Apartment Investment and Management Company (AIV) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Aimco Fourth Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lisa Cohn, please go head.

Thank you, and good day. During this conference call, the forward-looking statements we make are based on management's judgments, including projections related to 2014 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 and adjusted 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 Web site. Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President in Charge of Property Operations; John Bezzant, our Chief Investment Officer; and Ernie Freedman, our CFO. A question-and-answer session will follow our prepared remarks. I will now turn the call to Terry Considine. Terry?

Thank you, Lisa, and good morning to all of you on this call. Thank you for your interest in Aimco. Last year was another good year for Aimco across each of our five areas of strategic focus, property operations, redevelopment, portfolio management, balance sheet and culture. In property operations, Keith and his team focused on customer satisfaction and disciplined cost control producing solid 5.5% year-over-year NOI growth. In redevelopment, we finished the year on-time on-budget. Looking back over the past three years we have invested more than $0.5 billion in redevelopment and development at free cash flow internal rates of return north of 8%. We’ve invested much of this capital in locations that are quite special in the West in Marin County in the Bay Area and in Venice in La Jolla in Southern California, and in the East in Boston’s West End and Philadelphia’s Center City. The rents for these properties are also special averaging about $2,800 a month and what is even more special is that we’re trading value equal to $0.30 or more for each dollar of redevelopment and development spending. With annual redevelopment and development spending of $200 million to $300 million, we have the opportunity to add $0.50 each year to our net asset value per share. One final redevelopment note, in November John yielded redevelopment leadership to Patti Fielding, an 18-year Aimco veteran. Patti will build on John’s excellent work and I predict continued good news from Aimco redevelopment. This change will free more of John’s time for portfolio management. Turning to portfolio management, John and his team working within our pair trade discipline continue their remarkable repositioning of the Aimco portfolio. In just the past three years, they have sold 27,000 apartment homes more than 130 properties for $1.7 billion almost all of our C rated properties and cut in half our allocation to affordable properties, which is now only about 5% of gross asset value. As I’ve mentioned a moment ago, they reinvested the proceeds in redevelopment and development and also in property acquisitions that we valued more highly than the paired property traded such that A and B rated properties are now balanced in our portfolio at roughly 40% each such that average revenue per apartment home increased by one-third to $1,670 a month such that operating margin as measured at the free cash flow line increased by 10%. On the balance sheet, Ernie and his team have accomplished the transformation rivaling what John and his team have achieved with the portfolio. Over the same three years they reduced leveraged EBITDA from 9.5 times to 7 times and created a pool of unencumbered properties valued at more than a $1 billion. After our January equity offering, leveraged net of cash is about 35% of Aimco market capitalization while liquidity is excellent with 2015 redevelopment and development spending funded from committed loans and pending property sales leaving more than half a billion dollar available on the Aimco credit facility. Now is the culture, it’s my opinion and the fervent belief of the entire Aimco team that our culture is the key to our success. Our emphasis on a collaborative respectful and performance oriented culture is what enables the continuing transformation of the Aimco business all while maintaining the high moral and team engagement that led to Denver Post once again to recognize Aimco as one of the top places to work in Colorado. I thank my colleagues and the entire Aimco team for their hard work to achieve these excellent results with appreciation of last year’s good results and the expectation of another good year in 2015, the Aimco Board of Directors last week increased the quarterly dividend by 8%. Our plan and our commitment for 2015, is for more of the same. Now, I would like to turn the call to Keith Kimmel, Keith?

