Apartment Investment and Management Co (AIV) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the Aimco fourth-quarter 2015.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead.

Thank you, and good day, everyone. During this conference call, forward-looking statements we make are based on management's judgment, including projections related to 2016 and 2017. These statements are subject to certain risks and uncertainties, a description of which 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 AFFO and FFO. 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.

Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, our Executive Vice President in charge of Property Operations; John Bezzant, our Chief Investment Officer; and Paul Beldin, our Chief Financial Officer. A question-and-answer session will follow our prepared remarks. I will now turn the call over to Terry Considine. Terry?

Thank you, Lisa, and good morning to all of you, and thank you for your interest in Aimco. Our business is good, and we hope that yours is too. Before discussing our results, past and projected, I'd like to make sure that you know that yesterday we reported 2015 results, gave 2016 guidance and provided a financial model forecasting 2017.

Paul made the decision to provide that forecast for the next two years, to make clear to investors the impact of four factors: first, same-store NOI growth rates. Second, the long expected decline in non-core earnings as we continue the simplification of our business, for example the wind down of our low income housing tax credit activities, and the reduction in the number of our partnerships. Third, the dilution that comes from selling fully-leased properties to acquire the Northern California lease-up property that has no current income. And fourth, the savings in G&A and other off-site costs, as we scale our overhead to our more focused business.

So, for 2016, the headline is that we continue to think long-term, accepting short-term pain for long-term gain. The short-term pain is a lower growth rate for AFFO this year, up only 4% compared to being up 12% last year. For 2017, the long-term gain is the reacceleration of the AFFO growth rate to 12%, together with higher rent growth going forward, a better portfolio with higher average rents, a stronger balance sheet, and improved quality of earnings.

We will return to 2016 and 2017 later, especially in Paul's remarks, but now, I would like to direct your attention to a few highlights from last year. Last year in property operations, across our diversified portfolio, rent growth was higher than in 2014 by 50 basis points. In redevelopment, strong consumer demand for our redevelopment apartment homes drove the lease up of Ocean House in La Jolla, absorption at above seasonal expectations at Park Towne and The Sterling in Philadelphia. Second-generation rent increases averaging 13% for our occupancy-stabilized redevelopments at Lincoln Place, Pacific Bay Vistas, and Preserve at Marin.

In portfolio management, fourth quarter average revenue per apartment home was up 10% year-over-year reaching $1,840, a record high for Aimco. And on the balance sheet, at year-end, we had $675 million of cash on hand, and credit available on our bank lines. And year-end leverage, as seen by the ratio of leverage to EBITDA, was down year over year by 11%. So the bottom line, 2015 AFFO per share was up year over year by 12%. Cash dividends per share were up year over year by 13% and consensus net asset value per share was up year over year by 11%. For these excellent results I thank my teammates, and say, well done.

Now let's look forward. When we look property by property at the annual business we see on balance continuation of the solid consumer demand of the past few years. In fact through January of this year, the rate of year-over-year rent growth has been higher for each of the past 12 consecutive months.

That is January 2016 rent increased at a faster rate than did January 2015. December 2015 rent increased at a faster rate than did December 2014. And so on. So for the past 12 consecutive months, our rent growth has accelerated.

Now, when we look outside our business, we're mindful of the potential for overbuilding in some markets, and we cannot help but notice the turbulence in financial markets and uncertainties about economic growth. These conflicting data points make us conservative. You can see that we project 2016 rent growth, which is the closest to hand and most visible to us, at roughly equal to, and in fact a little bit better than, the rent growth we've enjoyed for the past few years.

You will also see that in our 2017 forecast, we decided to assume lower rent growth. We are not making a call on the market. As mentioned earlier, in our portfolio, rents have accelerated for 12 consecutive months, and we have no visibility on a deceleration. We assumed lower rent growth for two reasons: First, we want you to know that our 2017 forecast is quite achievable, even if there were to be a slow down. And second, whether or not there is a slowdown in 2017, we all hope that markets will turn someday, and we want you to know what we are thinking and doing now, to be prepared.

First, continue to emphasize our commitment to customer selection and customer satisfaction, and we are increasing our investment in our site teams. Second, we are increasing capital spending to put our properties in top condition. Third, we are glad of our limited exposure to development and redevelopment, and we are monitoring closely our exposure to lease-up of redevelopment and acquisition properties.

Fourth, we appreciate our portfolio diversification across markets and price points, and we're cautious about possible acquisitions. And fifth, regarding financial liquidity and are building balance sheet capacity to reduce dependence on financial markets, and to support opportunistic investment, if such can be found. Now, I would like to turn the call to Keith Kimmel, head of Property Operations for a review of fourth-quarter results and a first look at the new year. Keith?

Thanks, Terry. I'm pleased to report that we had a solid 2015 in operations, with full-year revenues up 4.5%, expenses up 2.1%, and net operating income up 5.6%. Annually, we achieved blended lease rate increases of 4.9% while maintaining a daily average occupancy of 95.9%, with turnover at 48.6%. In Q4 of 2015, our residents gave us our ninth consecutive quarter of better than a four-star rating in customer satisfaction. As a result renewal rents increased 5.6% for the quarter, some 70 basis points higher than fourth-quarter 2014.

