Apartment Investment and Management Company (AIV) Q4 2009 Earnings Report, Transcript and Summary

Welcome to the fourth quarter 2009 Apartment Investment and Management earnings conference call. (Operator instructions) I would now like to turn the presentation over to Lisa Cohn, Executive Vice President and General Counsel. Please proceed.

Thank you. Good morning and good afternoon. During this conference call the forward-looking statements we make are based on management's judgment, including projections related to 2010 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 we discuss 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; Tim Beaudin, AIMCO President and COO who will speak to property operations, redevelopment activities and asset sales and Ernie Freedman, our CFO who will review fourth quarter financial results, debt capital markets activity and guidance for the first quarter and full-year 2010. I will now turn the call to Terry Considine, our CEO. Terry?

Thank you, Lisa. Thanks to all of you on this call for your interest in AIMCO. Page two of the earnings release provides a summary of accomplishments during the fourth quarter and during 2009. I would like to start to emphasize six items only. First, notwithstanding the great recession net operating income from property operations has been generally stable and flat sequentially from the third quarter and only slightly down for the full year. In part this is due to the asset class, in part to the good work of Tony D'Alto, Rob Walker, Eric [Restor] and their teams. Second, notwithstanding turbulent capital markets we sold $1.3 billion of property last year. The market for multi-family properties is liquid and pricing has improved over the past three quarters or so. Third, because we sold off the bottom of our portfolio the quality and average rents of our retained portfolio has continued to improve. In our conventional portfolio our average rents are 105% of the local market averages. Fourth, we have used property sales proceeds to reduce recourse debt by 85% and Patty Fielding has worked to reduce near-term property debt maturities and to maintain the weighted average maturity of our properties at 8.6 years. Fifth, we have reduced offsite costs including G&A by $86 million. Our run rate starting this year is down 45% from 2008. Sixth, notwithstanding the volatile economy FFO and other items were within the guidance given at the start of 2009 and makes the fourth quarter the 16th quarter in a row for results within guidance. Looking forward as we make our plans for 2010 we expect business conditions to remain difficult as the economy adjusts to reduced stimulus spending, increased regulation, higher taxes and eventually higher interest rates. Notwithstanding these concerns there are five reasons for optimism. First, we like our simplified business model focused on operations and an opportunistic amount of redevelopment. Second, we like our allocation in the top 20 markets. Our expected growth is about average for the nation but it is less volatile because of the diversification across 20 markets. Third, we expect property valuations to increase somewhat and any increase in GAV (gross asset value) will be magnified by AIMCO’s property debt and preferred stock leverage to produce a still greater increase in net asset values. Fourth, we expect to continue to upgrade our BB+ portfolio by capital recycling. That is selling lower rated properties and investing the proceeds to redevelop or purchase properties which rent between 100-125% of local market averages. Given the current market pricing for acquisitions we expect redevelopment may prove the more attractive way to invest in the top 20 markets. We have a deep pipeline of redevelopment opportunities we will access as the local markets recover. Fifth, we expect to repay all recourse debt in the next few months. As a result we have limited entity risk. We also have quite limited refunding risk and repricing risk. Even so we are working to extend property debt maturities in 2011 to 2014 and to lock in prime interest rates. We prefer somewhat lower leverage and expect coverage ratios will improve as property incomes recover from cyclical lows and by the scheduled amortization of our property debt. We like our long-dated and fixed rate leverage as a hedge against higher inflation and increased interest rates. Finally and on a different matter it was one year ago we reduced our dividend in order to retain cash to repay term debt. It is the board’s view that once the term debt is fully paid and the economy is clearly recovering it will be time to consider increasing the dividend as a percent of AFFO. For a review of operations I would like to turn the call to Tim Beaudin, our President and Chief Operating Officer. Tim?

