Apartment Investment and Management Company (AIV) Q4 2011 Earnings Report, Transcript and Summary

Lisa R. Cohn - Executive Vice President, General Counsel and Secretary Terry Considine - Founder, Executive Chairman, and Chief Executive Officer Keith Kimmel - Executive Vice President of Property Operations Ernest M. Freedman - Chief Financial Officer and Executive Vice President John Bezzant - Executive Vice President of Transactions Daniel S. Matula - Executive Vice President of Redevelopment and Construction Services

Eric Wolfe - Citigroup Inc, Research Division Karin A. Ford - KeyBanc Capital Markets Inc., Research Division Richard C. Anderson - BMO Capital Markets U.S. Swaroop Yalla - Morgan Stanley, Research Division David Bragg - Zelman & Associates, Research Division Jana Galan - BofA Merrill Lynch, Research Division Robert Stevenson - Macquarie Research Michael J. Salinsky - RBC Capital Markets, LLC, Research Division Buck Horne - Raymond James & Associates, Inc., Research Division Michael Bilerman - Citigroup Inc, Research Division Andrew McCulloch - Green Street Advisors, Inc., Research Division

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

Thank you, Jamie. Good day. During this conference call, the forward-looking statements we make are based on management's judgments, including projections related to 2012 results. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today. Also we will discuss certain non-GAAP financial measures such as funds from operations. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on Aimco's website. The participants on today's call will be Terry Considine, our Chairman and CEO, who will provide opening remarks; Keith Kimmel, Executive Vice President, in charge of Property Operations; Ernie Freedman, our CFO, who'll review 2011 results and 2012 guidance. Also in the room today are John Bezzant, Executive Vice President, Transactions; Miles Cortez, EVP and Chief Administrative Officer; and Dan Matula, Executive Vice President of Redevelopment and Construction Services. We are all available to answer questions at the conclusion of our prepared remarks. I will now turn the call to Terry Considine. Terry?

Thank you, Lisa, and thanks to all of you on the call for your interest in Aimco. I'd like to take a few minutes at the beginning just to talk about the big picture. The apartment business was good last year, and I think it will be as good or better this year. Demographics remain strongly positive, and the economy seems to be slowly recovering. And I'm pretty sure that 2012 will be a very solid year for Aimco. About half of our expected rent growth is already in the bank from leases made last year and so far this year just waiting to earn in. Our renewal business remains quite steady, with more than half of our customers renewing their leases at rents up 5% and more. In most markets, we enjoyed steady consumer demand for new leases, pushing up average daily occupancy and producing higher rents. Our portfolio is good and getting better. It is more and more concentrated in the most desirable markets, with higher rents and greater expected rent growth. Last year, average rents were up 9% to more than $1,140. This year, we expect average rents to be up another $120 or 10%, more than $1,260. About half of that increase in average rents will come from rent growth, and about half will come from the sale of properties with lower rents. We apply the same selling discipline to our Affordable portfolio, where we plan to sell 60 Affordable properties this year, reducing our allocation to the Affordable business to less than 10% of net asset value. On the buy side, we expect to make at least $200 million of property acquisitions, primarily by buying out limited partners in 11 partnerships that own 19 properties. We've already closed on 4 of these transactions, and we…

Thanks, Terry. We had a very solid year in 2011. And I'm exceptionally proud of the accomplishments of the team that I'm fortunate to lead. During 2011, we successfully increased rents and saw improvement year-over-year each quarter. We stayed disciplined about costs and actually reduced expenses both on and offsite year-over-year. We upgraded our technology, implemented a new property operating system and redesigned the Aimco website, thereby, enhancing the customer experience. And we retained a high percentage of our resident base by the prioritization of customer service and customer satisfaction. We finished 2011 on a positive note with Conventional Same Store fourth quarter NOI up 5.3% over the third quarter and up 5.8% year-over-year. This increase was driven by revenues being up 0.8% over the third quarter and up 3.3% year-over-year, while expenses were down 6.6% compared to the third quarter and down 1% year-over-year. Now for some additional context around the fourth quarter revenue numbers. Fourth quarter renewal rents were up 5.2%, and new lease rents were up 0.7% for a blended increase of 3%. In our target markets, which represent about 86% of our NOI, occupancy was stable and new lease rents were up 1.6%. In our non-target markets, we focused on gaining occupancy and getting to a strong jump-off point for 2012. After some softening in the -- early in the fourth quarter, demand strengthened. And we finished 2011 with high occupancy across the portfolio. Average daily occupancy increased each week during the November and December to the year end of 95.7%. For the full year 2011, Conventional Affordable Same Store NOI was up 5.9% driven by revenues being up 2.9% and expenses being down 1.8%. Now for 2012. We began the new year in good shape, thanks to solid 2011 leasing activity, which will contribute 2.1% to the 2012 revenue growth, substantially better than the 0.4% we started with in 2011. January is on track, finishing according to plan. We remain highly focused on cost control. The expected increase year-over-year in expenses is entirely due to higher property taxes and property insurance costs. Utility expense increases are reimbursed by our customers. And in the aggregate, all expenses will be flat or down year-over-year, driven by operational efficiencies. Finally, I'd like to take a moment to recognize the stellar work of my colleagues, particularly, Karyn Marasco and Kevin Mosher, the Area Vice Presidents of the East and West Property Operations. Proud to be part of a team so wholeheartedly dedicated to Aimco's vision. With that, I'd like to turn the call over to Ernie Freedman, our Chief Financial Officer. Ernie?