We saw particular strength in the Bay Area, Denver and Boston. Renewal rents in these markets increased 7% to 9%, compared to the expiring leases. Where those leases expired and were not renewed, our new lease spread pricing outperformed the results from the fourth quarter of 2014, and for each month of the quarter individually. This resulted in a quarterly increase in new lease rates of 2.1%, 120 basis points better than prior year. New lease rates were particularly strong in the Bay Area, Atlanta, San Diego, and New York City, with increases between 6% and 12%. As a result of our team's hard work across the country, we achieved blended lease rate increases of 3.6% for the quarter, 70 basis points better than Q4 2014.

Turnover for the quarter was 50.7%, and of the customers who decided to move out, 23% were for career moves, 20% did not renew due to price, and 15% moved out to purchase homes. There are no significant changes in these move-out reasons versus recent quarters or our long-term averages. Our resident quality continues to improve. The average incomes of those new customers who moved in during the fourth quarter was $128,000, with a median income of $90,000. Year over year the median income of our new residents was up 13% compared to the fourth quarter of 2014, due to an increase in household incomes and portfolio quality.

Our 12 target markets, which represent 90% of same-store net operating income, had top line revenue growth up 4.6% in Q4. The top performers had revenue increases for more than 7% to nearly 11% for the quarter. This was led by Seattle, followed by the Bay Area, New York, Denver, and Boston. Our steady performers which had revenue growth of more than 5% to 7% were San Diego, Atlanta and greater Los Angeles. And finally with revenue growth of roughly 1% to nearly 3%, we round out our target markets with Chicago, Washington DC, Miami, and Philadelphia.

As we look ahead to early first-quarter 2016 results, January blended lease rates were up 4.2%, double our start to last year. New leases were up 2.9%, some 270 basis points better than prior year. And renewals were up 5.8%, 160 basis points better than January 2015. January's average daily occupancy was on plan at 95.8%, 30 basis points better than prior year, and February and March renewal offers went out with 5% to 7% increases.

Our expectations for 2016 revenue growth in our 12 target markets can be broken into three tiers: At the top of the list with forecasted growth between 6% and 9% we have the Bay Area, Denver, Seattle, and Atlanta. The midrange markets with forecasted growth more than 4% to better than 5% are Boston, New York City, San Diego, and greater Los Angeles. And rounding out our 12 target markets with growth of nearly 3% to 4%, we have Miami, Chicago, Philadelphia, and Washington DC.

And with great thanks to our teams in the field and here in Denver for your commitment to Aimco's success, I will turn the call over to John Bezzant, our Chief Investment Officer. John?

Thank you, Keith, and good day to all of you. During 2015, we sold 11 properties with about 3,900 apartment homes for gross proceeds to Aimco of $386 million. These sales represented roughly 4% of our beginning year real estate assets. We sold eight conventional properties with average revenues per apartment home of $1,043 per month, 43% below the average of our retained portfolio. Among the properties we sold were the last we held in Phoenix.

We also continued the sell down of our affordable portfolio with the sale of three properties. On average, the properties sold in 2015 had a free cash flow cap rate of 4.9%. Had we held these properties for the next ten years, we would have expected them to generate a free cash flow internal rate of return of about 6%. Proceeds from these sales were reinvested in redevelopment and development projects, acquisitions and property upgrades at a weighted average free cash flow internal rate of return about 350 basis points higher than the properties sold to fund them.

In particular, we invested $118 million in redevelopment projects during the year enhancing seven communities, with a total of more than 2,500 apartment homes. During 2015, we completed our multi-year redevelopments at Lincoln Place, located in Venice, California, and Preserve at Marin, in Marin County, California. We also completed work at 2900 on First in Seattle, and Ocean House on Prospect located in La Jolla, California. We continue the redevelopment of two center city Philadelphia properties, which many of you saw during our Investor Day back in October, Park Towne Place, and The Sterling.

At Park Towne place, 2015 saw the near completion of the redevelopment of one of the four towers that comprise the community, as well as the community center. At the end of January, we had leased 84% of the completed apartment homes in this tower, with rents above underwriting. We anticipate completing the remaining apartment homes in that first tower by the end of this month. Based on these successful results, Aimco approved a plan during 2015 to redevelop a second tower at Park Towne Place with 245 apartment homes. We began de-leasing this tower during the fourth quarter, and construction is underway.

At The Sterling, we continue to enjoy good product acceptance. At the end of January we completed 97% of the completed apartment homes, with rents above underwriting. In the fourth quarter of 2015, we approved a plan to continue the redevelopment of The Sterling with another five floors containing 130 apartment homes.