Thanks Terry. On today’s call I will discuss our fourth quarter and full-year 2009 operating results, redevelopment activities and asset sales. Second, I will provide some color around what we are seeing operationally this year and finally I will wrap up with how we are looking at recycling capital in 2010. First, operating results. Total portfolio NOI which includes same store conventional properties, conventional redevelopment properties and affordable properties was down 3.2% for the fourth quarter and down just 50 basis points for the year. Conventional redevelopment NOI was up 12.2% for the quarter and up 11.9% for the year as we pulled back our redevelopment activities during 2009, completed virtually all of our open projects and brought 681 units online increasing average daily occupancy in our redevelopment portfolio from 87.7% in December of 2008 to 95.5% for the month of December 2009. Affordable property NOI was 6.9% higher during the fourth quarter and up 9.9% for the year. Our allocation to this affordable portfolio provides for reduced revenue volatility as a result of predictable rent increases available to providers of affordable housing such as AIMCO. While the conventional [rebound] and affordable property portfolios are substantially smaller than the same store conventional portfolio we are very pleased at the positive operating results produced by these other portfolios almost entirely offsetting a 4.2% decline in same store conventional NOI during the year. As to same store conventional results, NOI was down 6.3% in the quarter with a revenue decline of 3.2% and expense growth of 2.2%. Revenue declines were driven by a 4.8% decline in average rents which was only partially offset by a 70 basis point increase in occupancy to 95.4% and a 90 basis point increase in utility reimbursement and other income. During the quarter same store conventional new lease rates were down 10.7% while rental rates for renewing residents were down about 1% when compared to the expiring leases. The gap between new leases and renewal rents tightened about 200 basis points from third quarter levels. In an environment where new lease rates have been challenging we are very focused on resident retention. During the fourth quarter 2009 we were able to retain approximately 67% of our customers which was an increase of 50 basis points compared to the fourth quarter 2008. We saw sequential improvement in residential retention throughout the fourth quarter with December finishing at 68% or 250 basis points over December of 2008. For the full-year 2009 same store conventional NOI was down 4.2% with revenue down 2.5% as compared to 2008 almost entirely attributable to a 2.5% decline in average rents. For the year same store conventional expense growth was held in check with only a 30 basis point increase compared to 2008. We continued to see the benefits of the earn-in of our contract renegotiation efforts undertaken during 2009 and additional expense reductions were achieved by lower churn costs, administrative costs, marketing costs and utility expense. These savings were offset by higher insurance expense and by higher repairs and maintenance costs as we focused on product quality. For the full-year 2009 our same store conventional property operating margin was 61.1% or just 20 basis points below that of our 2008 same store conventional portfolio despite declining revenues. From an operating standpoint 2009 was a challenging year for the apartment industry. However, we are pleased with the results that AIMCO’s operating team has achieved. As to conventional redevelopment we invested $56 million during the year and completed 33 of the 37 projects that were active at the beginning of 2009. We took advantage of the short cycle nature of our redevelopment program by reducing the scope of several projects thereby reducing potential expenditures by $47 million. We began 2010 with four projects in process which we expect will require $7 million to complete. Beyond this we do not expect significant redevelopment activity in 2010. However, we have a pipeline of redevelopment candidates within our portfolio and a platform in place that will allow us to ramp up our investment if we see the opportunity to achieve attractive returns. As to 2009 asset sales, during the fourth quarter we sold 32 properties for $533 million with net proceeds to AIMCO of $154 million. We sold a total of 90 properties during 2009 for $1.3 billion with net proceeds to AIMCO of $407 million. We had aggressive sale targets for 2009 and we feel good about what we accomplished. We saw pricing stabilize in the last half of the year and it appears that values are continuing to firm. After being a net seller since 2002 we began 2010 with a substantially improved portfolio with average rents that are 45% higher than they were seven years ago, 30% higher than those of the assets we sold in 2009, 5% above the average local market rents and average rents in our target markets that are comparable to those of the peer REITs on a market by market basis. Now looking ahead, we are just a month or so into 2010 but I would like to give you a bit of color on what we see operationally so far. Since the beginning of January we have been able to increase new lease rents in a number of our markets most notably Washington D.C., South Florida, Chicago and Denver. However, we continue to see pressure on rents in Phoenix, Tampa and Orlando. We have continued to hold occupancy coming into 2010 and ended January with a monthly same store average daily occupancy above 95.5%. While higher occupancy should continue to provide some pricing power in a number of markets we remain cautious overall given continued economic uncertainty nationally. In 2010 our focus is to maximize total revenue by balancing rate and occupancy. We have confidence that Tony D'Alto and his team will continue to provide excellent customer service to our residents and maximize the profitability of our operating portfolio over the coming year. By the end of 2010 we expect substantially all of our conventional redevelopment properties to be stabilized and included in our same store conventional portfolio operating results. In 2010 we are turning our attention to recycling capital with proceeds from asset sales generally used to improve portfolio quality. We may sell somewhere between 5-10% of the portfolio in 2010 but volumes are dependent upon the availability of attractive opportunities to redeploy that capital in our markets by investing in our properties through redevelopment or acquisitions. We do not expect to see a great deal, if any, of seriously distressed asset sales in the multi-family space but we are keeping our ears to the ground and looking for acquisition opportunities. In summary, we are going to spend 2010 operating our quality portfolio well and continuing to improve portfolio quality and concentrate capital in our target markets. With that I will turn it over to Ernie.

