Apartment Investment and Management Company (AIV) Q1 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Aimco First Quarter 2017 Earnings Conference Call. 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 Lisa Cohn. Please go ahead.

Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgment including projections related to 2017 and 2018 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 website. Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, EVP in charge of Property Operations, John Bezzant, our Chief Investment Officer and Paul Beldin, our Chief Financial Officer. A question-and-answer session will follow our prepared remarks. And I'll now turn the call over to Terry Considine. Terry?

Thank you, Lisa and good morning to all of you on this call. Thank you for your interest in Aimco. Aimco first quarter results were consistent with our expectations and our guidance for the full year is unchanged. As my colleagues will discuss in detail, first quarter property operations were on track, redevelopment activities continue to meet our targets for value creation. As our work in Philadelphia nears completion, Patti has started a substantial overhaul of Calhoun Beach Club in Minneapolis. Keith's execution of our lease ups has been exceptional and that assignment is largely completed. The Aimco balance sheet remains strong with abundant liquidity and limited exposure to capital markets. For the fifth consecutive year, Aimco was recognized by the Denver Post as one of Colorado's top workplaces. And AFFO, our preferred measure for current period profitability, was a penny ahead of the midpoint of guidance. That said, we remain cautious about the many factors that impact our business, just as we were at the start of the year. The supply of new apartments continues to increase and there are many markets where new lease rent increases have slowed or turned negative. This especially impacts A price point communities. Our portfolio strategy emphasizes geographic and price point diversification to provide some protection from these predictable results of the local building cycle. In the quarter, this worked well. Weaker new leased rates at the A price point were offset by stronger B price point pricing, solid renewal rate and improvements elsewhere in our business. As we look forward, we expect new supply to continue to pressure new lease pricing at the A price point. Our successful navigation of these choppy waters will turn on our execution of the numerous other tasks that drive our business, including customer satisfaction and retention, consistency, cost control, innovation and value creation through redevelopment. Happily, we have a cohesive and high achieving team with the requisite experience and commitment. For this, I offer sincere thanks to my Aimco team mates, here in Denver and across the country. It's a privilege and a pleasure to work with you. And now for a more detailed report on the first quarter, I’d like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Thanks, Terry. I’m pleased to report that we had a solid first quarter in operations, with revenues up 3.4%; expenses up 2.7%; net operating income, up 3.7%. Turnover for the quarter was 50.5%, 50 basis points better than the first quarter of 2016. Move out reasons for the quarter are unchanged versus recent results or our long term averages. And our residents gave us better than a four star rating in customer satisfaction for the 14th consecutive quarter, with our best score ever achieved at 4.24 stars out of a possible five. Looking at rates, which transacted in the quarter. Blended lease rates were up 1.9%, with renewal rents having solid increases of 5.1%. We saw particular strength in Seattle, Philadelphia, Atlanta and Boston. Renewal rents in these markets increased 6% to 8% compared to the expiring leases. Where those leases expired and were not renewed, our new leases were 1% below the prior lease, as we continued navigating choppy waters in a few markets. Los Angeles and Denver continue to be the most heavily impacted by supply, especially of the A price point Los Angeles. Los Angeles and Denver combined for a negative 3.2% lease price and a softer average daily occupancy year-over-year. Average daily occupancy for the two markets was a combined 95.4%, some 100 basis points below prior year. The balance of our same store portfolio saw a new lease pricing finish about flat for the quarter, with average daily occupancy at 95.9% within 10 basis points of prior year. Turning to the first quarter revenue growth, our 12 primary markets were up 3.7% for the quarter. The top performers had revenue increases from almost 6% to nearly 10% for the quarter. This was led by Seattle followed by Boston and San Diego. Our strong performers which had revenue growth between 4% and 5% were Atlanta and New York. Our steady markets with roughly 3% percent revenue growth were Chicago, the Bay Area, Denver, Washington D.C. and Miami and with revenue growth at or above 2.5%, we had Philadelphia and Los Angeles. Finally in looking at our early second quarter results, preliminary April blended lease rates are up 2.1% with renewals up 4.5% and new leases improving by 100 basis points versus first quarter to flat versus last April. When comparing our new lease performance of As versus Bs, there is nearly a 300 basis point spread, with our As down 1.8% for the month, while Bs are currently up 1.1% for April. April’s average daily occupancy is on plan at 95.6% and May and June renewal offers went out with 4.5% to 6.5% increases. 