And during 2015, we also invested a total of $116 million in development. About $100 million of this was in our One Canal property in Boston, which will be completed in April, and which we are pre-leasing now. We also invested $16 million in the completion of Vivo, the property we acquired in Cambridge midyear, while it was under construction. We saw our first move-ins at Vivo in October, and the property is 44% leased today at rents above underwriting.

In addition to Vivo, during 2015 we purchased two other properties: Mezzo, an operating property in Atlanta, and Axiom, a lease-up property in Cambridge. The total purchase price for these three properties was $129 million. Our leasing at Axiom has gone very well, with the property currently 89% leased at rents above underwriting. We expect to reach occupancy stabilization on this property during the second quarter.

And finally, as we discussed on our last call, during 2015, we entered into a contract to acquire an under-construction apartment community in Northern California for $320 million. We have commenced pre-leasing of this community and anticipate closing the acquisition upon the completion of construction this summer. A portion of the acquisition price will be funded through a property loan, and the balance with proceeds from the sale of two properties. One in Phoenix, and one in Alexandria, Virginia. During the fourth quarter, as noted earlier, we closed on the sale of the Phoenix property, and we anticipate closing on the sale of the Alexandria property in the second quarter this year.

With that, I would now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thanks, John. Today, I would like to spend a few moments on our 2015 results, after which I'll provide some details around our 2016 outlook and 2017 forecast that we published yesterday with our earnings release.

First, 2015. 2015 AFFO of $1.88 per share was 12% higher than 2014, and $0.03 per share ahead of our beginning of year guidance. 2015 same-store revenue growth of 4.5% was 40 basis points ahead of our beginning of year guidance, while expense growth of 2.1% was 70 basis points lower than guided. Combined, these results produced year-over-year net operating income growth of 5.6%, which was 90 basis points above our beginning of year guidance.

As to the balance sheet, at 6.8 times, year-end leverage was down 11% year-over-year. This reduction was accomplished in part by using proceeds from our January equity offering to reduce debt balances. Specifically, we raised $367 million by selling stock at $38.90 per share, and used the proceeds to reduce property debt and to repay our outstanding line balance. Today, our unencumbered pool contains properties with a combined value of approximately $1.8 billion, nearly double that of year-end 2014.

Last week, our Board of Directors approved an increase in our quarterly dividend from $0.30 to $0.33 per share. On an annualized basis this represents an increase of 12% compared to dividends paid during 2015. In short, 2015 was a good year for Aimco with double-digit AFFO growth, solid same-store results, lower leverage, and increased dividends.

Looking ahead, we feel good about our prospects. Our 2016 outlook and 2017 forecast provides more visibility into the four key factors Terry mentioned that are expected to impact Aimco's projected earnings. They are same store growth, property sales and reinvestment activities, non-core earnings, and off-site costs. I'd like to take a minute to walk through each of these.

First, same-store NOI growth. In 2016, we anticipate same-store revenue growth between 4.5% and 5%, an acceleration of 25 basis points at the midpoint over 2015. We anticipate expenses to increase 2.5% to 3%, up from 2.1% in 2015. This rate of expense growth was attributable to an increased investment in our on-site teams in 2016, which we expect will result in improved productivity and lower costs in the future. These increases in both revenues and expenses drive our expectations of 2016 NOI growth between 5.25% and 6.25%.

We also provided a financial model for 2017. In that model, we assume revenue deceleration of 50 basis points from 2016, based on a 60 basis point deceleration in new leases, and a 90 basis point deceleration in renewal leases. We have no evidence to the fact there is such deceleration in that across our portfolio, far from it. As Terry said, we picked a conservative number to show that our 2017 forecast is achievable, even if markets weakened, and to show that we are looking ahead to the inevitability of slower growth.

At the top line, we show revenue growth in 2017 of 3.75% to 4.75%. This growth rate is based on the earn-in of 2016 leasing activity, renewal rates of 4.5%, and new lease rates of 3.9%, as estimated by third-party data providers. We assume operating expenses increase 2.5% to 3%, which is based on market-level inflation adjustments, which are also projected by third parties. These assumptions yield 2017 NOI growth of 4% to 5.5%. So if these assumptions prove true, we will see continued strength in same-store NOI growth, albeit at a slower pace in 2017 than in 2016.

The second key factor impacting Aimco's AFFO growth is the effect of the sale of stabilized properties to invest in non-stabilized properties. The most impactful of which are One Canal, our development property in Boston; Vivo, a property acquired under construction in June of last year; and our Bay Area acquisition expected to close this summer. For 2016, we expect the NOI contribution from these three properties to be less than $0.01 per share. This nominal contribution is more than offset by the $0.05 to $0.07 of dilution from properties sold to fund these investments. For 2017, we expect Vivo to achieve NOI stabilization by the end of the year, and for One Canal and our Bay Area acquisition to reach stabilized occupancy of 95% by third quarter.

Together, we project these lease-up communities will contribute $0.12 per share to 2017 NOI. As One Canal and our Bay Area acquisition achieve NOI stabilization in 2018, we would expect an even greater contribution to 2018's results. In short, we are accepting short-term pain in the form of 2016 AFFO dilution for the long-term gain provided by higher-quality communities with growth prospects superior than the properties sold, to fund their development or acquisition.