Thanks Tim. On today’s call I will cover the following subjects; First, our financial results for the fourth quarter and full-year 2009. Second, fourth quarter debt capital markets activity. Third, a recent amendment to our credit agreement which provides us more flexibility relative to our debt covenants. Finally I will provide first quarter and full-year 2010 guidance. Before I discuss our results I would like to point out that a change in GAAP occurred during the fourth quarter the application of which reduced diluted shares outstanding used in AIMCO’s FFO per share computations for the fourth quarter and full-year 2008. This change had no effect on fourth quarter or full-year 2009 FFO per share results. Additional details may be found in the earnings release we issued this morning. Now to 2009 financial results. Fourth quarter FFO before operating real estate impairment charges was $0.26 per share. Included in the $0.26 per share result is a $0.10 per share non-cash impairment of our interest in Casden Properties LLC, an entity organized to buy, re-entitle and develop land parcels in Southern California. AIMCO’s initial interest in the LLC was $50 million and was written down to $31 million at the end of 2008. An additional impairment of $21 million before tax was required in 2009 due to the continued decline of land values in Southern California reducing AIMCO’s interest to $10 million at year-end. Excluding this impairment fourth quarter FFO was $0.36 per share which was at the midpoint of guidance. Included in our fourth quarter results were restructuring charges of $0.06 net of tax. We had contemplated some, but not all, of these charges in our fourth quarter guidance. Better than anticipated operating results and results from investment management activity helped to offset the additional restructuring costs. Full-year 2009 FFO per share before the effect of the Casden impairment was $1.65 which was at the midpoint of guidance provided last quarter and consistent with guidance provided one year ago. Turning to our debt capital markets activity since the end of the third quarter we have repaid $205 million of our term debt leaving us with a balance today of $55 million. As Tim mentioned we have seen some improvement in asset values over the last few months and we are careful to balance the timing of term debt repayment with achieving optimal pricing on asset sales. Based on our current sales pipeline and other sources of cash we expect to continue to pay down our term debt in the first quarter. We will aim to have it completely p[aid by the end of the second quarter. We have made similar progress extending our property debt maturities, Through refinancing, repayment and property sales AIMCO has eliminated all 2010 property debt maturities. We currently have four loans with appropriate collateral totaling $100 million that mature in 2011. We plan to refinance these loans at their respective maturity dates but we will continue to work with our lending partners to seek an earlier refinance if possible. We are now focused on loan maturities that occur during 2012 to 2014 looking to extend our loans beyond that period to reduce refunding risk and to lock in current interest rates. In connection with our term debt and our line of credit we are subject to certain covenants including debt service and fixed charge coverage minimums. AIMCO’s fourth quarter debt service and fixed charge covered ratios were 1.59 and 1.36 compared to covenants in place during the period of 1.50 and 1.30 respectively. Earlier this week we and our lenders agreed to amend our credit agreement to provide for a reduction in debt service and fixed charge coverage covenants to 1.40 and 1.20 respectively through at least October 1, 2011. Based on our current projections we expect we will remain in compliance with these requirements. Looking ahead to 2010 we will continue our efforts to; one, maintain property income across our portfolios. Two, complete repayment of our term debt and three, concentrate our investment capital in our target markets. After consideration of the funds necessary to repay our term debt we are largely funded through internal sources. A combination of proceeds from property sales and asset refinance proceeds of approximately $80 million are needed to balance out 2010 cash flows. 2010 FFO is projected to range from $1.25 to $1.35 per share. The year-over-year decline from 2009 is primarily due to $0.23 per share dilution from 2009 property sales, $0.09 per share from operations due to [churn] and lower rents and increased expenses and $0.12 per share due to lower investment management activities, all partially offset by $0.09 per share in lower offsite costs including G&A. Finally there were several miscellaneous one-time items that net to zero including our restructuring charges in 2009. The particular assumptions for 2010 include first for property operations we expect total portfolio net operating income which includes our same store conventional properties, conventional redevelopment properties and our affordable properties to decline year-over-year 1-3%. Regarding same store conventional net operating income our release this morning contains an inconsistency around our projection for 2010 results. As provided on our outlook page within the release we anticipate a year-over-year same store conventional net operating income decline of 2-5% which includes 0.5-2% decline in revenue and a 1.5-2.5% increase in expenses. Our 2010 guidance also includes property management expense of $45 million. Second, for recurring investment management activities our guidance assumes $11 million of income after tax, which includes $34 million of revenue, $10 million of expenses and $13 million of taxes. Third, for nonrecurring investment management activities guidance includes $3-6 million of income after tax which includes $7-10 million of revenue, approximately $2 million of expenses and approximately $2 million of taxes. Nonrecurring net income represents approximately 3% of our expected 2010 FFO. Finally our guidance includes $53 million of G&A expense. First quarter 2010 FFO is projected to be $0.26 to $0.30 per share with a year-over-year same store conventional net operating income decline of 5.5% to 6.5%. Before we take questions I would like to remind everyone of our upcoming investor day to be held in New York City on February 17th and in Chicago on February 18th. The New York event will be webcast and the details of that will be described in a press release sometime next week. If you are interested in attending one of these events and you have not already done so please contact Elizabeth Coalson to sign up. With that we will now open up the call for questions. Please limit your questions to two per time in the queue. Operator I will turn it over to you for the first question.