Thank, Terry. We feel good about our 2014 results. Our onsite teams execute our plan with enthusiasm and continued commitment to world-class customer service. As a result, we achieved renewal rate increases averaging 5.2% for the year with continued low turnover, where those leases expired and were renewed. New leases were signed at rates that were on average 3.7% higher than the expiring leases. Our blended lease rate increased 4.4% for the year creating a solid book of business that we will earn in over the course of 2015. Turning to our fourth quarter results, new lease rates were 90 basis points higher than their expiring leases. Renewal rate increases were up 4.9% with particular strength in the Bay Area, Denver, Miami, and Boston. And blended lease rates were up 2.9% an acceleration of nearly 100 basis points versus prior year. Turnover for the quarter was 46.8%, 20 basis points better year-over-year. Of the customers who decided to move out 21% were for career moves, 19% did not renew due to price and 16% moved out to purchase homes. There are no significant changes in these move-out reasons versus recent quarters or our long-term averages. We continue to be successful in replacing move outs with better qualified residents at higher rents. The average income of those new customers who moved in during the fourth quarter was 131,000. The median income was 80,000 resulting in a consistent rent-to-income ratio of 21%. Year-over-year the median income of our new residents was up 17% compared to the fourth quarter of 2013. This result is driven by an improvement in our portfolio and resident base. Looking at our 10 largest markets which make up three quarters of our revenue, the top performers had revenue increases from nearly 6% to 11% for the quarter. This was led by the Bay Area followed by Denver, Miami, and Orange County. Our steady performance for the quarter with midrange growth of over 4.5% to better than 5.5%, were Los Angeles, Philadelphia, Chicago, Boston and San Diego. And rounding out our 10 largest markets, we had Washington DC, which was essentially flat down 10 basis points. As we look ahead to early first quarter results, January blended lease rates were up 2.1% with new leases up 20 basis points and renewals up 4.2%. January’s average daily occupancy was on plan at 95.5% and February and March renewal offers went up with 4.5% to 7% increases. 2015 revenue growth and our top-10 markets can be broken into three tiers, at the top of the list representing one-third of our revenue with forecasted growth between 5% and 7%, we have the Bay Area, Miami, Denver, and Los Angeles. The midrange markets with forecasted growth between 3% and 4% are San Diego, Orange County, Boston, Philadelphia and Chicago. And rounding up the top-10, we have Washington DC forecasted to be similar to 2014 and with great thanks to our teams in the field and here in Denver for your commitment to Aimco’s success. I’ll turn the call over to John Bezzant, our Chief Investment Officer. John?

Thank you, Keith. Today, I will recap our 2014 portfolio management and investment activities and provide some specifics around our plans for 2015. As a reminder, our portfolio management activities are driven by paired trades where the projected free cash flow internal rate of return of an investment is greater than that of the property or properties sold to fund the investment and portfolio quality is enhanced. As we execute this strategy, we use the same 10 year free cash flow internal rate of return model reflecting cash flows after capital spending across all our investment activities. During 2014, we sold 30 properties about 9,000 apartment homes generating gross proceeds to Aimco of $690 million. We sold 24 of our lowest rated conventional properties with average revenues per apartment home of $926, 44% below the average of our retained portfolio. Among the properties we sold were the last we held in Houston, Palm Beach, Jacksonville, Orlando, Lansing, Michigan and Fort Wayne, Indiana. We also continued the sell one of affordable portfolio with the sale of six properties and our partnership interest in 10 others. On average the properties sold in 2014 had a free cash flow cap rate of 5.3%, and we held these properties for the next 10 years we would have expected them to generate a free cash flow on internal rate of return of about 6.5%. Proceeds from these sales were reinvested in redevelopment and development projects, acquisitions, and property upgrades at a weighted free cash flow average free cash flow internal rate of return about 300 basis points higher than the property sold to fund them. On the investment side of our paired trade, we invested $35 million in redevelopment projects during the fourth quarter, enhancing seven communities with a total of more than 3,100 apartment homes and bringing our total redevelopment investment for the year to $182 million. During the quarter we completed redevelopment work at the Palazzo in Los Angeles and are nearing the completion of multi-year projects at Lincoln Place located in Venice, California and Preserve at Marin located in Marin County, California. As Terry mentioned, Patti Fielding is heading up our redevelopment program and under her leadership during the fourth quarter, Aimco approved a plan to continue the redevelopment of the Sterling located in Center City, Philadelphia. This next phase of the project will include the redevelopment of an additional four floors with 105 apartment homes. We expect to invest $11 million in this next phase bringing our total projected investment in the redevelopment of the Sterling to $36 million. During 2014, we also invested a total $47 million in our One Canal development in Boston where the steel topped out a few weeks ago and construction continues on-plan. We expect initial apartment home deliveries at One Canal in early 2016. On the acquisitions front, during 2014 we purchased six operating properties with a total of 1,200 apartment homes for a combined investment of nearly $300 million. Three of these acquisitions in San Jose, California, the Buckhead Area of Atlanta and Boulder, Colorado were completed in the fourth quarter and are detailed in our earnings release. During the fourth quarter, we also acquired 2.4 acres of land in the heart of downtown La Jolla, California, overlooking the iconic La Jolla Cove. The property is zoned for multi-family and mixed-use purposes and is currently occupied by three small retail buildings and a limited-service hotel which is managed for Aimco by a third-party. We plan to redevelop this property in coming years and consider its current use and income producing land bank. Moving onto our plans for this year, we will continue to follow our paired trade approach to portfolio management with the sale of lower rated properties and reinvestment of sale proceeds in properties where rents, long-term growth rates, operating margins and free cash flow internal rates of return exceed the comparable metrics on the properties sold. Our base plan for 2015 is to sell $225 million to $275 million worth of properties generating net proceeds to Aimco of $130 million to $140 million. We expect most of our sales activity to occur in the first half of the year with one transaction already closed and others well underway. Under this base plan, we anticipate reinvesting the proceeds from these sales to fund redevelopment and property upgrades. As has been the case for the last few years, we will continue to look for opportunities to upgrade our portfolio through selective pair trade acquisitions. If we are successful, we will adjust our guidance accordingly. I'd now like to turn the call over to Ernie Freedman, our Chief Financial Officer. Ernie?

