Apartment Investment & Management's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Apartment Investment & Management (AIV)

Q4 2011 Earnings Call

February 08, 2012 1:00 pm ET

Executives

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

Terry Considine - Founder, Executive Chairman, and Chief Executive Officer

Keith Kimmel - Executive Vice President of Property Operations

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

John Bezzant - Executive Vice President of Transactions

Daniel S. Matula - Executive Vice President of Redevelopment and Construction Services

Analysts

Eric Wolfe - Citigroup Inc, Research Division

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

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

Swaroop Yalla - Morgan Stanley, Research Division

David Bragg - Zelman & Associates, Research Division

Jana Galan - BofA Merrill Lynch, Research Division

Robert Stevenson - Macquarie Research

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

Buck Horne - Raymond James & Associates, Inc., Research Division

Michael Bilerman - Citigroup Inc, Research Division

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

Presentation

Operator

Good afternoon, and welcome to the Fourth Quarter 2011 Apartment Investment & Management Company Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. I would now like to turn the conference call over to your presenter, Ms. Lisa Cohn, Executive Vice President and General Counsel. Ms. Cohn, please go ahead.

Lisa R. Cohn

Thank you, Jamie. Good day. During this conference call, the forward-looking statements we make are based on management's judgments, including projections related to 2012 results. 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. 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.

The participants on today's call will be Terry Considine, our Chairman and CEO, who will provide opening remarks; Keith Kimmel, Executive Vice President, in charge of Property Operations; Ernie Freedman, our CFO, who'll review 2011 results and 2012 guidance. Also in the room today are John Bezzant, Executive Vice President, Transactions; Miles Cortez, EVP and Chief Administrative Officer; and Dan Matula, Executive Vice President of Redevelopment and Construction Services. We are all 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. I'd like to take a few minutes at the beginning just to talk about the big picture.

The apartment business was good last year, and I think it will be as good or better this year. Demographics remain strongly positive, and the economy seems to be slowly recovering. And I'm pretty sure that 2012 will be a very solid year for Aimco. About half of our expected rent growth is already in the bank from leases made last year and so far this year just waiting to earn in. Our renewal business remains quite steady, with more than half of our customers renewing their leases at rents up 5% and more. In most markets, we enjoyed steady consumer demand for new leases, pushing up average daily occupancy and producing higher rents.

Our portfolio is good and getting better. It is more and more concentrated in the most desirable markets, with higher rents and greater expected rent growth. Last year, average rents were up 9% to more than $1,140. This year, we expect average rents to be up another $120 or 10%, more than $1,260. About half of that increase in average rents will come from rent growth, and about half will come from the sale of properties with lower rents.

We apply the same selling discipline to our Affordable portfolio, where we plan to sell 60 Affordable properties this year, reducing our allocation to the Affordable business to less than 10% of net asset value.

On the buy side, we expect to make at least $200 million of property acquisitions, primarily by buying out limited partners in 11 partnerships that own 19 properties. We've already closed on 4 of these transactions, and we expect to close 3 more this month. We like partnerships acquisitions because we already operate the real estate and know it well. Partnership acquisitions are especially accretive where we can eliminate overhead costs. For example, all 7 of the transactions that we closed in January or expect to close in February are public partnerships, with all the costs of SEC reporting, required audits, Sarbanes-Oxley compliance and so on, and that's a lot of costs to eliminate. So that's it. After this year, we'll be largely done with a decade of partnership acquisitions, and we will enjoy a simpler, more transparent, lower-cost business. So we're actively pursuing other acquisition opportunities, especially where we see that our operating and redevelopment skills can add value and enhance returns.

Even as we upgrade our portfolio by selling weaker properties, we are also adding higher-rent, better-located properties through redevelopment. Over the next few years, redevelopment will be an important contributor to improve portfolio quality and to faster rent growth. We expect to have 8 redevelopments underway this year: 4 in coastal California and 4 others in Seattle, Chicago and Philadelphia. We expect to spend more than $400 million on these properties over the next 2 years or so with current returns on untrended rents greater than 7% and unlevered internal rates of return greater than 10%.

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