The third factor affecting Aimco's AFFO growth is a long expected financial impact of the simplification of Aimco's business model. In 2016, the contribution to bottom line from non-core earnings is expected to decline by $0.08 to $0.12 per share, compared to 2015. As a result of our gradual exit from the affordable and asset-management lines of business, and the reduced income tax benefits related to historic tax credits, in our taxable REIT subsidiary. In 2017, we project a further decline in non-core earnings of an additional $0.09 to $0.10.

The fourth factor affecting Aimco's AFFO growth is the positive impact of reduced off-site costs that come with our simpler business model. As the complexity and scale of our business change and we gain efficiency, we expect these costs, which include property management, investment management and G&A, to decline by $0.02 in 2016, and an additional $0.01 to $0.03 in 2017. While we expect some variability in other components of AFFO, these four items are the primary drivers of our expectations for the change in 2016 and 2017.

In 2016, we expect AFFO will be in the range of $1.91 to $2.01 per share, a growth rate of 4% compared to 2015. Notwithstanding the $0.05 to $0.07 per share dilution related to the properties sold to fund the purchase of lease-up properties. In 2017, based on the stated assumptions, we calculate AFFO would increase 12% at the mid-point to $2.12 to $2.26 per share. Assuming these rates of earnings growth, we see year-end 2017 leverage of approximately 6.3 times, a reduction of 7% compared to year-end 2015.

So to summarize, we see over the next two years, better operating results, an improved portfolio, a simpler business with lower non-core earnings, safer leverage, reduced off-site costs, and increased AFFO per share. All of this accomplished without the need to access equity capital markets.

With that, I'll now turn it over to the operator for questions. If you please limit your questions per two per time in the queue. Operator?

(Operator Instructions)

Nick Joseph, Citigroup.

Terry, the portfolio and business changed a lot over the past few years. This year is a continuation of that strategy. So how do you think about and balance the portfolio and business transformation between the impact to NAV and the impact to cash flow growth?

Nick, the key word there is balance, and it's a little bit like riding a bicycle, you can't lean too far one way or the other. Over the years, our primary metric for the business has been net asset value plus cash dividends, which is a balance, and it increases what we call economic income. And so we focus on that first, and you can see, for example in 2016, net asset value will be much more predictable than the current income that we just discussed, which is more volatile. But net asset value is closer to that, over time it's closely connected cash flow, so again, it's a question of balance.

Thanks. Are you able to confirm that the Northern California acquisition is The Indigo in Redwood City?

I am, thank you.

Good. (laughter)

Okay so then maybe in terms of that, can you remind us of the underwriting in terms of where you expect rents to be this summer, and where rents are in the submarket today?

Sure. John, do you want to take that?

Sure. So, Nick, I would tell you that today we are in the middle of what I would call a soft opening pre-leasing scenario, where we have started our preparations for pre-leasing. We will go live with that, with staff in a marketing office at the end of this month, and we'll go full bore on our marketing program beginning in March. The rents that we have tracked for that marketing program as of today are above our underwriting, from where we thought they would be in June.

And so that is based on comps and both the comps and what the market and submarket there have been over the last six months or so, since we originally underwrote and tied the property up. And we feel pretty good about where we are in the rent profile today.

Nick, if I could just add to John's comments because of course we are focused very much on the lease-up of that property. And we want to provide the most immediate and relevant information we can provide to the market, as to whether our expectations are conservative or optimistic. It happens that we own four properties within, the bulk of them within two to five miles of this property.

In the fourth quarter, those four properties had rent growth of 10.3%. In January those four properties had rent growth of 4.8%. So, what John has said is exactly right; rents today are higher than we underwrote, and they're increasing faster than we might have expected.

Thanks. Can you quantify how far ahead in terms of maybe a percentage they are today versus where you underwrote for June?

No, probably not. I don't want to go through all the details of the underwriting on a call like this. If you have a question, come back off-line and John can walk you through it.

But, there's 170 different model types, and it's just too complicated for this format. The big picture is rents are faster or higher than we thought, and are growing faster than we thought.

Thanks.

Jana Galan, Bank of America Merrill Lynch.

Keith, I was wondering if you can comment on the performance of As versus Bs in terms of the new leases and renewals?

Sure, Jana. We monitor As versus Bs every quarter and what is really the best way to think about is using new lease pricing as the best barometer, and as we look at it this past quarter, our Bs are outperforming our As by about 70 basis points and that's across most of our portfolio.

Thanks. And if you could just comment on the supply outlook for the 12 core markets in 2016? And then also what you're forecasting for 2017 versus what you experienced in 2015? And if any of these market see more susceptible to softness if job growth disappoints?

Jana, that is a tall order again, for a call of this nature. The answer to that is very specific and detailed, and not especially market-driven, but more site-specific. And so just at the top of my head, to think about it and walked down the seaboard with you to be responsive. In Boston, there is considerable supply coming into the CBD and Cambridge, and it's been absorbed at or above our expectations.