(Operator Instructions) The first question comes from the line of Michael Salinsky – RBC Capital. Michael Salinsky – RBC Capital : A quick question on your guidance for 2010. What is the employment scenario that you have assumed in that?

I will speak to how we look at revenue guidance for 2010. Basically it is a property by property bottom up process where we are really focused on the demand drivers in each individual market, leasing velocity we are seeing, etc. What we do is we roll those numbers up and then utilize third-party information providers, typically [REITs, PPR and Axiometrics] as a barometer at a market level and a total roll up level to compare how we are seeing it versus the market comparisons overall from third-party sources. Implicit in that is employment expectations from third-party providers but our approach again is a bottom up based on what we see on the ground on a property by property basis. Michael Salinsky – RBC Capital : Do you have any kind of sensitivity analysis to what kind of shift would move and what the impact on revenues would be?

Typically again that is where utilizing [REITs and Axio] and PPR we can gauge at a market level again how we are seeing it on the ground versus more of a macro approach and we will play off that. As Ernie mentioned our revenue guidance is 0.5 down to 2% down and so that is the barometer to arrive at that outcome. Michael Salinsky – RBC Capital : In terms of you talked a little bit more about being more transaction neutral in the current year here. What kind of spread do you expect on investments relative to where you can sell versus where you would be looking to buy as you are upgrading the quality of the portfolio?

I think right now the spreads if you are selling at the same quality it would be neutral. If you are selling and getting a different quality then spreads could be as wide as 100-150 basis points if you sell from the bottom of our portfolio and you buy at the top of another portfolio. Looking at that, one of the questions I mentioned is I am not sure that is going to be an attractive rate in which we will want to invest and I think it may well be we will end up investing more in redevelopment where we would look to have premiums of 20% to the acquisition rate so if the acquisition rate were 6% we would be wanting to do redevelopment at 7.2%. Michael Salinsky – RBC Capital : Would those be full scale redevelopments as in the past or would you downsize them a bit more given the sensitivity of the economic environment?

We would be cautious in our rent expectation but I am not very attracted to cosmetic or lipstick redevelopment. I would rather solve the fundamental problems with the real estate in good condition.

The next question comes from the line of David Toti – Citi.

My first question is sort of along the lines of asset sales in terms of raising proceeds and reducing leverage. Can you remind us what your view on raising equity is at this point as an alternative given that your stock has returned somewhat in recent months?

Specific with equity any equity issuance would have to be dependent on a share price consistent with what we think NAV is and more importantly a compelling use for those proceeds. Today we are still trading at a discount to NAV so today as we stand we are not looking to equity issuance but of course if things were to change with our share price it is something we would consider.

A little bit more detail on the change in covenants. I assume you initiated the discussion or perhaps not. Could you tell us a little about how that came about and is there any risk you could bump up against the revised covenants?

We did seek it. As we looked at the environment out there and third party experts are projecting a very wide range of possibilities for revenue growth in 2010 as many of you have seen. For the entire U.S. PPR and [REITs] are currently almost 400 basis points apart from what they are projecting and in some markets as many as 1,000 basis points apart as to what their expectations are around revenue growth. Our view falls somewhere between the two of those and given the possibility of worse than expected conditions we thought it was prudent and the right time to seek an amendment. Along those lines I would like to take a moment and thank our bank group for their continued support; Bank of America, KeyBanc and Wells Fargo were there for us when we renewed our line of credit in a very difficult capital market last April and we greatly appreciate their confidence in us and approving our amendment today. With regard to bumping up to our new levels at our low point in the guidance range I gave you today we would still have some room before bumping up against those.