Thanks John. Today I'll first spend a few moments on our fourth quarter results and then second I'll provide some details around our outlook for 2015. You can find all of our provided projections for the year, as well as a reconciliation between 2014 and 2015 results on Pages 6 to 7 of our earnings release. Regarding fourth quarter 2014 results, fourth quarter AFFO was $0.43 per share which was also the midpoint of our guidance range. FFO was $0.54 per share, $0.01 below the midpoint of our guidance. The variance to guidance was due to $0.02 of operations outperformance offset by $0.02 of acquisition costs and $0.01 related to higher incentive compensation for 2014 as a result of outperformance across the company. We exceeded our guidance for same-store operating results with full year revenues coming in 4.5% higher than 2013, offset by expense growth of 2.3% leading to NOI growth of 5.5%. Regarding the balance sheet, our unencumbered pool grew further to over $1 billion. We now have an unencumbered pool that meets Fitch’s identified requirements to consider us investment grade. Looking forward to 2015 and operations we anticipate same-store revenue growth between 3.75% and 4.5%. As Keith noted, we achieved blended lease rate increases of 4.4% in 2014, so half of that we will earn in during 2015. We expect to achieve blended lease rate increases in 2015 similar to 2014. Other income which makes up about 10% of our total property revenues is expected to increase at a rate lower than rent growth. The combination of these items and our expectation of similar occupancy rates for the year provides for a result approximating the midpoint of our guidance range. On the expense side, we anticipate expenses to increase between 2.5% and 3%. Real-estate taxes continue to increase as real-estate values continue to increase. We anticipate that real-estate taxes will increase 4% to 5%. Controllable operating expenses or all expenses exclusive of taxes, utilities and assurance are projected to increase about 1.5%. We will certainly look to see if we can beat those predictions. These increases in both revenues and expenses lead to our expectations of NOI growth between 4% and 5.5%. Regarding our portfolio, we ended 2014 with average revenues per apartment home of about $1,670 a 14% increase from 2013. We anticipate with the combination of market rent growth and our portfolio management activities, average revenues per apartment home will increase 8% to about $1,800 per month by year-end. As John noted, we begin 2015 with most of our planned property sales expected to close in the first half of the year. As a result, and together with committed loans the funding plans for our redevelopment and development activities are largely in place. Regarding our balance sheet, our plan is the same as it has been for the last several years further strengthen the balance sheet and continue to work toward an investment grade rating. We've already taken steps to reduce leverage in 2015 using the proceeds from the January sale of 9.43 million shares of common equity. Let me take a moment to walk through the anticipated use of the $357 million of proceeds generated. We repaid in January the outstanding balance on our line of credit which was about $112 million. In addition, we anticipate the repayment of our CRA preferreds before the end of this quarter with a balance outstanding of $27 million. With the remainder of the proceeds, we expect to repay $102 million of property debt maturing later this year and to fund free and clear versus with leveraged neutral property debt our 2015 investment and redevelopment and property upgrades. We anticipate that leveraged EBITDA will remain in the high 6s throughout 2015 as it is now and project that leveraged EBITDA will decrease to the mid 6s during 2016. Leverage to market capitalization approximates 36%. And lastly, our offsite costs continue to decline as the scale of our business changes. We have provided guidance for property management, investment management and G&A expense. These items together provide the basis for our expectation that full year AFFO per share will be in the range of $1.80 to $1.90 up 10% at the midpoint. We expect FFO to be in the range of $2.12 to $2.22. And finally as Terry mentioned, we announced last week our Board of Directors approved an 8% increase in our quarterly dividend from $0.26 to $0.28 per share. With that we’ll now open up the call for questions. Please limit your questions to two per time in the queue. Operator, I’ll turn it over to you for the first question please.