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. During the first quarter, our investment and lease up activities were executed as planned. We invested $41 million in redevelopment and development, about half of which was in our phases projects in Center City, Philadelphia, Park Towne Place and the Sterling. At Park Towne Place, the lease up of the South tower is complete and as of today, the East towers 84% leased, which is in line with our plan and our achieved rental rates are consistent with our underwriting. Construction on the north tower is on schedule and we're off to a successful start with our pre-leasing with nearly 15% of the tower leased before our first deliveries. Those deliveries came last week and move-ins have commenced. We also completed the redevelopment of the Sterling’s apartment homes, where as of today 89% of the homes are leased and the results of the redevelopment are consistent with underwriting. During the quarter, redevelopment continued as planned at three other projects that were underway at year end and we’ve decided to slower pace of work a bit at the Palazzo Park La Brea in Los Angeles as we absorbed some excess inventory. We also started a phased redevelopment at Calhoun Beach Club, a mixed use residential community, located in Minneapolis. Over the next few years, we anticipate investing about $29 million in redevelopment of 275 apartment homes and the updating of common areas. And as Terry noted, our lease ups at One Canal and Indigo are all, but put to bed. Keith and his team successfully completed the lease up of One Canal in Boston during the first quarter and at Indigo in Redwood City, California, 90% of the apartment homes are leased today and we expect a complete lease up in the second quarter. And with that, I'd now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thank you, John. I'd like to cover today a number of subjects, starting with our financial results for the first quarter. AFFO of $0.51 per share and FFO of $0.58 per share were each one penny ahead of the midpoints of our respective guidance ranges, driven by operating results slightly ahead of our expectations and lower than anticipated interest and G&A expenses. Next, on the balance sheet. We continue to take advantage of the low interest rate environment and close two property loans, totaling $65 million. The loans have tenure terms, are fixed rates, amortizing, and non-recourse to Aimco. The weighted average interest rate on the loans of 3.71% represents a weighted average spread of 134 basis points over the corresponding treasury rates at the time of pricing. Quarter end leverage to EBITDA was consistent with plan and on track to meet our year-end target. Liquidity remains high. At quarter end, our $600 million line was largely unused and our unencumbered pool of communities was valued at 1.6 billion. Turning to guidance, our views on 2017 AFFO and FFO are unchanged from the start of the year. In last night's releases, we established second quarter AFFO guidance of $0.46 to $0.50 per share and FFO guidance of $0.56 to $0.60 per share. We are maintaining full year same store guidance with revenue year-over-year growth of 3.25% to 4.25%, expense growth of 2.5% to 3% and NOI growth of 3.5% to 5%. Before we open up the call for questions, I would like to update you on our annual revisions to our supplemental schedules. In 2011, when Aimco decided to wind down its affordable business, we owned 108 affordable communities. At the end of 2016, we owned only 7 and two of these communities are under contract to be sold. For our 2017 reporting, we'll be including these 7 communities in our real estate portfolio. Also in 2011, we held nominal ownership position in a number of limited partnerships, holding 64 low income housing tax credit or LIHTC communities. We now hold 47 in the partnership agreements prior their liquidation over the next five years or so. As we described to you last fall and our third quarter net asset value calculation, which is posted on our website, our relationship with these partnerships is different than real estate ownership and is better described as an asset management business. Aimco provides services to these partnerships and receives fees and other payments in return. To the extent amounts due Aimco are not paid currently, the balance is accrued and are satisfied from the partnership’s future operating or liquidating cash flows. Aimco has limited upside or downside exposure. We value this business at the present value of the future cash flows we expect to receive. In order to provide better visibility into the contributions of our real estate portfolio and our asset management business, we have updated our supplemental schedules to present separately FFO and balance sheet amounts for each. In connection with this changed presentation, we have identified both the assets and liabilities of the LIHTC partnerships. This change in presentation has no impact on Aimco economics, limited impact on most metrics and some impact on our calculation of leverage to EBITDA, lowering our first quarter ratio from 6.9 to 6.7 times. Consistent with our commitment to transparency, we have included in the supplemental schedules, the calculation of leverage to EBITDA, both under the current presentation, which excludes the related LIHTC debt and also under the previous presentation, which included the LIHTC debt. A second change to the supplemental schedules identifies Aimco ownership line by line, making it easier to calculate Aimco proportion of results. In the third change, we've expanded supplemental schedule 10 to include information to help users calculate Aimco asset value for communities classified as redevelopment and development. Our objective of making these revisions to our supplemental schedules is to provide you with ready access to the information useful to understand the Aimco business, operations and value. We thank those of you whose suggestions have shaped these changes and hope that they will prove useful to all of you. With that, we will now open up the call for questions.