Thanks, Keith. I'll provide some additional highlights from 2011 and discuss 2012 guidance. Keith provided 2011 highlights from operations, so I'll focus on our portfolio, redevelopments, balance sheet and financial results. John Bezzant and his Transactions team sold 151 properties in 2011. They sold 25 low-rated Conventional properties. These properties had an -- had average rents of $649 compared to our current portfolio today of $1,143. We also sold 45 Affordable properties, where our average ownership was 39%, and we continue to reduce the size of our third-party asset management activities to the sale of 81 NAPICO properties. The properties we retained have higher rents and higher expected rent and NOI growth. Importantly, capital replacement or CR spending is a smaller percentage of their revenue and is the case for lower-rent properties. As a result of the 2011 property sales, we expect free cash flow margin and AFFO to grow faster than NOI margin and FFO. Turning to redevelopment. Dan Matula and the team broke ground on our Pacific Bay Vistas redevelopment, started the first phase of our Lincoln Place redevelopment and have established a pipeline of projects lined up for starts in 2012 and 2013. Because 3 of these properties are presently vacant, we do not expect the redevelopment activity to be near-term dilutive to FFO and AFFO. We do expect it to be accretive in 2013 and beyond. Regarding the balance sheet. Our coverage has improved during 2011 due to earnings growth and a net reduction in debt. EBITDA coverage of interest increased to 2.18:1 from 2.07:1. EBITDA coverage of interest in preferred dividends also increased to 1.78:1 from 1.68:1. A detailed and supplemental Schedule 4 of our earnings release will reduce total leverage, which includes preferred stock, by $84 million. Patti Fielding and her team refinanced over…

[Operator Instructions] And the first question comes from Eric Wolfe from Citi.

I'm just trying to understand the first quarter guidance a bit more. $0.35 implies a pretty big drop from the fourth quarter, so just wondering how you get from the fourth quarter down to $0.35 and then how that ramps back up through the year to get you to the $1.77?

Sure. Eric, this Ernie, and I'll walk you through the details on that. You'll note in our guidance we provided that we expect sequential NOI growth from our Conventional Same Store portfolio to be down at the midpoint about 3%. And that's mainly due to expenses. We do expect revenues to be up about $0.01, but we expect expenses to offset -- unfortunately, be down about $0.04. And that's just -- part of that is seasonal, as we go from the fourth quarter to the first quarter, in terms of the utility costs. And part of that is just we had a very good expense quarter in the fourth quarter. Secondly, Eric, we had about $2 million in the fourth quarter of 2011 of nonrecurring income, and we're not projecting any nonrecurring income in the first quarter. That's another $0.02 going down for us. That gets you from our $0.41 to about $0.36, and there's a bunch of other small things that net out to about $0.01 being down. So that's how we expect to end up at $0.35 at the midpoint for the first quarter 2012. Regarding what happens then, Eric, for the rest of the year, I don't want to get ahead of myself and provide quarterly guidance going forward, but as you can see from what we're expecting from revenue growth and where we expect expenses to be in NOI for our whole portfolio, we do expect that operations to kick some strong contribution into gear for us as we finish out 2012. And then you also know in our guidance, we did provide guidance for nonrecurring revenues of about $6 million, which is a little bit more back-end weighted in our numbers, and that's how we’ll see our FFO contribution ramp up in the second, third and fourth quarter.

Okay, that's very helpful. And then in thinking about the $0.13 of dilution that you provided, I think from the property sales in 2011, 2012, how much of that is just from the sale of the Asset Management portfolio? And I know you said you didn't want to say when the sale was going to occur, but I'm trying to figure out how dilutive that transaction, in particular, is going to be, and so we can sort of carry that forward into the coming years.

