Apartment Investment and Management Company (AIV)

AIV 
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Apartment Investment & Management (AIV)

Q4 2010 Earnings Call

February 04, 2011 1:00 pm ET

Executives

Lisa Cohn - Executive Vice President, General Counsel and Secretary

Daniel Matula - Executive Vice President of Redevelopment and Construction Services

John Bezzant - Executive Vice President of Transactions

Keith Kimmel - Executive Vice President of Property Operations

Ernest Freedman - Chief Financial Officer and Executive Vice President

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

Miles Cortez - Chief Administrative Officer and Executive Vice President

Analysts

Buck Horne - Raymond James & Associates

Swaroop Yalla

Jonathan Habermann - Goldman Sachs Group Inc.

Jana Galan

Andrew McCulloch - Green Street Advisors

Richard Anderson - BMO Capital Markets U.S.

Haendel St. Juste - Keefe, Bruyette, & Woods, Inc.

Eric Wolfe

Michael Salinsky - RBC Capital Markets, LLC

James Wilson - JMP Securities LLC

Robert Stevenson - Macquarie Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Apartment Investment and Management Company Earnings Conference Call. [Operator Instructions] And now I would like to turn the call over to Lisa Cohn, Executive Vice President and General Counsel. Please go ahead, ma'am.

Lisa Cohn

Thank you. Good morning, and good afternoon. During this conference call, forward-looking statements we make are based on management's judgment, including projections related to 2011 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; and Ernie Freedman, our CFO, who will review fourth quarter results, capital markets activity and guidance for the first quarter and full year 2011. Also, in the room today and available to answer questions are Miles Cortez, our Chief Administrative Officer; John Bezzant, EVP of Transactions; Keith Kimmel, who runs our Property Operations; and Dan Matula, who runs Redev [Redevelopment] and Construction Services.

I will now turn the call to Terry Considine, our CEO. Terry?

Terry Considine

Thank you, Lisa, and thanks to all of you for your interest in AIMCO. We had a good fourth quarter and a very solid 2010. In a few minutes, Ernie will discuss operating and financial results and provide 2011 guidance. But before I turn the call over to him, I'd like to offer my perspective on where AIMCO has been and where we are going. As we all know, the last few years have been extremely difficult for the U.S. economy and it's not been an easy time for apartments either. But the apartment business has fared far better than the overall economy.

Looking back, here's how AIMCO did. Total Same Store income was up 3.7% in 2008, it was down 3.3% in 2009 and it was up 80 basis points last year. In other words, Same Store net operating income was positive for two of the last three years. And taken together, Same Store net operating income over that same three-year period was up 1.1%. So the big picture is we have a steady and improving business, and our conventional Same Store net operating results are better than peer averages for the past one, three and five years. And our conventional Same Store operating margin actually improved during the great recession to better than 61%. And during all of this, our balance sheet got better. For example, recourse debt was largely eliminated, costs were lowered, near-term maturities were reduced, liquidity and capacity were increased. These results are quite solid and reflect the hard work and the professionalism of the entire AIMCO team, and they have my admiration and thanks.

As we turn to the new year, we begin with cautious optimism but also concerned about the pitfalls that may lie ahead. On balance, we expect a gradual and halting recovery in the U.S. economy but could also continued high unemployment, so that consumers will be price-sensitive and cautious. Labor costs will be subdued, and the Federal Reserve will be motivated to keep interest rates low even at the risk of unwelcome inflation. We are concerned that capital markets remain vulnerable to shocks, such as we saw last year with the Eurozone sovereign debt crisis, and as we may see this year. Perhaps following the headlines in the Middle East or perhaps in response to the financial strait to state and federal government.

So with that as backdrop, our first priority is to maximize revenue by maintaining high occupancy and working to increase rental rates. Now I've read the peer reports and the projections of data providers and some are more optimistic than I am. If they prove correct, and I hope they are, I expect AIMCO rent increases will track their projections. But we are not, at least not yet, projecting such large increases, and so we are making our plans assuming that the road remains a little bumpy.

As a result, our second priority is continued strict cost control, both at our properties, where we're managing costs quite carefully, and off-site where we continue to reduce costs, including G&A by deploying labor saving technology and by simplifying our business. For example, liquidating non-core activities and reducing the number of partnerships and their related expenses.

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