In New York, we have limited exposure to new supply, we're at a different price point. In Philadelphia we have competitive new supply, but our experience at Sterling and Park Towne is that we're being -- our product is being accepted at price points above our expectation in underwriting. In Washington DC, our revenues are growing. There is continuing new supply, but again, it's at price points above our portfolio there.

In Atlanta, there's competitive new supply our rents there have been growing. In Miami, we have a certain amount of disappointment, but it's not so much that overall levels of new supply, it's the specific location of them. At two of our major towers have construction literally contiguously or across the street 24/7, that make it a noisy place to live. And so you'll see that in our Miami results.

In Chicago, in the suburban markets where that portfolio is, there's a certain amount of new construction but not impactful today. In Denver, there's a significant amount of new construction. This illustrates the point that it's got to be location specific and not marked specific.

It would be my opinion that the Denver market will soften and perhaps will be difficult, but it's a market we've avoided. So our properties that are grouped under Denver are in fact either on what we think of as an island at the Anschutz Medical Campus at the University of Colorado Health Science Center, or in Boulder where there is no-growth ordinances that provide some protection against oversupply. So more broadly, Denver is likely to be soft but not our assets as much.

Moving West, in Seattle we have a single asset in downtown Seattle and one in Renton, and we can't be affected too much at all. In the Bay Area which is, of course, a matter of concern to all REIT investors, as I mentioned earlier, the specific properties that we own and where we own them actually had a wonderful fourth quarter and a wonderful January. We do not now see supply in our markets, which remember, we're not in the City of San Francisco, but we do not now see new supply impacting rents.

Los Angeles again, the new supply continues but it's more moderate than other markets and rent growth for our portfolio, which is primarily West LA, continues. And I would say the same would be true in San Diego.

Now that's just top of mind. John, would you agree with that or clarify that in a different way?

No, that's right.

Okay. So that's -- we can try to give you more detailed information here if you have interest to follow-up on that, Jana, but that's top of mind.

Okay and just maybe big picture, do you feel that your portfolio is going to experience peak supply in 2016, or did that already happen in 2015?

Jana, I think it again depends on individual markets, but if we were to take a big picture, I think that the competitive pressure for new supply will increase for each of the next couple of years. And so, as you know, we have made a great emphasis on being diversified and balanced, which my view that every market in time will be over-built, and so it's also my experience that they're not synchronous. And so by the time the Bay Area is over-built and rents to begin to ease, our hope will be that it will be offset by rent growth in Los Angeles or in Washington DC, which are large and important markets for us.

Thank you, Terry.

Jordan Sadler, KeyBanc Capital Markets.

It's Austin Wurschmidt here with Jordan. In your guidance, you are assuming no NOI contribution from your development communities, and speaking to the Indigo acquisition specifically, what occupancy level really gets you to breakeven on a NOI and cash flow basis with that deal?

Jordan, this is Paul. As we look at the lease-up of not only Indigo but all of the properties, including Vivo and One Canal, we are breakeven from a cash flow perspective at the NOI line in 2016. That excludes the impact of interest expense, and so to cover the interest costs on that, we probably need an incremental cash flow of say, about $5 million or so. It's not a big impact, but we expect that will recover and be accomplished in 2017, with the $0.12 of NOI growth that we'll expect to earn in at that point.

Thanks for the detail there. And just looking at the $0.15 of dilution that you attribute to asset sales, how much of that is coming from sales from 2015, versus what you expect to sell this year? And then are the asset sales that you have assumed in your guidance, is that a gross amount or does that reflect your share?

The asset sales are reflected in the guidance are a gross amount which in 2016 happen to reflect the AIMCO share, what we expect to sell will be largely 100% owned properties. As far as the timing of those sales we expect a large chunk, about $300 million of that will happen in the second quarter, and that's related to two assets. And the remainder of our guidance range would be towards the end of the year into the fourth quarter, that timeframe.

Thanks for the time.

Rob Stevenson, Janney.

Can you talk a little bit about whether or not you're seeing any real material bifurcation in operating fundamentals across the various DC submarkets versus Maryland, Northern Virginia, the District itself, et cetera?

Rob, this is Keith, I'll walk through it. When we look at DC over the past several quarters, I've reported out that Maryland for us had been an out performer against our suburban Virginia, but more particularly Alexandria markets. And what I would tell you is in this past quarter, we saw a bit of a shift there, and we saw our suburban Virginia portfolio had outperformed Maryland. I think as you saw the walk through the year, we continuously were increasing our revenue growth and in the fourth quarter, 2.5% was our top-performing quarter.

We're seeing more balance I guess is more the bigger point here. The overall look is we think 2016 will be better than 2015.

Okay. And then I mean, in terms of that, how much occupancy gain -- is occupancy gain driving this? You ended fourth quarter, or average fourth quarter was [95.5%] in that market. Is a lot of that just predicated on getting up to 100 basis points of occupancy in that market, or are you really seeing traction in rental rate, in pushing rental rate as well?

