Apartment Investment and Management Company (AIV)

AIV 
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Exchange: NYSE
Industry: Consumer Services
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Apartment Investment & Management (AIV)

Q2 2011 Earnings Call

July 29, 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

Analysts

Swaroop Yalla

Derek Bower - UBS Investment Bank

Jana Galan

Richard Anderson - BMO Capital Markets U.S.

Eric Wolfe

Michael Salinsky - RBC Capital Markets, LLC

Buck Horne - Raymond James & Associates, Inc.

Presentation

Operator

Good afternoon, and welcome to the Second Quarter 2011 Apartment Investment and Management Company's Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's event is being recorded. At this time, I would like to turn the conference call over to Ms. Lisa Cohn, Executive Vice President and General Counsel. Ma'am, please go ahead.

Lisa Cohn

Thank you, Jamie. Good day. During this conference call, the 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 our 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 second quarter results, our balance sheet and guidance. Also in the room today are John Bezzant, EVP of Transactions; Miles Cortez, our Chief Administrative Officer; Keith Kimmel, Executive Vice President, Property Operations; and Dan Matula, EVP of 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 this call for your interest in Aimco. My colleagues and I are pleased by Aimco's second quarter results. Before turning the call over to Ernie, who will discuss in detail these results, I'd like to offer some general observations.

Business is good and better than I had assumed last fall when making plans for this year. Current revenue reflects caution last year. But this year, run rates have been improving, and the rate of increase has been accelerating during each of the past 6 months. And these trends continue in July. And as these higher rates earn in, revenue is expected to increase accordingly.

Keith Kimmel and his team in the field have my thanks for this improvement in rental rates. They're also doing a solid job of cost control. Year-to-date, property operating costs are down more than $5 million with savings in every category. And as you can see from guidance, we don't expect the same rate of year-over-year savings in the second half, but our efficiency in technology initiatives are paying off and we expect the cost reductions to be sustainable. We have continued to invest in property maintenance and property upgrades.

Ernie and Patti Fielding have done a good job in lengthening our property debt maturities, lowering our cost of leverage and somewhat lowering our overall leverage. Our off-site costs continue to fall as we simplify and focus our business. These costs are down $8 million, or 14% year-over-year, with more to come. As we look forward, we'd expect further reductions in off-site costs.

We're pleased with our start to the year, and we are optimistic as we turn to the second half and prepare for 2012. We are making plans to ramp up redevelopment spending. In addition to the redevelopment of Lincoln Place and Treetops, we are actively planning for a dozen or so projects, or $100 million to $200 million of spending in 2012, with returns greater than those available today on property acquisitions.

With that, I'll turn it over to Ernie Freedman, Aimco's Chief Financial Officer, to review second quarter results. Ernie?

Ernest Freedman

Thanks, Terry. On today's call, I will cover the following subjects. First, our second quarter results; second, our recent balance sheet activities; and third, I will provide third quarter guidance and update full year 2011 projections.

First, second quarter results. Second quarter pro forma FFO was $0.27 per share after a one-time charge of $0.15 per share related to a refinancing and securitization transaction with Freddie Mac that closed during the quarter. At $0.27 per share, pro forma FFO exceeded the top end of our guidance range by $0.05 per share, primarily due to better-than-expected property operating results.

As shown on the table on Page 2 of our earnings release, total portfolio NOI was up 5.3% year-over-year. Revenues across our entire portfolio were up 2.6%, while expenses decreased 1.5%.

Total same-store NOI, which includes conventional and affordable properties, was up 5.1% year-over-year with Conventional Same Store up 4.6% and Affordable Same Store up 8.4%. Total Same Store revenue was up 2.6% for the quarter, with Conventional Same Store up 2.4%, and Affordable Same Store up 3.7%.

Conventional Same Store revenue growth was driven by an increase in average rents of 1.7% and an increase in average daily occupancy of 0.2%. Conventional Same Store new lease rates during the quarter averaged 5.1% higher than expiring lease rates. Results by month were: April, up 3.8%; May, up 4.7%; and June, up 6.6%. July is coming in currently, up 7.2%.

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