Sure. The Asset Management portfolio will have virtually no impact on the dilution. In 2011, we earned about $0.01 or a little bit less than $0.01 from the activities from NAPICO, and it's a similar amount in 2012, as we are expecting that to be in our numbers for most of the year. So I don't want to talk about too much about what would happen for the future years, other than the fact that it's only $0.01 in 2012, so it won't have a big difference. I think it's important, Eric, to point out -- you're right to point out in our numbers that you see that there's a dilution from asset sales of $0.13. But offsetting that is the reduction in expenses across the organization of $0.09. So on state, it sounds like our sale activity is quite dilutive, but we save a lot of money as we simplify the company, we take out costs, and we reduce our scale. And when you really net those 2 numbers, you can see that even with all the asset sales we've had, it hasn't been that dilutive for us on an overall basis. And going forward, we would expect something similar with the sales that we're contemplating in 2012. And the fact is as we contemplate those sales, we have the opportunity to continue to save costs.

Our next question comes from Karin Ford from KeyBanc Capital Markets.

Just wanted to ask about the delevering plans. It looked like to me the debt-to-EBITDA target number went down from when we spoke in November to today. Can you just talk about, if that's the case, what's driving that decision to de-lever more quickly?

Karin, this is Ernie. What I'd say is we're not too different from the plans we’ve talked with folks about when we provided a presentation publicly of our NAREIT presentation from a few weeks -- from actually a few months ago. What's happening there is we're very focused on getting our coverages more in line with where our peers are, and we wanted to provide some guide posts for those folks as to where that's coming in. I'll point out the numbers that I mentioned. They're both in the release and my script, and we're annualizing the fourth quarter numbers. And we did talk to folks before. We provided both annualized numbers, as well as the trailing 12 numbers and, of course, with our growth that we're going to have in EBITDA throughout the year, on a trailing 12 basis, we don't get quite as far as we do on the annualized numbers, but that's where we'll be going forward. So there really hasn’t been a material plans and changes in terms of what we want to do with leverage, other than that we want to make sure people understand that we're focused on that, and we wanted to -- we're committed to continue to improve our coverages both through typical recovery of NOI, as well as bringing our overall debt balances down, as well as the costs of that debt term.

Okay, great. Second question just relates to the dispositions and, I guess, the acquisitions as well. Can you talk about the timing and the cap rates that you're expecting on both the sales and something you might acquire this year?

Karin, I'll ask John Bezzant to talk about what we're looking at around dispositions and acquisitions. Go ahead, John.

Sure. Timing, I think, you’ll see it spread throughout the year. I won't say ratably exactly quarter by quarter, but you'll see it spread through the year. On the acquisition front, it's noted in earlier remarks that our partnership activities, some of it is already taking place. We'll continue to close some more in this coming month and over the course of the remainder of the year, as we identify acquisition opportunities. We'll see how they arise, and when the timing comes to bear.

And just cap rates?

Cap rates, very similar to what you saw this year.

Our next question comes from Rich Anderson from BMO Capital Markets.

How much did you pay the buyer to buy NAPICO? Did you give any of the math behind that transaction yet?

Rich, this is Terry. We'll give you the details on the purchase once it closes. I just don't want to get ahead of ourselves. But it's a management-led buyout. It's a -- the company will finance it. But the management team is going to come up with the amount of equity -- a significant amount of equity to them, and the price makes sense to us.

Okay. So you're out of the tax credit business?

No. The NAPICO was not a tax credit entity. NAPICO was a syndicator previously owned by Casden. We acquired that in the Casden transaction a decade ago, and it both institutional and retail investors for whom it provided asset management services.

I thought they did tax credit stuff, too, but I must be wrong about that. Okay, so…

Rich, just a follow-up here on Terry with regards to tax credit, of course, when sell some of our legacy tax credit deals that we've done under the Aimco umbrella, I just want to -- I'm cautious to use the word business. For us, it’s a financing opportunity. And as we’ve talked about, we're selling a lot of our Affordable assets. And we think in the next couple of years, we'll be down to just a handful other than our legacy tax credit deals. We may choose at some point in the future to use tax credit to finance redevelopment on some of those. But in terms of trying to generate large syndication fees, et cetera, that's not the goal of that, of what we're trying to accomplish or what we're looking for, cost-effective financing to do redevelopments. And there may be 1 or 2 of those we do a year, but to call it a business would be a little bit of a misnomer.

Okay. I'm sorry I'm getting my signals crossed in the various entities there. And then a separate second question on CapEx. You kind of go through your capital expenditures on redevelopment and upgrades, but what can you say about recurring capital expenditures on a per-unit basis? What do you expect to spend during 2012? And how does that compare to 2011?