Thank you. [Operator Instructions] Our first question comes from Nick Yulico at UBS.

Can you just talk about the next wave of the redevelopment opportunities what projects you think might make sense when you have that 2015 to 2017 slide in your presentations for the future opportunities will you just remind us of how you're thinking about those projects?

Sure Nick this is Ernie I’ll provide some details and can potentially also pass it over to Patti to provide further details. We’ve talked about before one of the lessons we learned with redevelopment over the last couple of years is that we have the great opportunity to announce something in phases that is actually the right approach to go from the perspective of due to phase, see if it works, see if it underwrites, see if we get the rent we get, see if we get the cost expectations that we have and move forward and Sterling is a great example of that from this last quarter, where we had very good take on the first-batch of apartment home that we put out there for redevelopment it was three floors, we met our cost expectations, we met our timing expectations and we beat our expectations for rents. And thus we announced another four floors here. Sterling now has about 30 floors of residential and so certainly if Sterling continues to go well and I think we talk about in our release Nick you could certainly see Sterling ending up being a project that is upwards of $70 million to $80 million if we go forward with it. So that’s certainly one that is front and center in the pipeline going forward, it's next door neighbor in Philadelphia in Center City, Park Towne is the exact same thing in Park Towne we announced in 2014 that we’re going to take down one of the four towers that work is progressing well, it is progressing on-time and on budget at this point. And if that goes well, you could certainly see that we would move forward with another tower, if not all four towers there. So those two projects go certainly front and center for us in terms of redevelopment opportunities here over the next couple of years. We continue to see opportunities in our West Coast properties for instance at Palazzo, where we’ve completed work on penthouse units and we’re determining whether we want to do further work with our partner JPMorgan on the rest of that building as you know with our Palazzo joint venture we have the Palazzo East, as well as one other property too. And so there is lots of opportunities there. In Chicago, we’ve talked about our project at Yorktown, where we can redevelop the property where it currently stands and we have a piece of vacant land that if the redevelopment of the current property goes well, we could actually add more units there also, those are just a few examples that we’re looking at, we disclosed a few others in some of our investor materials lately and Patti do you want to add anything else on top of that?

I mean you’ve covered all the major ones that we’re looking out for in the near future.

What I’d say Nick is we feel highly confident that we can continue to spend $200 million to $300 million a year in redevelopment and development activities, generate the kind of returns that Terry talked about the $0.30 to $0.35 of additional value on each dollar spent and really the governor for us is risk appetite and manpower in terms of how much we want to do at one time.

And then should we now be crossing off the Manhattan, Tempo project there was an article this week it said may have had it sounds like you had adverse ruling for converting affordable to market rate units there, if you could just talk about that? And then remind us if any of this other future redevelopment you have across the country has any that issue where you're converting affordable to market rate and where is that might be a risk of facing some sort of adverse city decision on that process? Thanks.