The next question comes from the line of Michael Levy – Macquarie. Michael Levy – Macquarie: I was wondering on the acquisitions could you give any possible color as to where these properties might be located?

We would like to increase our investment in Washington and in New York and to reallocate our investment in suburban Boston into urban Boston. We would like to buy in Seattle. We would like to buy in the Bay area and we would like to buy in San Diego. Those are not unique goals for real estate investors. Those are all regarded as very good markets. I think our investment activity will be focused on ones that haves some opportunity for value add whether it is redevelopment or completion perhaps on a stalled project but the current pricing that I see is not compelling. Michael Levy – Macquarie: I guess as a follow-up to that may I ask whether any assets have been sold so far this year?

We have only sold one asset so far. Obviously with the improving market, we still have roughly $250 million under some level of contract. It is an improving market. If people come back and have contingencies or issues they are looking to be waived or price reductions we just aren’t going down that path right now. We have been very cautious but we still have a lot of activity and we completed one asset sale to date. Michael Levy – Macquarie: So it would be realistic for me to assume or for us to assume there will be $250 million plus the one asset that has already sold this year because those $250 million are already under contract, right?

They are under contract but not always hard on their money. I imagine a couple of those will fall out but I would suspect over the year we will do between $200-500 million worth of sales for various different reasons. Michael Levy – Macquarie: If I heard correctly it sounds like inclusive of the redevelopment assets and the affordable business you are anticipating a same store NOI decline of 1-3%?

To be careful with the terminology there it is 1-3% for the whole portfolio. So that includes our same store conventional, our redevelopment and our entire affordable business. Michael Levy – Macquarie: That compares to 50 basis point increase or decline last year?

Exactly. It is has gone a little bit further down. It has gone from a 50 basis point decline to somewhere between 1-3. Michael Levy – Macquarie: So I guess if I were to think about the three components of that and obviously the conventional portfolio being the largest of the three the other two will not have the same type of same store NOI increase that it had last year?

That’s correct. It is in [inaudible] and now our redevelopment portfolio specifically at the end of 2008 occupancy in the high 80’s, around 88% and we were able to get that up to 95% as we slowed down that work and had less units that were not filled up. So there is not going to be the big pop this year from redevelopment as there was in the year 2009.

The next question comes from the line of Andrew McCullough – Green Street Advisors. Andrew McCullough – Green Street Advisors : On the 2-5% decline in NOI guidance the wording in your press release implies that incorporates redevelopment properties as they stabilize. Am I reading that right?

Yes, so what we will do is with any properties in the first quarter that stabilize we will move those into the same store population and that population sets for the rest of the year. There will be additional properties that we will move into the same store population in quarters two, three and four but those aren’t contemplated in our guidance because we want to have one set number for the year loss. But if you do a quarter-to-quarter loss you will see the population will change a bit within same store. Andrew McCullough – Green Street Advisors : If properties roll in as they stabilize won’t that inflate your projected growth because as the redevelopment property that stabilizes in the quarter it won’t be stabilized in the prior year period?

Let me clarify. When we say they have been stabilized they have actually been stabilized for a 12 month period. That is when they move in. It is not… Andrew McCullough – Green Street Advisors : So it will be stabilized for a full year before they roll in?

Exactly. They have to be stabilized for 12 months before we consider that. Even though we wound down the program significantly in 2009 that is why not many moved in 2009. They hadn’t had 12 months of stable operations. Andrew McCullough – Green Street Advisors : I can assume your conventional revenue NOI guidance wouldn’t change that much whether it includes the redevelopment properties or not?

It shouldn’t because again it is based on 12 months of similar performance.

The next question comes from the line of Michelle Ko – Bank of America-Merrill Lynch. Michelle Ko – Bank of America-Merrill Lynch: I was wondering if you could talk about you said you have been able to increase rents in some of the markets and one of the markets I thought was surprising was South Florida. I was wondering if you could give us a little more color around that?

As Tim said, some facts that support what he mentioned in the last 30 days we have been able to increase rates in many markets; East Bay, San Francisco, Seattle, Washington, Boston, Jacksonville, Houston, Denver. In fact when January closed what we will find is lease to lease new lease rates and renewal rates will improve sequentially from the average of the fourth quarter. If you look over actually the last two quarters coming out of the season rates sequentially remained fairly stable even while we increased occupancies. You had a second question about Miami in particular? Michelle Ko – Bank of America-Merrill Lynch: Right, for South Florida because that was one of the markets you had mentioned previously that was also increasing in rent.

