Good afternoon and welcome to the Aimco Second Quarter 2016 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Lisa Cohn, Executive Vice President, General Council. Please go ahead.

Thank you, and good day. During this conference call, the forward-looking statements we make are based on management’s judgment including projections related to 2016 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. We will also discuss certain non-GAAP financial measures, such as AFFO and FFO. 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, Chairman and CEO; Keith Kimmel, Executive Vice President in charge of Property Operations, John Bezzant, our Chief Investment Officer; and Paul Beldin, Chief Financial Officer. 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. We appreciate your interest in Aimco. Aimco portfolio diversification across markets and price points is serving us well. Business remains good and on plan, notwithstanding the predictable ebb and flow of various local markets. We hear lot of questions about the direction of apartment markets. Our markets accelerating based on demographic demand or are they decelerating under the pressure of new supply. We believe that both questions can be answered with a yes. On the one hand, demographic demand is historically strong, predictably so and will be strengthened for many years to come by baby boomers, increasing their preference for rental housing. On the other hand, all markets will be overbuilt at some point, meaning that competitive new supply will limit or even reverse rent growth. But not all markets will be overbuilt at the same time and where there is oversupply, it will have its greatest impact on properties with the highest rents. And that’s why we emphasize diversification by market and by price point as the foundation of Aimco portfolio strategy. The nature of a diversified portfolio is that there are generally some markets accelerating and some decelerating. That’s true for Aimco today as Keith will discuss further in his remarks. We expect that portfolio diversification will make Aimco revenue more predictable and less volatile. Here are four headlines for the Aimco second quarter. First, property operations are on track. Same store rent for apartment home was up 5.3%, a rate of increase 100 basis points greater than in the same quarter one year ago. After increased frictional vacancy due to transferring lease expirations from our shoulder quarters to our leasing season, that have contributed about 20% increase in lease expirations in the second quarter. And after reduced…

Thanks Terry. As previously discussed, we succeeded in moving 1,200 of our lease expirations out of the softer shoulder months and into the stronger second quarter. Our strategy increased our total second quarter expirations by design by roughly 20%. This was executed so that we have greater revenue growth opportunity in the long-term. In seasonally higher demand periods that significantly improved rates understanding the frictional vacancy would increase in the short term. Operationally, we navigated through those additional expiring leases while staying on plan. We delivered rent growth of 5.3% and revenue growth of 4.2% year-over-year. Expenses, less taxes and insurance, were up 2.3%. We feel good about our strategy and the ability to deliver our revenue commitment for the balance of the year. While we’ve seen supply pressure in places like Miami, Los Angeles and to a lesser extent the Bay Area, we enjoy the benefit of a diversified portfolio from both a geographic perspective and at varying price points. The benefit of this while some markets moderated, our second quarter results were aided by accelerating markets including Washington DC, Boston and Chicago. Our 12 target markets comprise about 90% of our same store revenues. Using blended lease rate growth for the quarter, roughly 45% of our target markets accelerated, 45% decelerated with the remainder about flat on a weighted basis. In the second quarter of 2016, our residents gave us our 11th consecutive quarter of better than four start rating in customers’ satisfaction. This contributed to our renewal rate increases of 6.2% for the quarter, some 110 basis points higher than the second quarter of 2015. We saw particular strength in Seattle, the Bay Area and Denver. The renewal rents in these markets increased between 9% and 14% compared to the expiring leases. Where those leases expired and…

Thank you, Keith. During the second quarter, we continue to focus our investment activities on upgrading our portfolio through redevelopment and other capital investments. We’ve invested $43 million in redevelopment, $31 million of that is Park Towne Place and The Sterling in Philadelphia and an additional $12 million in several smaller projects and our redevelopment pipeline. At Park Towne Place, we achieved stabilized occupancy at the recently completed South Tower. We’re making good progress in construction on East Tower, which is now 47% leased. And with these successes, we approved spending another $41 million to redevelop the North Tower. We also continued our Phase redevelopment of The Sterling. Of the 409 completed apartment homes, 81% are leased and rents are above underwriting. During the second quarter, Aimco approved the final phase of redevelopment of The Sterling, which includes the remaining 125 apartment homes, commercial and retail build outs and completion at the street scape. The estimated investment for this final phase is $22 million. Also, during the second quarter, Aimco approved the next phase of redevelopment of the Palazzo, a 521 home community located in the mid-Wilshire District of Los Angeles. This next phase includes the renovation of 389 apartment homes on the first three floors of the community. Construction started in June and is expected to be completed in the first quarter of 2018. The Palazzo is owned through a joint venture in which Aimco has approximately 53% interest with total estimated investment in this phase is $25 million, of which Aimco shares $13 million. During the second quarter, we also invested $13 million on the construction of our One Canal development project in Boston. As Terry mentioned, construction is largely complete with just a finishing touches in progress. Our first residents moved in mid-May and 41% of the…