Sure. We provided guidance, Rich, around what we were going to do around redevelopment and property upgrades. On a recurring basis, we do expect to spend about $1,200 of capital per door, of which about $900 to $950 of that is capital replacement, and the rest of that is capital improvements, where we do get a little bit of revenue uplift. And that's been consistent for the last couple of years. With times getting better and customers going to pay more rent, we have pushed for more property upgrades the last couple of years. And similar to last year, we're looking to spend about $30 million to $40 million in addition to that approximate $1,200 a door.

Our next question comes from Swaroop Yalla from Morgan Stanley.

I was just trying to reconcile, I think, the new leases, which you showed here as 0.7%. In October, you mentioned it was 3%, I think, over expiring leases. Just wondering what was the numbers in November and December. And then sort of how is it trending for the new year?

Swaroop, this is Keith. I'll take that question. Swaroop, first of all, let me just reference back to my prepared remarks, particularly around that 86% of our net operating income comes from our target markets, where we had stable occupancy at 95.6% occupied, and our rents were up 1.6%, more than double the average. In our other markets, we focused on building occupancy and getting a strong jump-off point for 2012. And as we finished out January, we're on plan. And more particularly, as we look into February and March, we're starting to see early renewal rates being accepted in north of 5%.

Great. And are you seeing more sensitivity to these renewal increases between sort of the A’s and the B’s -- I mean, sort of B- in your portfolio? And can you also talk about the traffic trends you're seeing and generating?

Sure, Swaroop. On the sensitivities, we're not seeing any particular sensitivities across the different A, B’s or C’s. And traffic is up, and we're feeling good about business and right on track.

Our next question comes from Dave Bragg from Zelman & Associates. David Bragg - Zelman & Associates, Research Division: Could you answer that to the last question, what are you doing on new move-ins over the course of the last 2 months of 4Q and into this year?

Dave, I'm sorry. Can you repeat the question? David Bragg - Zelman & Associates, Research Division: What are your new move-in increases in November, December and January?

Oh, as those were in the prepared remarks, we were at 0.7% in aggregate. But what I was referring to is that the 85% of our NOI that really is to our target markets, those came in at 1.6%. David Bragg - Zelman & Associates, Research Division: Okay. Just trying to understand better what's going on, on the new lease side. When we look at the fourth quarter this year, you had 0.7%. That's actually below what you did in 4Q '10 on new leases, although you were much stronger on renewals. And the 0.7% certainly suggests a drop-off from the October level that you talked about last quarter. So could you just talk about new lease pricing in general? Because your guidance at least at the top end suggests that you’ll have to get back to second or third quarter levels of increases from last year pretty quickly.

Dave, let me just say it this way. We solve for total revenue. And so while we're focused on new lease price, we're also focused on renewals and the blend of those 2, so that's how we're solving it. David Bragg - Zelman & Associates, Research Division: But can you talk a little bit more about the level of traffic or underlying drivers of weaker new lease pricing over the last few months as compared to October?

Dave, this is Ernie. Keep in mind, we're not just solving for maximum new lease pricing or maximum renewal pricing. It's also a big component of this within occupancy as well. And we grew occupancy more in the fourth quarter than we would have anticipated at the beginning of the October call. Keith talked about it really is kind of a tale of 2 portfolios for us in terms of the -- our target market portfolio and our non-target market portfolio, and Keith addressed that. And we did see that the pricing fell off a little bit more in the non-target markets, which makes about 14% of our NOI, but we grew occupancy significantly and that to put us in a strong position for starting 2012. On an overall basis, and I think similar to what other folks have been reporting for new lease rates in the fourth quarter, our numbers on an aggregate basis were about where those folks were. And in fact, in our target portfolios, it was toward the top end of that. That's carried over into January, where we see things get modestly better, but we haven't seen any spike in new lease rates from where they are at today. But without providing guidance, Dave, to what's going to happen in the second, third and fourth quarters, specifically around renewal and new lease rates, we do expect for the year that on a blended basis, we’re going to be north of 5% on those. And as you can see from our numbers in the fourth quarter, we are there already for renewals, but it will be a lot of hard work to make sure we stay there for renewals and, hopefully, do even better. And as you saw in our numbers during 2011, we had a pretty big spike in new lease rates as we got into the summer peaking season and then trended down, which I think was very similar to almost everyone in the industry. I'm not going to say that 2012 is going to play out exactly like that, but it wouldn’t be surprising if it has a trend similar to that. David Bragg - Zelman & Associates, Research Division: All right. And let's focus on D.C. for a second. Could you talk about your outlook for that market as compared to your broader 4.5% to 5.5% revenue growth forecast?