Sure, Nick, John Bezzant here. Really Tempo is a bit of a unique, New York is a bit of a unique animal and in that regulatory environment where you go through these processes, what we would ask to do there frankly was to upgrade the building in its entirety and do work within there in order to get permission to do that because there are controlled and stabilize units within the building and we had to go in for an application for the certificate of no harassment. What came back on that really doesn’t change our long-term game plan for the Tempo which is a great asset up on West 73rd in the upper west side, it's a fantastic piece of property in a great location and most of that building is market rate and we will continue to operate as market rate and we will continue to respect the rates and treat our tenants well throughout the building, regardless of their rent stabilization status. And what we will look for is down the road, we will look for another opportunity to go and make the improvements to the building, but this was not a mass conversion of stabilized tenants to market rate tenants, this was intended to an upgrade of the entire building and those tenants were going to stay there under their existing agreements as you may expect the press accounts of it we are a little bit slanted shall we say.

So sounds like overall though that redevelopment opportunity is probably off the table right now?

For the near-term, yes. Certainly off the table on your regulatory framework for at least three years.

Okay, but that issue doesn’t really pop up at any your other redevelopments in this future pipeline?

No it does not.

The next question comes from Nick Joseph with Citigroup.

Terry, big picture question for you, you talked about the positive stems and success as you had in terms of improving the portfolio and balance sheet over the past few years, so what are the goals going forward?

Nick more of the same we are highly focused on having the right customers and serving them well. And so we track closely the improvement in income and financial condition of the new tenants we're attracting which track closely their satisfaction with the services we're providing we're very pleased to attract it and publish it by the way buy property online. So you can see the good, the bad, the ugly of how we do that’s where we start. We're very focused on control and we think there is continuing opportunities to bring operating costs out of our business. On the portfolio side we think we have opportunities to continue to upgrade. The wonderful disciple of the pair trade is that it can set a high hurdle sometime but makes decision making easy because in the end when John presents an opportunity at the investment committee the question is would we rather own X or Y. Would we rather own a property in San Jose or Buckhead or Boulder as in the fourth quarter are the properties we sold in Orlando and Jacksonville. And so our appetite for acquisitions is disciplined by that but if we could find the opportunities we would continue the very aggressive transformation of the Aimco portfolio. On the balance sheet we're getting to close where our goals our we’ve set a goal of seven times EBITA for leverage over the course of the cycle which means at this time while the times are good would like to be lower and Ernie has pointed out that we've a fixed handle today and that will drip down over the next year or two. But the burden of reducing leverage is largely behind us and we'll continue to focus on the quality of the leverage the duration and the non-recourse and try to lower its cost offsite we continue to lower our cost I don’t know if that’s noticed but in the 2015 guidance you'll see that our cost offsite are lower in '15 than in '14 were lower in '14 than in '13, lower in ’13 than in '12 we'll continue to try to spend shareholders money frugally. And of course culture is very important to us so we continue to work on making this a better team. Not just with best possible people but those people working in the best possible way together and the sum of all of that is what we tried to do in '14 and what we expect to do this year.

And then in terms of operations, can you talk about are you expecting any difference between your A properties and your B properties in 2015 in terms of the rate of same-store revenue growth?

Nick this is Keith. As we look at A's and B's really what's important for our A's is that they are market specific and so when we look at our A's being in Miami and Los Angeles and things of that nature they will obviously perform as those particular markets move. But as a general rule the A's and B's we've looked at over the past quarter and they’re pretty much very close to each other.

The next question comes from Dan Oppenheim at Zelman & Associates.

I was wondering I guess just that last comment in terms of the A's and B's performing solidly. As we think about the cycle over the next couple of years if we assume any normalization in terms of turnover and in terms for a move out for ownership do you have any worry in terms of the A's with potentially more move outs for that?

Dan I think that’s an excellent question and insightful because each price point has its own pluses and minus and one of the risk at the A price point is that it is more subject to competitive new buildings. And we have increased our allocation to A’s so as I mentioned today I think the actual number is something like 44% of our portfolio would be indentified as A and we want to balance that with a roughly equal allocation to B’s. We also want to diversify our risk to oversupply in any one market by allocation across multiple markets. So it's a concern and it's something that we watch very carefully in our portfolio strategy. But it's something we have planned for and therefore we're not alarmed about it's part of the business.

And I was just wondering about the January trend I think some others have talked about the trends in DC for January it seems there is an uptick sufficient uptick in January that’s helping a lot of the numbers. Can you just quantify what you're seeing in DC relative to the other markets for January?

