pricing on the OP units in the D.C. portfolio?

This is Paul. They're priced upon a trailing average upon the closing of the transaction, and that ended up being just about $50 a unit.

We now have a question from the line from Richard Anderson of SMBC.

So a lot of strength in the Sun Belt currently, as we've all seen, and building strength in the gateway coastal market. Is it a fair statement that the Sun Belt is perhaps a year ahead of coastal and that there could be a convergence of performance next year, maybe for different reasons, as cities open up and universities open up and offices open up, benefiting the coastal areas perhaps a little bit more at the margin? But is the Sun Belt foretelling the coastal region next year, in your opinion?

Rich, it's always good to hear from you. I think that you're right, but it will be for different reasons. The Sun Belt is enjoying just an explosion of demand as the economy recovers from the lockdown. The year-over-year numbers are somewhat exaggerated by comparison to the, say, 2-year change. And so we try to look back to 2019. The coastal markets are more locked down overall and have continuing economic pressures such as slow population growth and sluggish economic growth and high taxes and so forth. So they're just -- they're different markets and different cycles. I think that the unwinding of the lockdown in coastal markets will be a positive, but they have structural problems that you're going to have to be dealt with. And in the Sun Belt markets, you're likely to have more continued demand, but with pricing limited by the cost of new supply.

Okay. That's kind of -- I'm in agreement with that, different reasons, but maybe net in terms of a dollar or a similar outcome. And then, Terry, while I have you, I think I met you in 1996. And at the time, the company was complicated and arguably overleveraged. And then 25 years later now, the company, new name, simple, deleveraged. Does this offer you now an opportunity to move some place in the middle of those 2 book ends? In other words, maybe perhaps taking on a little bit of incremental risk? Or are you going to be staying in this mindset of complete simplicity and not going down any other sort of complicated rabbit holes in the future?

Rich, I accept -- you heard the characterization of my appetite for rabbit hole. But AIR is all about focus. It's all about simplicity. It's all about transparency. It's all about exploiting the comparative advantage we have in operations, and it's about reducing risk. So we spent time in this quarter reducing financial risk on the balance sheet. But we've also reduced portfolio risk, as John talked about, in exposure to locales with regulatory overreach. And we've limited risk, for example, by avoiding development. So we're not affected by supply chain dislocations and labor shortages. And I guess a key part of risk is we've always had good control of our costs. So for AIR, what we want to have is the simplest, most efficient, most effective way to own multifamily, where the highest percentage of revenue is converted to the benefit of shareholders. And we don't see any reason to make that any more complicated.

Yes. I think rabbit hole is not the right word. But I mean, fundamentals, it might be enticing to take on a little bit of risk because the fundamentals are just going to allow for it. But you're saying you're keeping the bar low and not going to go down anymore.

I think there's plenty of risk in every market. And in this market, the risks are that prices are quite high and that you have lots of ways this economy could unfold. It could unfold with higher interest rates and lower cap rates. And that's a risk that we've addressed by lowering our leverage. It's the risk that we have continued low interest rates longer and more sluggish economy. That's a risk we addressed by being so cost-oriented and frugal and so forth. So it's always a question of balancing which risk and how we're anticipating them. But I think, in almost any economic scenario, that Keith's ability to make properties more productive will be a big advantage and will result in outsized returns.

Operator, if there are no further questions, I want to thank you for your help, and I want to thank all of you on the call for your interest in AIR. We will see many of you at NAREIT in a couple of weeks and at various conferences, and we look forward to it. Be well.