Yes. In the last 30 days we have taken rate increases in South Florida. Michelle Ko – Bank of America-Merrill Lynch: I am wondering because some of the markets that you said you are seeing increases in like Seattle and San Francisco some of your other competitors had some difficulties in. I was wondering is it partially because of the asset type class you have or what is it you are doing differently that you are able to see these increases in these difficult markets?

First to be clear it is in the last 30 days is what I am referencing. Secondly, our demand is quite strong coming into January and as we look into February and our occupancies are significantly higher than where we were a year ago so we have pricing power.

The next question comes from the line of Analyst for Dustin Pizzo – UBS. Analyst for Dustin Pizzo – UBS: First, if I think about your same store NOI guidance for the first quarter and the full-year it seems to suggest as though you are going to see flat to positive same store revenue growth in the second half of the year. Is that right?

Without giving guidance too much further what I can tell you is like a lot of folks have seen, when want to finish earning into our game [lease] in the first half of the year and anticipate better results in the second half of the year but I wouldn’t want to give guidance at this point whether that would be positive or negative in the second half. But clearly second half is expected to be stronger than first half results. Analyst Dustin Pizzo – UBS: Because that would seem to be meaningfully more positive than any of your REIT peers who have reported thus far. I think it goes back to the question of what you are seeing perhaps that they are not in your markets or do you just think this is company specific with respect to how comps were down?

Really it is a fact with what Rob had said and I don’t know about [Johnson] as well, but if we look at our assets on an asset by asset basis and project where we think things are going to go and as we work through the gate of lease and in terms of the leases that are rolling over compared to the first part of the year we feel the second half, and you can tell from our guidance, a stronger second half than the first half. Analyst Dustin Pizzo – UBS: The second question is on a different note, with respect to the covenant relief you achieved from your line and term lenders, what did you have to pay for that?

There were two pieces to that. One, we agreed to raise our unused fee five basis points from 45 basis points to 50 basis points. That will cost us about $90,000 a year. Secondly, as a one-time fee for the lead bank putting this together as well as for those who are participating there is a one-time charge a bit less than $900,000. Analyst Dustin Pizzo – UBS: So $900,000 up front and then the unused fee going up by five bips. Did they put any restrictions on in terms of ability to pay out dividends or anything like that?

No other changes other than those we discussed.

The next question comes from the line of David Toti – Citi.

Relative to your portfolio in the spectrum of price points, towards the end of the year did you see any difference in performance from the sort of higher price point units than the lower price point units?

What I would say is that earlier in the year the divergence between the new lease rates and the renewal rates at the higher price point properties was much more dramatic as the year moved on that gap closed. As we mentioned, as we go forward there are markets, some of those included where we have paid properties where we believe that on a lease to lease basis that gap will close even further as we get into Q2 and Q3.

Forgive me if I missed this, did you mention the cap rates on the sales in the fourth quarter?

In the fourth quarter the cap rates on the conventional side were at 7.9, which gets us back under 8, and 7.5% on the affordable.

The next question comes from the line of Steve Swett – Morgan, Keegan & Co. Steve Swett – Morgan, Keegan & Co. : Ernie or Tim I am not sure who is best to answer this, but can you break down the portfolio as we go into 2010 in terms of the portion that is going to be same store, what percentage is the affordable and what percentage is the redev portion at least at the start of the year?

Let’s go offline and go through that. Affordable is going to be about 10% but I want to be sure I get you the right numbers on redev versus same store as we move out. Steve Swett – Morgan, Keegan & Co. : On guidance, did you say G&A was $50 million or $52 million?

I said $53 million I believe. Steve Swett – Morgan, Keegan & Co. : On the nonrecurring investment management income, the $7-10 million in revenues. Could you break that down by the various components?

Not specifically amongst what they are going to be but we have a variety of promotes, other GP and transactional fees, we may do a tax credit or two here in 2010. So we aren’t going to give specifics around how it is going to be made up. It is going to be the same type of activity we have done in the past but just at a much smaller scale.

The next question comes from the line of Michael Levy – Macquarie. Michael Levy – Macquarie: Given that you expect some improvement in pricing power towards the second half of the year and that rents have fallen as much as they have, in the context of the lower turnover that took place last year can you give us some thoughts about turnover expectations for 2010?