Thanks, John. Starting with second quarter 2016 results, at $0.50 per share, AFFO was up 9% year-over-year and $0.03 per share ahead of the midpoint of our guidance range. Pro-forma FFO of $0.59 per share was up 5% year-over-year and was also $0.03 per share above the mid-point of guidance. Second quarter AFFO outperformance was driven by greater than planned non-core earnings including $0.01 related to a transaction that was originally expected to occur in the fourth quarter. Turning to the balance sheet, our properties at market remains deep and liquid. During the quarter, we took advantage of declining treasury rates and compressing spreads, pricing two fixed rate amortizing non-recourse property loans with two year terms. The first for $145 million, priced at a spread to treasuries of approximately 150 basis points or an all-in interest rate of 3.34%. The second for $21.5 million priced at a spread of 129 basis points or an all-in rate of 2.77%. Additionally, we reduced our overall cost of leverage by redeeming today our 7% Series E issue of preferred stock. We are well positioned to take advantage of state’s uncertain interest rate environment. If interest rates remain low, earnings will benefit as we refinance maturities with weighted average interest rates of approximately 5% at expected lower rates. If rates increase for long duration fixed rate debt with 7.8 year weighted average maturity will mitigate the financial impact and provide a hedge, should cap rates rise. Now, looking forward to the remainder of the year. We’re increasing full year pro-form FFO and AFFO guidance for the $0.02 of non-timing related second quarter outperformance, offset by $0.01 reduction due to the decision to vacate the North Tower at Park Towne Place as we accelerate its redevelopment timeline. As for our second guidance raise this year,…

Thank you. We will now begin the question-and-answer session [Operator Instructions]. And the first question comes from Jordan Sadler of KeyBanc Capital Markets.

It's Austin Wurschmidt here with Jordan. Just first question on L.A. it softened a bit this quarter, but appear to be largely occupancy driven. So I was just curious if any of that was related to the revenue optimization initiatives the moving of leases? Or if that’s the effects you’re feeling from new supply?

Austin, it's Keith, I’ll take it. You’re spot on, on both cases actually. So, about a percent of it was associated with leases that we had moved from the shoulder months into the second quarter about 100 leases, and about a percent of this frictional vacancy. The second piece is that we are seeing some new supply in Los Angeles about 2,500 units but more particular about 600 in the mid-Wilshire District where the majority of our apartments are. So we’re working through that but those are the two components.

So just following up on the first one, what’s your expectation then for L.A. in back half of the year. I think you have another difficult occupancy comp in the third quarter.

So Austin, we’ll continue to work through July, August and September and then we will see an acceleration as we get into the fourth quarter with the leases out.

Then just second question on the Indigo project, last quarter you talked about closing that ahead of this call. I was wondering if there was anything specific as to why that was pushed back a little bit later. And then separately just on the lease up pace, I guess, what units are available. You’re about 5% as of the end of 1Q, just over 20% here today. Would you expect that to accelerate, are you guys showing, actually showing available units at this point?

Austin, this is John. Couple of things and relating to timing, the developer and the contractor just ran a little slower than what they initially thought they were going to for delivery. As we noted in my comments, they’ve got TCO on the units of the building, or partial TCO for the finishing that to the building at the end of June. First, occupancies, first move into literally July 1st. We have today accepted about up third of the units in the building. So it's still in active construction zone. The amenities were mostly completely about a week ago but they’re not all done. We’re not in the leasing office yet, and so this is still a building very much under construction. And so between leasing pace and timing of closing, really this is driven by the completion of the building which we anticipate will occur again sometime before the end of the quarter, this third quarter.

And the next question comes from Nick Joseph of Citigroup.

Paul, you talked about the guidance assuming 5% potential revenue growth in the back half, which is acceleration from the first half, which is different than what peers are seeing. So I am wondering if you can walk through the occupancy, rent and other income assumptions embedded in that guidance?

You bet Nick, I’d be happy to. As you all know, our ability to grow revenues depending upon three factors. First is as you asking the question Nick is occupancy. The second fact relates to the revenue growth that’s already embedded in our rent roll today. And the third is the impact of new and renewal leases that are transacted during the second half of the year. And so as we think about occupancy growth, in the third quarter, we expect that occupancy will be fairly similar to 2015. But because of the positive impact that we expect to see from our lease expiration management, we expect a bump up in occupancy in the fourth quarter. Then the second factor I mentioned is the growth embedded in our rent roll. Within our rent roll today we probably have about 75% to 80% of our revenue baked in for the second half of the year, and that amount that’s baked in is at a rate that’s right around 5%. And so then the last major component relates to the transacted rates that we expect to see for the second half of the year. And so in order to hit the midpoint of our guidance we’ve had to see transacted rates probably in the mid to upper four ranges, and so based upon 5% transacted rate growth year-to-date that seems to be quite achievable.