Dave, let me just kind of walk through our D.C. market. Revenues were up 5.1% from last year. And as you may know, we have on average a B portfolio in Washington. Most of our properties are around the Beltway, both suburban Virginia and Maryland, and we anticipate another strong year in 2012 there. David Bragg - Zelman & Associates, Research Division: Can you quantify that as compared to the portfolio?

Dave, we don't -- we haven’t provided guidance on a specific market-by-market basis on how that adds up to our expectations overall at 4.5% to 5.5%.

Our next question comes from Jana Galan from Bank of America.

I was curious if the disposition for next year kind of get you where you want to be in terms of your target NOI for the Affordable portion of your portfolio or whether you'll continue kind of calling that going forward.

Particularly with our disposition guidance, it gets us closer. We're going to get to -- eventually, to a point where it's less than 10% of our NOI and NAV, and we're getting close to that but not quite there in 2012. I expect there'd be -- if we don't get it done in 2012, another maybe 20 to 25 more properties to sell as we go into 2013. So what I'd tell you is we're almost there. As we sell these properties, it doesn't make a big change in its contribution because these are our Affordable properties with the lowest ownership percentage across our portfolio. And then longer term, we continue to expect Affordable to become a smaller and smaller contributor to our -- the overall Aimco picture in terms of NAV, as well as NOI. So we’ve talked about wanting to be at 10% or a little bit less, and we're going to be almost there with what we plan to do in 2012.

And then I guess kind of bigger picture, given the kind of current platform you have, what do you think is the appropriate size for the company?

Jana, it's Terry. I think we're roughly $10 billion. That's a comfortable size. We've been larger at other times. It'd be okay if we were a little bit larger. We've been smaller at times, and that would be okay, too. It's the size where transactions and improved performance can move the dial, and so I like this size, about where it is.

Our next question comes from Rob Stevenson from Macquarie.

Ernie, given the fact that you were able to issue preferred at just under 7.25%, I mean, where does that need to be in order for you to basically swap out new issuance for the $600 million of redeemable issues at 7.75% to 8% that you guys have?

Rich, it's a good question. We're getting closer to where that might make some sense for us. But keep in mind on the prepared ATMs, the cost to do a transaction is only 2%, and unfortunately, the investment bankers look for more if we're going to do a bigger offering. And so the math isn't quite there at that higher expense, but if there's anyone out there listening who'd like to offer up a lower amount, I'd be happy to take that phone call either now or as soon as we finish this call. So the math needs to be closer to 100 basis points for it to work on a larger offering, Rob, for it to make sense, to offset those transaction costs. We’re very happy with how the ATMs performed. We continue to get shares up out there, and it's a good trade for us to be able to issue at about 7.20-or-so yield and take out 8% for paper.

Okay. And then where was unit turnover for the fourth quarter and for the year? And what's implied in your guidance for '12?

Rob, this is Keith. Unit turnover for the year was a little bit more than the previous year. And this coming year, in 2012, we anticipate it to be on par with 2011.

Okay. Do you guys have, though, what the actual figure was though?

It was just about 40%. 43%, actually.

43% turnover for the year?

Yes.

And what was it for the fourth quarter?

I don't have that information right at my fingertips, Rob.

Okay, we’ll follow up later.

Sure.

The next question comes from Michael Salinsky from RBC Capital.

First question, Terry, you quoted the returns discs for the 3 projects. Were those -- was that on impaired land values or unimpaired land values? If it was on impaired values, can you give us what it was on the unimpaired values?

Mike, this is Ernie. Let me address that. The returns that Terry gave are for all the redev projects that we're going to be doing, not just the 3 that -- and 2 of those had impairments associated with those. What I can tell you is we haven't -- so we haven't provided on a specific project-by-project basis what those would be. I can tell you, though, that from the real estate values we're covering, the returns on the unimpaired values on those projects are only about 100 to 200 basis points less than what we're expecting based on the impaired values. But as we get further out, we provided some guidance around Pacific Bay Vistas in an earnings release a few weeks ago. As we get a little further along on Lincoln Place, which is the other major redevelopment project that had an impairment a few years ago, we’ll provide that kind of information, too. I just want to be clear with folks that -- what the project returns are when you look at it both ways.

Okay, that's helpful. Second one is a 3-parter. Can you talk about what your -- you gave the same store numbers for the Conventional portfolio. What's the same-store expectations for the Affordable portfolio in 2012? Also what is the number you're budgeting for real estate tax increases in 2012? And what the impact of selling off the Asset Management business would have, if any, on the asset management fee income that you guys recognize?

