Apartment Investment & Management (AIV)

Q3 2011 Earnings Call

October 28, 2011 1:00 pm ET

Executives

Lisa R. Cohn - Executive Vice President, General Counsel and Secretary

John Bezzant - Executive Vice President of Transactions

Keith Kimmel - Executive Vice President of Property Operations

Terry Considine - Founder, Executive Chairman, Chief Executive Officer and Chief Eecutive Officer of AIMCO-GP Inc

Ernest M. Freedman - Chief Financial Officer and Executive Vice President

Analysts

Derek Bower - UBS Investment Bank, Research Division

Andrew McCulloch - Green Street Advisors, Inc., Research Division

Eric Wolfe - Citigroup Inc, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Jana Galan - BofA Merrill Lynch, Research Division

Richard C. Anderson - BMO Capital Markets U.S.

David Bragg - Zelman & Associates, Research Division

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Swaroop Yalla - Morgan Stanley, Research Division

Haendel Emmanuel St. Juste - Keefe, Bruyette, & Woods, Inc., Research Division

Robert Stevenson - Macquarie Research

Presentation

Operator

Good day, and welcome to the Third Quarter 2011 Apartment Investment and Company Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Lisa Cohn, Executive Vice President and General Counsel. Ms. Cohn, please go ahead.

Lisa R. Cohn

Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgments, including projections related to 2011 results. These statements are subject to certain risks and uncertainties, a description of which is found in our SEC filings. Actual results may differ materially from what may be discussed today. Also, we will 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 Aimco's website.

Participants on today's call will be: Terry Considine, our Chairman and CEO, who will provide opening remarks; and Ernest Freedman, our CFO, who will review third quarter results, our balance sheet and guidance. Also in the room today: John Bezzant, Executive Vice President, Transactions; Miles Cortez, Executive Vice President and Chief Administrative Officer; Keith Kimmel, Executive Vice President, Property Operations; and Dan Matula, Executive Vice President, Redevelopment and Construction Services. We are available to answer questions at the conclusion of our prepared remarks.

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

Terry Considine

Thank you, Lisa, and thanks to all of you on the call for your interest in Aimco. Our report today is upbeat, business is good. It remains a good time to be in the apartment business. And we are on track to meet our 2011 plans.

Rental rate growth increased during the quarter, increasing revenue and raising our prospects for 2012 as our $14-plus million loss to lease earns in. As we look to the fourth quarter, we expect continued rental rate growth, but with the change in mix with renewal rates increasing by more than new lease rents.

Our portfolio of transformation continues with the sale of lower rent, lower growth properties and reinvestment of sales proceeds in higher rent, higher growth acquisitions and in funding our $400 million redevelopment pipeline. There, we expect returns comfortably in excess of those available on new acquisitions.

Our balance sheet is in good shape. Of interest, the markets for property debt remains open, with numerous lenders competing for our business and offering historically attractive interest rates. We expect Aimco debt leverage, as measured by debt to EBITDA, to decline to, say, 8:1 over the next 12 to 18 months through a combination of property sales, property debt amortization and property net operating income growth.

Our plan is to simplify Aimco by increasing our ownership and partnerships that owned conventional properties, by liquidating a sizable number of partnerships where Aimco has a low ownership in affordable properties, by liquidating our legacy asset management business and by simplifying our offsite business process. All these are progressing and contribute to lower offsite costs, including G&A.

As we work to finish 2011, we enjoy higher rents, wider margins and improved portfolio, a stronger balance sheet, lower offsite costs and embedded growth prospects for next year. These happy prospects reflect contributions from the entire Aimco team, and I offer them my thanks. It's my real pleasure to work with them.

And now, I'd like to turn the call to our Chief Financial Officer, Ernie Freedman. Ernie?

Ernest M. Freedman

Thanks, Terry. On today's call, I will cover the following subjects: First, our third quarter results; second, our recent balance sheet activities; and third, I will provide fourth quarter guidance. As to third quarter results at $0.41 per share, third quarter performing FFO was $0.01 per share above the midpoint of our guidance.

As to operating results, you will see in table on Page -- in the table on Page 2 of our earnings release, total same-store NOI, which includes Conventional and Affordable properties, was up 3.8% year-over-year, with Conventional Same Store, up 3%; and Affordable Same Store, up 8.6%. Total same-store revenue was up 3.5% for the quarter, with Conventional Same Store, up 3.5%; and Affordable Same Store, up 3.6%.

Conventional Same Store revenue growth was driven by an increase in average rents of 3.1%, which was offset somewhat by an 80 basis point decline in occupancy. Conventional Same Store leases during the quarter were up 5.8% from the corresponding expiring lease. On an overall basis, these increases were up 6.1% in July and August and 5.2% in September. We continue to have about 2 renewal leases for each new lease, and the rates of increase for each are as follows. Rates on renewal leases strengthened during the quarter and averaged 5.6% above expiring lease rates compared to a second quarter average of 3.6%. Results by month were: July, up 4.9%; August, up 5.7%; and September, up 6.2%. New lease rates during the quarter averaged 6.1% higher than expiring lease rates compared to 5.1% in the second quarter. Results by month were: July, up 7.2%; August, up 6.7%; and September, up 4%.

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