[Operator Instructions] The first question is from Nick Yulico at UBS.

Thanks. Hey, everyone. First quarter same store revenue growth, I guess I'm wondering, is there anything that drove that down that was unusual on the sort of other income piece or anything.

Yeah. Nick, this is Paul. Thank you for that question. You're right, you'll likely notice that our other income growth was only 60 bps year-over-year and that was actually quite a bit below our expectations, but the reason for that is actually a net positive to NOI in that we had much lower utility expenses than what we expected, which was driven by warmer weather and in turn we had lower utility reimbursements. And just as a reference point, our net rental income or so - our true rental growth during the quarter was about 3.7% and had you - had we had utility costs and reimbursements at a level consistent with our expectations, our overall revenue growth would have increased from the 3.4% that was reported to about 3.6%, 3.7%. Another factor to point out that didn’t impact same-store revenue, but did impact same store expenses were property taxes. You’ll likely notice that our property tax increase during the first quarter was 6%. That was largely what we expected and it’s really just due to the timing of some assessments and refunds that will occur during the year and we feel confident that for the full year, real estate taxes will be about at the 4% or so level.

Okay. That’s helpful. And then that drag in the first quarter, does that - do you make that back in - for the rest of the year and coming quarters because the reason I ask is obviously your reported same store revenue growth for the quarter is below the midpoint for your full year. So it's kind of hard to see how. Maybe you could talk about some of the math behind how you can get back up to the midpoint of the range, because I think there is sort of a - there's a bit of a worry that you guys should have cut guidance and you didn’t and now you're kind of in the camp of maybe, you can't make your midpoint guidance for the year. Thanks.

You bet, Nick. As we look at our expectations for the year, there are certain elements that are somewhat out of our control, such as weather and the corresponding impact on utility costs. But there's a number of factors that are within our control. One thing that you all know, but I want to emphasize is that between now and our call in July, we're going to transact about 40% of our leases for the year. And so at this point, we're about 17% of our - or so leases have transacted. We still have a lot of wood to chop and we’ll know much more in three months about where we stand. But we also have the opportunity to do better with revenue growth on items that are not related to new lease rates. And an example of that relates to our working bad debt. And over the course of the history of Aimco, we've been very focused and have done a very good job of controlling bad debt, but we think there is quite a bit of additional opportunity there. Keith, his team and others within our - in the organization are very focused on that. We also have opportunities to do better than what we've guided to you on controllable operating expenses. And so, as we look at our guidance ranges for operations, we feel comfortable that we will land within that range that we've provided. But I’d also point out that’s just one factor that contributes to our bottom line results, our FFO and AFFO growth. And as we look at our redevelopment projects, the lease up of One Canal, of Indigo, we just feel really good about where those aspects of our businesses are going and we feel good about the year, look forward to the rest of it.