Listen, it's a little more in occupancy then I would say it is in rental rate, but we are seeing strength in the rental rate. When we look back to the beginning of 2015 in this example, there were still full one month freeze or negative 8%, and that has really tapered off dramatically.

So it's not nearly that type of discounting on the front door. And the renewals continue to stay quite strong. To give an example, we have been -- we averaged better than a 4% renewal in the market, and that really with the turnover of only 44% in our DC portfolio, really is what we think is a big driver there.

Okay. And then just lastly, in terms of Indigo is there any material amount of retail there? And then are you expecting that to stabilize occupancy-wise by the end of 2016?

John here, Rob. There is no commercial in there. There is within the building a commercial condominium that will be occupied by a local credit union that actually owned a portion of the site prior to its construction, but we will not have an interest in that commercial space, so we're 100% residential on the building.

And in terms of lease-up, we do not anticipate being occupancy stabilized by the end of 2016. We would deem occupancy stabilization to be 95%. We think that's going to come probably third quarter of 2017, is what we've got on our plan.

Okay so some of the $0.05 to $0.07 of drag earnings-wise this year continues into the first half of next year as well, until you get the occupancy full, right?

Yes, there will certainly be a fairly significant acceleration to our results as we go throughout 2017.

Okay, thank you.

And Rob, and that continues into 2018 as you have the earn-in of full occupancy that we wouldn't have had in the first part of 2017.

Right. Thank you.

Dan Oppenheim, Zelman & Associates.

Was wondering if can first comment on the trends in February and March renewal. You talked about those going out at 5% to 7% increases. Typically I think in the past you have talked about those coming back and getting finalized at 1% or so below that. Is that what you're expecting in this case?

Dan, this is Keith. We're seeing more, it's typically 100 basis points that we have talked about, but we have seen it's been ranging between 50 and 100 so a little less from what we sent out as the ask and the ultimate take rate.

Got it. And so, but relative to January's 5.8% on renewals, some risk that we end up seeing some deceleration in terms of year-over-year growth in those February numbers then?

We'll see it gets unit by unit and property by property, Dan, when we think about it. What I would say is that it could be just as likely to be on par, but like I said, when the take rate is somewhere between 50 and 100 basis points, it is hard to say if it's going to be a 5.5% or a 6%, but it will be in that range.

Dan, if you will forgive me for jumping in, but I think everyone at AIMCO, I know I read your stuff carefully, because I think you are very thoughtful about the market, and you're exactly right, trees don't grow to the sky and that supply will result in moderating price growth. I think that is surely right.

We can add where we have specific knowledge is that within our portfolio today, we don't see evidence of it happening now. It may well happen -- it will happen in the future, but we just don't see it happening now.

Okay. Thank you.

Aaron Hecht, JMP Securities.

So, within your 2016 same-store revenue guidance, how much benefit is there embedded from redevelopment properties?

Sure, Aaron, this is Paul. Just for the benefit of the entire listening group, as we talked about in the third quarter, we are adding a total of six properties to our same-store pool for 2016, and those are Pacific Bay Vistas, 2900 on First, 21 Fitzsimons, Tremont, Saybrook Pointe, and Eastpointe. And so the impact of those six properties in total is roughly a 20 basis point impact to revenues for 2016.

Okay, so you'd be pretty close with the 2015 results, exclusive of those redevelopment properties?

Yes.

Okay. And then in terms of the rolling off of the tax credits over the next couple years, does that give you the ability to accelerate dispositions on affordable product, and how should we think about that?

Aaron, this is Terry. You're exactly right. Once tax credits are delivered and compliance periods are end, then the properties are more marketable. We have long said that we expect to liquidate those properties as those conditions are met, and we would expect that to see that roll off.

And is that disposition activity timed with the rolling off of the tax credits embedded in the forward two-year guidance?

Within the forward two-year guidance, there is not the expectation or ability in that two-year window to sell a meaningful portion of the tax credit properties, although we will continue to work with our investors to see if we can't strike a deal that would be beneficial to both us and them. John, would you like to add anything?

No.

There is a time lag between the delivery of the credits and a five-year compliance period, so it's after the delivery of the credits, but during the compliance period, when these properties will be sold, and some of them will be sold in that first year, and some won't be sold until the end of the fifth.

Got it. Thanks for the time.

Drew Babin, Robert W. Baird.

In the spirit of short-term pain for long-term gain, are asset sales to delever something that you thought about? I just know in the guidance, it has leverage going down at a slower rate than it has over the last year or two. Just curious whether there may be any kind of larger moves potentially in there?

Drew, this is Paul. I'll start this and then hand it over to Terry for his thoughts. If you look at our deleveraging that is been accomplished over the past few years, certainly a portion of that was accomplished through property sales, but what really moved the dial significantly was the equity offering we completed last January.