On the Affordable, we expect Affordable to be up -- Affordable Same Store up about -- from flat to up 1%. That's mainly driven by a revenue increase but a little less of an increase than we saw in 2011 because we had some larger Affordable projects that had the rents -- their 5-year rents studies [ph] come up, and we got a nice bump. We're not going to see that in 2012. And then expenses behaved similarly in the Affordable portfolio, maybe a little bit more growth than we have in our Conventional portfolio. So Affordable will be up 0% to 1%, the Affordable Same Store portfolio. Real estate tax is embedded in our guidance is an assumption is real estate taxes will increase between 5% and 6%, and that’s for the Conventional Same Store portfolio year-over-year. Within that number, Mike, 3.5% of the 5% to 6% is due to our expectation that both assessments and/or tax rates are going to go up year-over-year. The other part then -- the part that's not the 3.5%, so roughly the 1.5% to 2.5%, that increase is due to the fact that we do expect we'll have less successful appeals on prior year taxes in 2012 than we had in 2011. So again, real estate taxes, embedded in our guidance, we're assuming to go up 5% to 6% on a comparable basis. Finally, with the Asset Management business. That's only going to contribute about $0.01 to us overall in 2012. Basically, the revenues almost offset the expenses for that business. And then actually that business is something that's taxed. It’s in our TRF as well. There's a tax expense associated with any profits from that. So we basically expect that revenues we generate before taxes are offset more or less by expenses to run those assets. And then there's a minor tax expense associated with those that brings it down to a little bit less than $0.01.

So the impact would be then in the investment management. It wouldn't impact your property management, and it's not impacting G&A?

Yes, that's correct, Mike. We provided in our guidance, guidance around both recurring revenues and nonrecurring revenues. It's going to impact mainly the recurring revenue number going forward. That would come down a little bit because of that management fees go away, and then we lift out recurring expenses and nonrecurring expenses in our guidance for investment management. So you're exactly right. All the impact is just within that area.

Our next question comes from Buck Horne from Raymond James. Buck Horne - Raymond James & Associates, Inc., Research Division: I was just wondering with the recent dispositions, I don’t know if you -- do you have an update in terms of what your Conventional portfolio looks like on a rent-to-income basis when you look at your current tenant base? And also I just wondered if you have an update on the number of people that you had moving out to buy a home in the quarter.

Buck, on -- it's Terry. On the first question about rent-to-income, I think that's a very good piece of data, and we've been tracking it for about a year, but I don't think we have it quite in usable form, so I hope to report that in future quarters. But let me just say, in general, our customer is not income-constrained about rent increases, but I don't have a good quality number to give you. Buck Horne - Raymond James & Associates, Inc., Research Division: Okay. And the percentage of people moving out to buy a home?

Yes, Keith, has that information.

Sure, Buck. This is Keith. Most recently, we've been trending between 13% and 15%, which is down from the high of the housing boom of north of 22%. Buck Horne - Raymond James & Associates, Inc., Research Division: No major changes in that trend recently?

No. Nothing.

No major or minor changes.

Our next question comes from Rich Anderson from BMO Capital Markets.

Sorry for the follow-up, but I thought maybe it would be helpful to just get a snapshot of what Aimco will look like a year from now after you go through your dispositions. And so in listening to you, debt to EBITDA of 7.5x, Conventional business being 85% or thereabouts versus Affordable being 15%, 0 partnership business in the Conventional portfolio, pretty much. Is that about right? Do I have that reasonable snapshot of what things would look like?

Close, Rich, but let's just go back over that because I think that's a useful way to look at it, and it's the way I look at it is trying to be very clear about where we're going. And so the first part about the Conventional business that I would flag is that we expect the average rents at year end to be about $1,260 a month. Secondly, we expect that to be about 90% of our net asset value. Third, we expect to have about 4% or 5% of our GAV, so make that maybe 10% of our NAV invested in redevelopment at untrended rents providing 7% -- more than 7% current returns and unlevered IRRs greater than 10%. We expect almost no partnerships, almost -- no asset management. Offsite costs down by another 12% or $12 million and debt to EBITDA, less than 7.5:1.

What about third-party property management?

We have essentially none.

And that goes down every time you buy a partnership out?

Correct. The allocation that is reported would be more with respect to our owned limited partners and not to a completely unrelated third party.

So if Conventional is 90% of NAV and redevelopment is 10% of NAV and -- but you still have some Affordable, how do you get 110% of NAV?

Because the redevelopment piece comes against the conventional 90%.

[Operator Instructions] Our next question comes from Eric Wolfe from Citi.