Turnover expectations for 2010 is a negative and will continue to be a main focus for us. We will stay very much focused on retaining the current customers and focused on customer service and we expect to improve somewhat year-over-year in terms of our total retention. Michael Levy – Macquarie: I will check the transcript for the expectation of what 2009 was for total turnover. As I think about that, in the past we had talked about how the tenants that get a concession will get the free month and then end up paying whatever it is the asking rent is on the apartment. Has that changed at all? Are these tenants used to paying, I guess a higher ticket check as opposed to I guess a reduced one that incorporates the concession?

Just to make sure I understand your question because it is market specific, in several markets where we have concessions it is not an issue in the sense that frankly they are not significant. Obviously in markets where there are no concessions the tenant would be more sensitive to the increase. I don’t know if I understand the question exactly. Michael Levy – Macquarie: I guess I was just asking if you are still making tenants pay whatever the asking rent is and not effectively amortizing it on a monthly basis over the course of the lease so they are used to paying that higher rent.

We can talk offline but generally speaking yes. Michael Levy – Macquarie: In the Texas markets, from what I was just noticing it looks like rents have fallen a bit there. Could you give us some color on that?

Through the quarter I think you are probably seeing Houston and Dallas it has picked up currently. As a matter of fact I think I noted those were a couple of places where we increased rents. To go back specifically at the time I think we had a little bit higher move out number than expected and adjusted for occupancy but at the moment we are very highly occupied and we are increasing rents.

The next question comes from the line of Rich Anderson – BMO Capital Markets. Rich Anderson – BMO Capital Markets: I guess I want to go back to this same store pool question if I may because when I am looking on page two it says conventional redevelopment properties are stabilized during 2010 they will be added to the same store results and I know you said that meant 2009. It just seems like either the world’s most blatant typo or there is something more to it. If I may can you tell me which redevelopment assets will be added to the same store pool specifically or tell us or maybe offline or something like that so we can see they are not in the redevelopment schedule now? I am not convinced.

I can see we have created an ambiguity and concern. I just want to clarify. We are not doing anything new or different about our same store portfolio. Before property moves from redev to the same store portfolio it has to have been stabilized for 12 months. We can go back and show you the properties, because there has been a certain amount of change and there have been a fair amount of properties moving from redevelopment into same store during 2010 and we can come up with a schedule at the beginning of the year and I assume we can do that in our projections for the balance of 2010.

We have actually done that in terms of making sure we put our numbers together and we anticipate all but about 2-3 assets to be moved in during the year but we can definitely walk you through. Rich Anderson – BMO Capital Markets: It all comes to the bottom line anyway, it is just more how the data is presented in terms of same store. It is not a big deal. I just want to make sure we understand it is apples-to-apples with your peers. The second question is the fixed charge coverage ratio of 1.36 times today and the whole deal about resetting your covenants and good news there but your peers I don’t know if there is anyone in the multi-family space, there may be, that is below 2 times on a fixed charge coverage basis. I know you kind of have a different model from a balance sheet perspective and I understand the advantages of secured debt model for you so no question there. Maybe you can explain a little bit further to the audience why it is okay for AIMCO to operate at that level of leverage where your peers are in order of magnitude great than you in some cases? Can you go through that for me?

Let me address one thing specific about the number you are quoting, the 1.36. Our coverages are by definition going to be lower than anyone else because of the amortization required from our property debt which builds in a layer of safety. If you take out the amortization our coverage is by about 25-30 basis points. So yes, still trailing others. If you want to compare apples-to-apples it is important to take that into consideration. We do like the fact that the amortization builds in some discipline. It does build in some safety with regard to that when it comes to how we view leverage. That said, as Terry alluded to in his comments, we would like to improve leverage from a perspective of bringing it down. We hope to do that through NOI growing with the cyclical recovery but in addition through the forced property debt amortization that is required. So over time we would expect our coverages should improve for both of those things.

The next question comes from the line of Jay Habermann – Goldman Sachs. Jay Habermann – Goldman Sachs: Following on Rich’s question, you mentioned possibly a dividend increase this year. Could you balance that against obviously the concerns over leverage or just continued de-leveraging?