And so as we put together our thoughts for the next few years, our focus was on keeping the total quantum of leverage about constant, and that when you combine it with expected EBITDA growth, it provides an opportunity for a meaningful reduction in leverage ratios, approaching the low 6s. So at that point, as I think about it and as we have discussed as a management team here, that feels right for AIMCO and the Company. But we will of course continue to monitor what is appropriate, given the economic environment. Terry?

Well, Paul, I think you said it exactly right. From the moment we set our target to be between 6 and 7 times leverage -- or times EBITDA, leverage times EBITDA. At this time in the cycle, we would like to be closer to 6. We get there in these next couple of years.

And as always, with AIMCO, you have to adjust that we have the safest balance sheet, because we have the longest duration, we have the least exposure to refunding risk, the least exposure to repricing risk, the least exposure to entity risk, and we don't have a business model that's as exposed to construction completion. So the balance sheet, we think, is in good shape today, and it continues to get better over the next couple of years.

And just a second question on your outlook for 2016 and your guidance for 2016 and your confidence in putting out a 2017 outlook. Can you point to specific factors that give you the confidence necessary to go out two years with your assumptions?

And I guess more specifically in the Boston market, do you expect any pick-up from GE moving their headquarters there? Is that something material that could benefit that market?

Maybe I'll speak to how we put together the model and look to Keith or Terry to discuss the impact on the moving of GE's headquarters to Boston. As we look to the model, the 2016 guidance was based upon the processes that we have followed for a number of years, and that is a bottoms-up, property-by-property examination of those prospects, roll them all up. And that's how we set our guidance.

For 2017, because that is a period that is beyond a time horizon in which we have great visibility, we wanted to provide a model. So in that model we are using third-parties' expectations for what will happen in our particular submarkets for new lease rents. We also have assumed what we feel is a conservative assumption regarding renewal rates, where we are assuming in the 2017 model a 4.5% renewal rate, which is 90 basis points below what we have experienced recently.

So we think that a combination of those two factors allow us to provide a broad range of potential outcomes for the investors, to see what might happen under that set of -- particular set of facts, and of course we will continue to operate the properties to the best of our performance, and we'll see what we can't do to beat that.

I guess as far as our thoughts on Boston, Terry? Or John?

Yes I just in terms of Boston we kind of tune into it because of the recent activity we've had there, and the coming delivery of One Canal. My understanding is that GE, the corporate headquarters move involves really only about 600 employees, so it's not going to be dial mover for demand in downtown Boston.

It certainly is a big charge for the locals in terms of landing a major corporate headquarters, and the continued trend to definition of Boston as a major financial center. So, we think that's certainly good news, but we don't think it's going to move the dial on demand in Boston.

Okay, that's helpful. Thank you.

John Pawlowski, Green Street Advisors.

One follow-up to Drew's question there. What specifically would you need to see in the macro environment to change that two-year plan of gradual deleveraging versus ramping dispositions to delever more meaningfully?

John, thank you for the question. We would have to see some consequential change, better or worse to change our plans. Based on what we know today, we think that bringing our balance sheet leverage down further and faster isn't indicated. We appreciate your composite score of our leverage, and we think that we're in the right place right now, if the world was a little different, we'll react.

Okay, last question. Should we interpret guidance for no new acquisitions in 2016 and 2017 as a hard commitment or a soft commitment, based on just the opportunity set that you see today?

John, I'm really glad you asked that question, because I think it's important to clarify that in the last five years, we have sold more than 200 properties for more than $2.5 billion, about one-quarter of our enterprise value, and more than all or almost all of our peers proportionately. During that same time we acquired only 15 properties for about $600 million over five years. Our appetite for acquisitions is under control, and it's disciplined application is clear in the portfolio transformation where rents have more than doubled over the past seven or eight years. When we look forward, we will continue to apply that same paired trade discipline and only make an acquisition where it's clearly accretive, and to the advantage of our shareholders.

Okay, thank you.

John Kim, BMO.

With 10% rental growth you're seeing in Redwood City, can you provide an update on your stabilized yield and IRR projections for Indigo? Is it as easy as adding 50 basis points to the yield, or is there --

It's just premature, it's premature, John.

John, we'd love to be able to tell you specific commitments. We would like to get down the road a little bit on leasing, and see where we're at. That may be a more appropriate question toward the end of this year, once we got some real leasing activity under our belt.

What I would add to that is, John told you in the last call, our rent growth assumption after lease-up, or during lease-up, is 3.6%. In our guidance and forecast, we have assumed zero rent increase, and as we pointed out, what we're experiencing nearby remains strong.

I think you flagged the time it's taken to stabilize, but is there something you could have done differently to neutralize the earnings dilution as far as structuring the deal, or maybe delaying the timing of disposition?

Not especially, and this really goes back to a question we had I think from Nick early on, which is how do you balance your thinking about accounting and reported earnings versus net asset value creation, and so forth? We're highly focused on net asset value creation.

We're mindful of current period earnings. We know we're going to have to explain short-term dilution, but we're not attracted to financial structures or accounting gimmicks that mask or confuse the basic business we're in.