I just kind of wanted to follow up on Dave Bragg's question. You did 4.2% in weighted average rent growth in 2011 which, like you mentioned in your remarks, locks in about 50% of your revenue growth or 210 basis points of the 5% that you're predicting for this year. So just logically, right, you would have to be expecting 6% rent growth for this year for your -- the math to work out to get to that 5% revenue growth number, right? Or is there something -- is there a piece of it I'm missing because the occupancy…

There's a couple of things, Eric. I know our occupancy guidance says we're going to come in relatively close to where we're at in 2012, but we'll see how that plays out. And in addition, about 10% of our income comes from other income, not from rents. It comes from things we bill back to our customers, when they pay for extra things like parking, storage, et cetera, and we continue to think that we have the opportunity to grow that at a pace quicker than we're growing rent. Now that said, it's only 10%, but that also will be a positive accretive to us and -- otherwise, I would agree with your math. And we're talking about, we have to be north of 5%, so that would coincide with your -- the math that you said that we would need to be closer to 6%. I'm not going to say exactly what number we think we're going to get to, and it could be a trade of occupancy and rate as we go through the year. We'll see how the circumstances will play itself out. But we're confident that we're going to come within a range of 4.5% to 5.5% and wanted to lay that marker out there, knowing that almost -- like you pointed out, Eric, that almost half of that is already baked in.

Got you. And I think Michael had a quick one as well.

Yes, Ernie, just looking on Page 6 of the release, and you have the FFO reconciliation. Can you just walk through -- you have this $0.13, and you title it '11 and '12 asset sales net of reinvestment, and I was just wondering, can you walk through how you came up with that $0.13? You obviously had growth dispositions last year of about $370 million, 40% of which happened in the fourth quarter. And it looks like you're targeting, net of reinvestment, about $330 million to $430 million of dispos this year, net of the acquisitions and the partnership interests. So I'm just trying to think about how you came up with that $0.13 of dilution. How much of it is effectively from '11 and how much of it is from '12 and how you went through the math?

Sure. Mike, well, I don't have the details in front of me. It's difficult [ph] to say this much came from '11 and this much came from '12, but you walked through exactly the logic associated with it, as well we're netting against the fact -- it's a small acquisition. We did -- we had a couple -- we had a small acquisition in June of last year. We're getting some income generating from that. So I'm happy to take it offline with you to provide you some more details on how we get to the $0.13, but basically, as you just described, the sales from 2011, we had a big bunch of them close in December, so those are going to be quite dilutive to us because we had almost a full year earnings of those in 2011. The sales in 2012 are assumed to be, as John talked about, not quite ratable, but they will be spread out through the year. And based on our expectations for what we would sell those at from a cap rate, the math just worked out to be $0.13. But I just, unfortunately, I don't have it in front of me exactly how much is related to '11 and '12, but I'm happy to share that with you offline.

How much debt do you have on the $550 million to $650 million, and what rate is that debt at?

Yes, those are levered very similar to the rest of our portfolio. So on a property debt perspective, they're between 50% and 55%. Some will be a little higher, some will be a little bit lower. And those are at rates that are generally north of 5.5% because they’re older loans, so usually between 5.5% and 6%.

And that was for the sales last year as well? The $195 million of debt was around that rate?

The leverage was consistent on those sales as well in 2011.

And you show this -- you talked about this $0.09 in terms of the offsite costs including G&A. Looking at the G&A, and I assume the stuff on Page 5, this is at your pro rata share in terms of the full year guidance or is it at your consolidated share?

No, this ties to what we have in Supplemental Schedule 1, which would be our proportionate numbers. So you're correct, Mike.

So the G&A number is down about $3 million, right? So for $0.09, you need to save $11 million year-over-year. So $3 million of that is G&A. Where is the other $8 million coming out of on the P&L? Where are you saving $8 million?

Sure. If I can point you to Supplemental Schedule 1b, let's just go through that with everyone so they can hear it. You’ll see 3 line items on Supplemental Schedule 1b, which is our year-end, December 31, expenses. So the first line item I’d point you to is the total...

Sorry, what page number?

It will be Page 13 in our Supplemental Schedule 1b. You'll see a line about halfway down for property management expenses under property operating expenses, and that's $41.4 million for 2011. Our guidance is $35 million for 2012, so that's a $6 million difference. Investment management expenses in about 5 lines below that. And the investment management expenses in 2011 were $10.4 million. We're guiding to $8 million, which is the combination of recurring expenses and nonrecurring expenses on Page 5, in our asset management and tax credit activity section. That's another $2 million of savings. And the rest is the number that you mentioned with G&A, Michael.

Perfect. And now, this is -- effectively, what's going to be the annualized rate of all these savings? I assume this is not sort of happening day one, that you'll start seeing this benefit into 2013. But just trying to think about where do you sort of end the year when all is said and done from an accretion dilution standpoint from all this stuff?