In the first half of the year we will have continued de-leveraging as we pay off the term debt and amortize property debt. In the second half of the year we will have scheduled payments of property debt which will provide for amortization and as people can see expected better year-over-year comparisons. We will look at our cash flows at that time and see what is the best allocation. The dividend is low as a percent of AFFO and over a period of time we want to increase the cash returned to shareholders. We are not attracted to accelerating amortization in the property debt because it doesn’t make a lot of sense to pay off debt that has a weighted average cost of 5.5% and a weighted average maturity of nine years. We will let that happen according to schedule. I don’t know if that is responsive but the answer is when we are looking at the dividend we will weigh it compared to other uses of corporate funds and try to find the right balance. Jay Habermann – Goldman Sachs: You talked more about redevelopment obviously in the coming year or so. Can you balance that as well against you are going to see an environment where rents likely begin to increase in the coming 12-18 months and how you will sort of manage redevelopment and that potential drag on earnings as you could see an accelerating earnings growth cycle?

I think we should go through the points you raise. First of all it would be our expectation that rents would be higher in 2011 and 2012 depending on the local market and local circumstances. That strengthening demand will support property upgrades particularly in attractive locations. So we will see the opportunity. One of the things we like about redevelopment is that we can make those decisions and activities in a fairly short-cycle way so that as we gear up we can jump in and see if it is working and if it is not working we can throttle back. I don’t expect we would see it in the volumes in which we were operating in 2008 because at least for right now I am still quite cautious about the economy and concerns about double dip and these other issues.

The next question comes from the line of Rich Anderson – BMO Capital Markets. Rich Anderson – BMO Capital Markets: Terry just answered my question. Thank you.

Rich, while you are back I wanted to thank you for your question on the same store pool because I think one of the differences that I want you and the street to see is that in AIMCO our same store pool this year will have changed a fair amount from last year. First of all we sold $1.3 billion. That will come out of the same store. Second, we had a large redevelopment program in 2006, 2007 and 2008 as those assets were stabilized for 12 months so there is not any change in the rules around same store. They will come in. We will have a significantly different population at significantly higher rents, significantly better locations and significantly higher operating margins. So that is something you can look forward to see in 2010. Rich Anderson – BMO Capital Markets: When I read the press release I thought it was a same store Jacuzzi, not a same store pool.

The next question comes from the line of Jim Wilson – JMP Securities. Jim Wilson – JMP Securities : I was wondering, looking at what you disposed of or sold in 2009 as well as what you are looking at or have been looking at to acquire you are obviously selling in generally the central defined part of the country and trying to buy on the coast. Can you differentiate what yields you have seen on sales, maybe how they differ geographically and also what you are seeing on purchases and maybe even frame where it looks most attractive? I know where you want to buy but maybe what is looking the most attractive at the moment?

I think the conclusion I have is for the moment I don’t see extraordinary investment opportunities. We are looking in a number of markets as mentioned earlier. There is activity going on but prices are relatively high and so I want to be selective about where we invest new capital. I think I would like to have a higher return than I see in most of the offerings that are available to us. So I am thinking that over time we will end up with more of a value add component to what we do. Jim Wilson – JMP Securities : Any color or thoughts on what you sold and pricing?

Tim can talk about pricing but we continue to sell off the bottom. We have a consistent discipline. We have followed it for the last many years. We have had the effect of a very significant upgrade in our portfolio and that is what we will do. We have many, many opportunities, many unsolicited opportunities to sell our high quality assets which reflects the investor demand out there. For us we are quite focused on selling off the bottom.

I would also say that the majority of the transactions individually have been somewhere in the 7% range. There has not been a lot of outliers to that. I think part of that comes as you identified that most of the properties have been sold within defined markets outside of the coast. Two, the average rent is in the $800 range. I think that tends to bring together some consistency as to the type of buyer and the type of cap rates they are trying to acquire at. There have not been a lot of outliers outside of that 7% range.

The next question comes from the line of Peter [Aganoss – Aganoss Co.] Peter [Aganoss – Aganoss Co.]: Terry, does the Considine family still maintain its big ownership in the company by having a lot of skin in the game as you had mentioned years ago?

We do. The skin got a little thinner with the decline but absolutely. It is a very substantial percent of my net worth and it is an investment for which I expect great appreciation.

Ladies and gentlemen. This concludes today’s question and answer. I would like to turn the call over to Mr. Terry Considine for closing remarks. Please proceed.

Thank you very much for your interest in AIMCO. We feel we had a good quarter. We are cautious but optimistic about 2010. If you have questions we would like to be transparent to you on the street so please call Ernie Freedman or Elizabeth Coalson or me. With that I will turn it back to Ernie and Elizabeth. We look forward to seeing you at our investor day in just a couple of weeks. Thank you so much.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.