And do you expect other income to grow at a slower pace than rental growth?

As we looked at our expectations for other income at the start of the year, we thought that other income would grow in and about the 3% range versus 4% where we were in 2015. What we see through the first half of the year is other income has grown much more slowly, I think we’re up less than 100 basis points. That is largely attributable to lower utility expenses. And so while we don’t know what’s going to happen for the remainder of the year, we are able to be reimburse for about 65% of our utility cost. So whether utilities are up or down, the impact on NOI is rather nominal.

And then for the second quarter you had weighted average rent increases of 5.3%. And did I hear you say that there was 100 basis points better than last year?

That’s correct.

So I am wondering what maybe is driving that comp, because when I look at the same store pool for weighted average rent increases from 2Q supplemental from last year of 5.4%. So I would have thought it was 10 basis points decrease. I am wondering what’s 110 basis points various between those two numbers?

There is a lot of very similar terms. So when we’ve talked about that the rent increase that is the rate of increase on our in place leases during the quarter that is pre-adjustment for both the impact of other income and occupancy. So once you take into account those two factors, you get the 5.4 number that you referenced, which on an equivalent basis would be the 4.2 that we saw. But if you look at the rents, the rents are accelerating, the 100 bps.

So versus weighted average rent increase in the supplemental on page two, that’s really more of a revenue number?

Let me grab my supplemental, here on page of the release?

Exactly and so this 5.3% on the second quarter, and that…

There are two numbers I am catching up for you now Nick. There are two numbers that are both 5.3%. If you look at our transacted rates during the second quarter on a blended basis, those are up 5.3%. That is on the middle of the page. If you also look on the same pages on the top table, we have a line that’s average rent for apartment home and the year-over-year variance there is also 5.3%. And so that might be the course of -- the cause of the confusion. And if you like to talk about it further, please give me a call and we’ll work through the details.

And the next question comes from John Kim of BMO Capital Markets.

Just two part question on Indigo. First of all, can you quantify how much it is leasing above underwriting? I think last quarter you said single digit. And then the second part is did the delay in acquiring Indigo contributes to your rate and FFO guidance? Because I think it was initially dilutive to earnings.

So, John, in terms of the underwriting, yes, it remains in single digits above the rents we’re achieving single-digit above the underwriting, and I’ll let Paul comment on the timings it relates to.

John, you are exactly right. The delay in the acquisition of Indigo will be a net positive for Aimco, not only from a 2016 economic standpoint but more importantly from an IRR standpoint. We underwrote the project. We expect it to build in to be clearly empty on day. And so now when we take it over, it will be at least partially leased and we’ll have income coming in from day one. Now unfortunately for us there is not a real significant benefit to us in 2016. We pick up probably $200,000 from this delay on a bottom line basis. So, it's not necessarily impactful for 2016 results.

And then Terry, thanks for the headlines you gave at your prepared comments. I think one of them was your portfolio is reaching an all time high in terms of quality. I just wanted to merit that with your discussion of having a diverse portfolio. Do you want to increase your As and Bs as a percentage of your portfolio?

We want to maintain a balance. We’re 45% -- I guess we’re about 50% aged today and that’s about as high as we’d like we might get over that, just based on timing but we have no appetite for grabbing the highest rent unless it's balanced elsewhere by some inhibition against competitive new supply.

Thank you.

I might jump in there John, just real quickly, this is John Bezzant, in an overall portfolio basis our rent stood at about a 113% of the market rents throughout our portfolio and that sits right in that very comfortable, just above average kind of a BB plus portfolio that we've tried to craft overall.

Okay, great thank you.

And next we have a question from Drew Babin of Robert W. Baird.

Hi, thanks for taking my question. Question on merchant build opportunities, are you seeing a lot of opportunities for you but merchant build acquisition opportunities, is there anything changed in that transaction, are you seeing more opportunities to take out developers just in the last couple of months.

Drew, it’s John, we haven't seen a lot of, lot of market uptick in that, certainly not in the form of distress, there are plenty developers out there that are still looking for equity and for the opportunity to put deals together. But we have not seen any candidly for us in terms of an acquisition opportunity we haven't seen anything compelling come across in quite some time.

Maybe accurate to say that redevelopment in your current portfolio over currently the more attractive option.

Absolutely.

Okay, then one question on Lincoln Place specifically, I know you gave color on mid Wiltshire, you talked in the past about Lincoln Place asset being very unique and it obviously is in the Venice market and with the amount of land that it has size of unit etcetera. Is it continuing to compete well against the new supply in Silicon Beach area from a differentiation standpoint, or do you see something change there.