Dan this is Keith I'll just let me walk through DC. We really break it into two different markets Suburban Maryland and Suburban Virginia and what we've been seeing in Maryland is little more strengthen than Suburban Virginia and that’s really a product of the new supply in Alexandria and so while there is definitely seen some things that are improving a little bit there is definitely some more supply to be absorbed as we go through ’15.

The next question comes from Jana Galan at Bank of America Merrill Lynch.

I was curious on your outlook for San Diego and Orange County it seems a little bit lighter than what peers are expecting for that region, I was just curious if there was some unique you were seeing in your submarkets?

Jana, this is Keith, let me just I will walk through San Diego and Orange County, starting in San Diego, San Diego we had a solid year at basically 5% and we anticipate that we’ll see something similar in ’15 and it potentially could be even a little bit better. The Orange Country number what I would tell you there is just that our community there is really competes directly with the Uruguayan company and there is a couple of new things are coming on early in which we anticipate we will have a short-term absorption in the end of course we’ll be very well positioned as we accelerate out of that. So we have no concerns there and feel very good about Orange County.

And then a quick question for Ernie just given the level of disposition activity in 2014 and depending on how much was completed this year, you previously mentioned it may require special dividend, I just curios if there is any update there?

Yes, Jana, unfortunately I can’t give an update beyond the fact that we do still think there is a possibly we’ll have to do a special dividend it’s exactly what you said based on the activity we completed in 2015 but I can’t give you an update. We had talked previously about the potential that that could be some combination of cash and stock for that special dividend. And that we would come to determination and see that what’s going to make the most sense for us to do a cash special dividend. So it would be a second half event for the year and likely with the dividend that would be paid in November and as we get closer to that point in time, I can be more specific about how much that would be Jana, but again we do anticipate that would be a cash dividend for the special.

The next question comes from Michael Salinsky at RBC Capital Markets.

John or Terry, you’ve answered Nick’s question about strategy, can you just talk a little bit about the Aimco acquisition strategy going forward just in the light of the pickup in the fourth quarter activity as well as I think real estate allergic to suggest that you guys were in the bidding there for the Gables portfolio, so just curious how we should look at that acquisition strategy now that’s gained a little bit momentum over the last six months?

Mike, we did same in 2014 as we did in 2013 as we did in 2012 and as we expect to do in 2015 which is that we look at a lot of deals and we compare them to the properties that we might sell to fund them. And if across a wide number of metrics, we like better the one we might buy to the one we might sell we go ahead and we have a successful pair trade. I would like to put that flurry of activity in context that we bought last year I forgot 2% or 3% of our gross asset value, so we’re not expanding assets at a rapid clip, but we’re expanding and I think that’s positive because we’re expanding through paired trades where we feel that what we’re getting is better than what we’re giving up. In terms of the strategy of those investments, we have identified market allocations which are quite transparent to the street. We would like to be more invested in Washington DC for example and in Seattle and a little bit more in the Bay Area and we’d like to reallocate capital within the Washington market and within the Boston market. But all of that is under the constraint of we have to do in a way that’s accretive to shareholders, so it’s not just spending money it’s spending money in a way that creates value. And in answering Nick’s question about the future what I would like emphasize is that we want to be balanced not just across markets but also across price points. We don’t want have a portfolio that’s all A, we don’t want to have a portfolio that’s all B. We want to have a balance that allows us to serve higher quality customers whose economic prospects are such that they will be more stable in downturns and better able to pay higher rents in good times. John, do you want to add to that?

Yes, just a couple of things I think I will add one clarification in your early remarks you mentioned Washington DC, we want to increase our allocation too and that’s our resort market for us. New York City would be -- yes within the market we want to re-trade in DC and we are under allocated in New York, Seattle and we would continue to look there and obviously we haven’t bought in Seattle as we’re seeing a lot of new product come into the market there and we’re seeing some rather aggressive pricing we have elected not to buy there and haven’t seen what we would determine a good paired trade. And then just on the one other change that you mentioned Michael, in terms of the Gables transaction, really it plays into that same category. We look at a lot things we like to look almost everything that moves out there in the market and really look at it in terms of our portfolio and whether we can make a paired trade that makes sense for that as an upgrade to us for our portfolio our allocations our markets that we’re in all those kind of and so we did -- yes we did take a look at it and ultimately we decided that it was going to both price at a level that was not attractive to us and that it wasn’t the right paired trade for us to make.