Okay and then on your same-store growth in 2017, it's noticeably lower than UDR, which is the only other company that's provided it. I realize, I think you're using market estimates, but you know your assets better than they do. Are you -- do you think your projections actually are reflective of what you're going to achieve?

What I would say, John, is first of all I want to talk about UDR, because they're a terrific Company, and out here in the world of Bronco fans, we all stick together. So I don't want to in any way have a differing view than what Tom and his very able team are doing. For AIMCO, we expressly did not make a forecast of what we think our results are going to be in 2017, and it's because, as I said earlier, we are getting conflicting data.

When we look inside our own portfolio, we see acceleration, not deceleration. When we read thoughtful analysts like Dan and we read our opinions, the reports of world markets and financial markets, we see noise and concern. So what we did in 2017 forecast, as Paul said, and I want everyone to get it clearly, we created a financial model. That is not our forecast, it is not our making a call on rents.

It's just that if these things were to happen, which is to say if the third-party data providers were correct that new lease rents were to drop by 60 BPs, and if our renewal rents were to drop by as much as 90 BPs, as Keith mentioned earlier, right now that's going the other way. But if those things were to happen, this would be the impact in 2017.

But isn't that like the tail wagging the dog? You know your assets from the ground up better. There are certain assets stabilizing in 2017, or before then.

The recent [acts], they're taking probably a ground up but also macro approach. I would think that we would want to use your estimates, or at least get your insight to where you think growth would actually be.

Our insights, let me be clear, our insight is that right now, everything we see is getting better, and is accelerating. And so that we also know that can't go on forever, and we also know it's very hard to predict the future. And so when we look at 2017, what we want to do is give a model, rather than a detailed opinion from the Company.

Okay. Thank you.

Nick Yulico, UBS.

Thanks. I just had a question on your development redevelopment forecast, we're talking about $200 million to $300 million a year spending, basically I think you said going all the way out to 2018 in your two-year plan with new starts. I'm wondering how committed you are to that, because each time you start these redevelopments they are multi years out, and you're selling assets at essentially the same cap rate where you're saying you're going to get your development yield, and yet you're getting the NOI from the redevelopment two years later.

It just feels like a very dilutive process. I'm wondering how committed you are and how we should think about modeling this over the next three, four years, because I think it's one of the reasons why your 2017 forecast for FFO missed the Street.

Nick, again, this goes back to a very thoughtful question which was asked -- the very first question, by a thoughtful analyst, which was you, which is what is the balance between current period profitability and net asset value creation? We do try and strike a balance. What we see in the redevelopment activities is there is typically a year or two before the current-period profitability of the redeveloped asset catches up to that of the property being sold.

I've forgotten right here, but I believe that in the 2015 property sales, the free cash flow yield was just under 5%, something like that, 4% and change. 4% high. And when we look forward that might take, and it depends on the redevelopment, what the cycle time is.

So at Park Towne, you can see the cycle time is probably six to nine months. At Ocean House, it was over a year. And so we try to do them in smaller bites where the cycle time is faster, trying to stay focused on long-term value creation and accept the terms.

Okay, so it sounds like you are still pretty committed to this plan of doing that level of redevelopment through 2018, as far as spending goes?

Absolutely.

Okay, thanks, Terry.

Anthony Paolone, JPMorgan.

If I looked at your DC, Chicago, Miami, Philly revenue trends in the same store in the fourth quarter, it's about just under 40% of your revenue. What needs to happen there in 2016 to get to your 4.5% to 5% total same-store guidance?

Anthony, this is Paul. Earlier the call, Keith walked through the expected ranges for each of our ten markets. And so Keith, you mind hitting those expected growth rates for next year?

Absolutely. I can walk you through it, Anthony. In that grouping it is Chicago, Philly, just remind me the other one you asked about?

DC and Miami. The four of those were about [10%] in the fourth quarter.

So the expectation is that will range between 3% and 4% to make that happen.

Okay. Thanks. And then just my other question, you have been in the market selling assets pretty consistently. Can you talk to any changes in either the bid lists or the composition, or how easy or tough it's been to sell assets now compared to say, a year ago?

Yes Anthony, John Bezzant here. I would say the execution, getting them sold, and the pricing is really not a whole lot different than it was a year ago. I think as we got into fourth quarter last year, it got a little quieter. Whether that was that people had filled their orders for the year, whether just seasonal flow, whatever it was. So maybe the bid lists weren't quite as thick as they were in June, but that's pretty typical for the end of the year, that it slows down. And every deal that we try to transact we transact it at pricing we expected. The feedback I've gotten from the market is that's pretty similar across the board.

Okay, thanks.

And this concludes our question-and-answer session. I would like to turn the conference back over to Terry Considine for any closing remarks.

Well thank you, operator, and thank all of you on this call. We appreciate your interest in AIMCO. If you have questions of any kind, please feel free to call Elizabeth Coalson, Paul Beldin, or me, and we'll do our best to answer them. Thank you so much, and go Broncos.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.