Drew this is Keith, I'll help you walk through that, thank you for your question and it’s exactly what we're seeing, interestingly enough when you look at -- Vista, there's a couple thousand units, Irvine company, Lincoln Properties that are putting units in there and they're going more vertical. We continue to see occupancy north of 95% at Lincoln Place and we really attribute it to the fact that it is such a unique product, where you have open space between units, setbacks of a couple of hundred feet from the sidewalk with open drive spaces and of course the unique architecture in styling of the buildings and so. We have weathered that a little bit differently than we've seen within the market place.

Thank you, that's helpful.

In addition to that we continue to see rents continue to push higher than what we’re seeing in the overall LA market.

Okay, great thank you.

The next question comes from Connor Wagner of Greenstreet Advisors.

Good morning, Keith can you confirm it was 4% new leased and 5.8% renewals in July.

That's right, Connor.

And then you guys are typically seen an acceleration in new lease and renewal growth through the summer, but it looks like it’s actually coming down from June. Do you expect that to come back in August or September or can you help us understand what's going on there.

Connor, it is Keith, I'll take it. We definitely, we anticipate that we'll see acceleration as we work our way through the balance of the third quarter. When we look at July, July typically when we look back historically is the month in which we have the greatest amount of inventory, it's kind of our peak a peak so to see it as we navigate through it we’ll build momentum coming out of it.

Okay great thank you and then for John, you said you're on track for dispositions, what are the plans for the remaining $120 million that you'll have outside we have to put into Indigo, can you use 1031 proceeds for your redevelopment opportunities.

No, you can't use 1031 proceeds for, I'll let Paul speak to use of proceed, but it's all pursuant to our original budget for the year and we cover the proceeds and what we use it for.

Oh Connor I was just going to add that to fund the acquisition of Indigo we currently have set up in a 1031 exchange account about $290 million of proceeds and that will cover substantially all of our cost for the acquisition of Indigo.

Yes, I think the original guidance was $450 million in dispositions for the year, so just understanding, if you have to use those additional proceeds beyond what’s going to go into Indigo, that's when you go towards redevelopment or if you guys are looking you know for a $100 million or so in acquisitions in the back half of the year.

Connor as we set up our plan for the year we purposely backend weighted an element of our disposition timing so you're likely to notice that our borrowings on our credit facility have run all the ties in what they have historically and our plan today is to the extent that we’re able to execute on the remaining $150 million so dispositions, those proceeds will be used to pay down on the credit facility balance.

Great thank you, then I have one last if I may on Indigo. Have you started to lease up the penthouse yet and on a revenue basis how much will the penthouses or the larger three bedrooms be for the total property.

We have started leasing there on the penthouse levels, it's the 10th floor, there are three different towers in the building and the 10th floor of each building is our penthouse units that we have leased there. I don’t have an exact number for you today of how many of the penthouses are leased but it has been a measurable part of the leasing activity to date commensurate with the overall activity in the building. As to revenue guidance to the impact if you will of the penthouses on the overall new writing it's relatively marginal. They're not a big count number in the overall scheme of things and so we're not relying on them to duce returns if you will there, kind of part of the commodity as well.

Thank you very much.

[Operator Instructions] and our next question will come from Michael Kodesch of Cannacord.

Hi, thanks for taking my question, just one quick one from me and I apologize if I missed this in your prepared remarks but, I was wondering if you guys had an update to your historic tax credits and other tax benefits guidance. I think at your initial full year guidance you guys were expecting about 19 million or so in total at the midpoint. Any update to that or you know you guys are kind of tracking around that as well.

Yes, Michael thank you for the question, this is Paul. We are tracking, I think there's a couple of different numbers, the $19 million number I believe is the impact of the amortization of our deferred tax credit revenue and we're on track to hit that number but our historic tax benefits in particular we provided a range of I believe 9 to 11 million and right now we're tracking to be within that range. I would point out that with the North Tower acceleration of Park Town Place we do expect to earn historic tax credits on that project however that won't impact our 2016 results that'll be actually be a 2017 event for us.

Great, thanks, I was just talking about the combination of both, the historic credit benefits and the other tax benefits but it sounds like you guys are kind of still in that range, so.

Yes, we're within our guidance range on those.

Great, thanks.

And this concludes our question and answer session, I would like to turn the conference back over to Terry Considine for any closing remarks.

Well thank you Lauren, thanks to all of you for your interest in AIMCO, please contact Lynn Stanfield, Paul Beldin or me if you have any question and we wish you a good weekend, thank you.

The conference is now concluded, thank you for attending today's presentation, you may now disconnect.