Just as a follow-up then Ernie not to leave you out, just given the progress you made on the balance sheet there, what are you hearing from the rating agencies right now and then also as we think about the mix of dispositions in '15 that are targeted how does that breakout between conventional versus affordable?

Sure and Mike it will be okay if you let me answer but I appreciate if you let me come back in. With regards to the rating agencies, we've dialog with them quarterly Patti Fielding lead that efforts for us here at Aimco they're certainly well aware at Fitch that we've exceeded what they've asked us to do with regards to unencumbered pool which was the last hurdle we needed to hit and they're currently underwriting that. I wish I could tell you more specifically the timing on when we might end up getting some good news from them, but it's really in their hands and we will do what we can to push that forward and answer any of their requests as quickly as possible. With SMP the discussions we've had is around the fact that they certainly recognize we do things a little bit differently than most of the public companies. And they have certainly given us targets that make sense because we do things differently and specifically around something like fixed charge they understand that because of our property debt strategy that has amortization they're willing to put a lower target on us or requirements for investment grade versus other companies that don’t have that. We continue that dialog certainly the equity offering we did in January helps with both of those agencies and puts us much quicker on the path to getting to places that they'd asked us to get to. And we're hopeful that can persuade them to again get us to a different conclusion here sooner than later. With regards to dispositions Mike almost all -- it's very limited amount of disposition this year if I recall correctly I think it is about conventional assets that we've built in the guidance and I don’t think it's more than one or so one or two affordable assets -- two affordable assets there so it's very much concentrated on the conventional side as Terry mentioned our affordable both GAV and NAV today as well as NOI contribution is right around 5% to 6% and that continues to just slowly melt away year-by-year and I think and that will continue over the next few years.

The next question comes from Dave Bragg at Green Street Advisors.

When I look at the -- your guidance page on Page 6 under transactions with the disposition that you've listed here does this amount of dispositions tie-in with zero acquisitions and if you do acquisitions you would therefore do more dispositions is that right way to think about it?

Yes Dave the right way is that if John is successful in finding paired trade opportunities you would see our dispositions guidance go up. That said, we do expect that John may be successful in getting something done we're not prepared to give guidance on that, but we do have the flexibility to fund maybe roughly from a cash flow perspective of about $50 million worth of acquisitions based on disposition guidance if we don’t find that acquisition opportunity we'll come in at the low-end of this range if we do find that kind of acquisition opportunity we'll come in at the high-end of the range and if John is able to source more deals that makes sense for us from a paired trade perspective then you're absolutely right you would see our disposition guidance change throughout the year.

And just following-up on the answer to I think it was Salinsky's question, how does the pair trade approach work for a very large transaction something multi billion dollars which seems as though you've looked at some might call it transformational, how would the pair trade strategy work there would you sell several billion dollars of assets at the same time?

David it'd be speculative to talk about a hypothetical we chose not to do it but the options that would have been available in that or in any other large transaction could have ranged from a joint venture to equity issuance to sale of more assets to just a wide range of different possible capital structures but it's really moved because it didn’t work and we didn’t do it.

And Dave I'd also say that Aimco grew by doing large transactions and often chasm is a perfect example. We bought a huge portfolio for about 15 properties and so if any large transformational as the word you used or just large transaction in general just because you're buying something large it doesn’t mean you plan on keeping all of that at once and Aimco certainly have the history of calling things and looking for opportunities so that's another way also to potentially fund something so as Terry said all options are on the table.

At this time, we show no further questions and I'd like to turn the conference back over to Mr. Considine for closing remarks.

Well, thank you operator and thank all of you for your interest in Aimco. We had a great year in '14 we look forward to a great year in '15 many of you we hope to see in a few weeks at the conference in Florida. If you have questions please call Elizabeth Coalson, Ernie Freedman or me and thanks again. Have a good day.

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