Well, there's definitely an earn-in because there will be sales activity throughout the year, but I don't want to tie myself to being too specific, Michael, as to what that could be because we're hopeful other things could happen in the business that could change our outlook on expenses with regards to -- if we found the right acquisitions, do other things. So the answer is yes. There is some earn-in both from the fact that our 2012 sales will have some dilution into 2013. But our savings will not quite offset that. We'll come close to offsetting that on an FFO basis. Importantly, on an AFFO basis, that offsets it completely because of the levering effect of the capital spend.

The next question comes from Andrew McCulloch from Green Street Advisors.

Just one quick follow-up on the redevelopment comments. Are you going to have 10% of your portfolio undergoing some sort of redevelopment in '12, or have you identified 10% of your portfolio that is targeted for redevelopment over several years? And then if you can expand -- just give us a little bit of color on what type of redevelopment you're talking about, whether it's full scale repositioning, where you're taking entire assets offline? Or are you talking more redev-light, where you're doing work on term?

Andrew, it's Terry. And I want to go back in that 10% and walk it back just a little bit because it will depend on the timing over the next couple of years of when that is under construction. But just to walk through the big -- the 8 projects that we're describing there, 3 of them are currently empty. And the average spend on those, which are Treetops, Lincoln and Madera Vista, Dan, is probably $100,000 a unit?

Yes, probably $150,000.

$150,000 a unit, okay? So quite substantial. We're not prepared to give guidance about Seattle, Chicago and Philadelphia, but those again will be quite substantial. We'll have some lesser, more redev-light areas that are not included in those 8, which will be more in the nature of $10,000 or $15,000.

Great. And then can you just go over what the expected yield on that, that you're expecting? Sorry, you cut out for some reason.

I'm sorry. Yes, we said it in -- I guess, I said in my prepared remarks, current returns are expected to be north of 7%, unlevered IRRs. On untrended rents, north of 10%.

And our next question comes from Karin Ford from KeyBanc Capital Markets.

I wanted to ask about the board's decision on the dividend. It looks like based on the midpoint of your AFFO guidance for this year, it's roughly a 59% payout. And I know your plan is to use some of the retained cash to amortize debt. Is -- do you think that 60% payout ratio is roughly where the board wants to stay, and do you plan to continue that strategy? Or should we expect down the road that, potentially, there might be room for dividend increases greater than earnings growth because that payout ratio is still pretty low?

Karin, I think the board will look at it -- again, they look at it every quarter, but they basically make an annual decision. And we'll discuss it and compare it to all of the context and other uses of corporate funds. The decision-making this year focused on adding a significant increase in the dividend, reflecting the prospects for the company but balancing it against an interest in retaining cash to amortize property debt and reduce the leverage in the company somewhat.

Got it. That's helpful. And just one other one. Can just talk about what you're seeing in Los Angeles? I know it's a big market for you. It looked like you were not getting as much sequential momentum there, I guess, as some others had seen. Can you just talk about what kind of conditions you're seeing on the ground there?

Sure, Karin. This is Keith. Let me start by stating that we look at Los Angeles in 2 different segments. We first look at the west side of Los Angeles as one. And then the outer LA markets, Simi Valley, Saugus, different markets on the -- in the peripheral. Particularly when we look at the west side of Los Angeles, that's where we carry our A products. And as many of you may have had an opportunity to visit them and see them, we would say that those are the communities that we believe have the greatest upside, particularly as we go into 2012.

And at this time, I'm showing no additional questions. I would like to turn the conference call over to Mr. Terry Considine for any closing remarks.

Great. Thank you very much. And in closing, I'd like to go back to Rich Anderson's question because I thought he framed it exactly right, so thank you, Rich. And it’s focused on where we expect the company to be at the end of this year. We expect to have a good year with the revenue up north of 5%. About half of that's in the bank, and our renewal business is more than half of the remainder, and those rents continue to grow at about 5% or more. We expect average rents to be about $1,260 a month by the end of the year. We expect the Affordable business to be less than 10% of our net asset value. We expect to close out public partnerships and private partnerships on the Conventional side, significantly reducing costs and increasing transparency. We expect to start 8 redevelopments, as we just discussed with Andrew, with 7% current returns, unlevered IRRs north of 10% of untrended rents and to have a deep pipeline of other opportunities besides -- behind that. We expect offsite costs to be down year-over-year by another 12% or $12 million. And we expect our balance sheet to end with debt to EBITDA of less than 7.5:1 at year end. So we've got a year of good progress ahead for us, a lot of work to do. And we thank you for your interest in the company.

Ladies and gentlemen, that concludes our conference call. We thank you for attending. You may now disconnect your telephone lines.