Yeah. That’s helpful. Just one last follow-up is, you gave the weighted average rent increase, I think you said for April, a total of over 2%, you were just under 2% in the first quarter. I mean, that number I’m assuming needs to go up in the next quarter or two, is that the assumption that that gets back up to 3% or so in order for you to make your guidance.

Blended lease rates do need to increase from the levels where they are now in order for us to meet our guidance ranges for the quarter. And so in real rough math, we get to the low end of our guidance ranges by having blended rate growth for the remainder of the year of a little bit below 3%. The exact percentage will really depend on how well we do in some of these other initiatives. And to get to the midpoint of our guidance range, we probably need to be closer to the 4% number. And so we know what we have to do and we're laser focused on getting it done.

The next question is from Austin Wurschmidt at KeyBanc Capital Markets.

I was just curious on the renewals, the asking rates, the 4.5% to 6.5% that you sent out for May and June. That's a fairly wide range. I was just curious if that's across the entire portfolio. Could you add a little detail there and then where do you expect those to come in on average for the final take?

Austin, it’s Keith. Thanks for the question. Those are the ranges as we look at them across the entire portfolio. And in many cases, we’ll see some that will be a little bit higher than that and it really just comes down to very specific regional and property by property specifics. At the end of the day, generally what we see is about a 50 to 100 meld from the asked to ultimately take rates.

So fair to say that you'd expect some acceleration from the 4.5% renewal achieved in April?

I think that's a good assumption. As we go into peak season, very traditionally, seasonality picks up and that is how we look at it.

And then, Keith, also on the occupancy that you gave for April, 95.6, how does that compare to last year?

The occupancy, let me see if I have that number here. Let’s see. And it’s 50 basis points off of where we were last year at the same time and really the big driver behind that is Denver and Los Angeles. And so as we look at Denver and Los Angeles, they’re about 100 basis points off of where we were from a year ago. So those are the two drivers and as we look at those two markets, we look for those to - we'll be battling through new inventory very specifically in the Mid-Wilshire part of our Los Angeles portfolio and we'll look to get better throughout the year.

And that segues kind of nicely into my last one on Denver and LA. And I was just curious and I think you guys assumed a 3% to 4% growth rate in those two markets and are you still comfortable with those ranges or does some of the occupancy headwinds and supply headwinds at the higher price point concern you at this point?

Austin, I'll tell you how we're seeing it and I’ll let Paul chime in on it as well. I would say that when we look at Los Angeles very specifically, it's really a tale of two different stories. When we look at our Ventura portfolio, which is more of our B price point, we’re seeing strong growth in acceleration there where occupancies are, in the first quarter, at 96.6 to give you an example and we saw north of 6% revenue growth. Really, the pressure comes in the Mid-Wilshire and really like our Palazzo communities. And so as we look at those, we're going to need to see some acceleration throughout the balance of the year and some of those headwinds are things that we're fighting for it. Paul, what would you add?

Yeah. I would just add that with the portfolio such as ours, where we have diversification by price point and geography, it's natural for some markets to maybe underperform our expectation at the beginning of the year, but those will hopefully and likely be offset by markets that are doing better than what we had hoped for at the beginning of the year and I would tell you that, to the start of the year, Boston has done extremely well and we're pleased to have that offset. And we also see continuing strengthening in the DC area. And so there's always a balance and there’s always an offset. So let's keep that in mind as you're thinking about things.

The next question is from Nick Joseph with Citigroup.

Thanks. Just staying with LA, can you talk about what the impact of the decision to delay the stabilization of Palazzo At Park La Brea has on your expected return for that redevelopment?

And Nick, what we have decided to do at Palazzo, we’ve been turning and doing the construction of four at a time. And so as we have seen the absorption of the units during the first quarter, we’ve just cited just to slow down the pace and so it delays the construction of the entire project by about six months, but it's not really going to impact the overall economics and I’d actually tell you for the 120 or so leases that we have signed, we're well ahead of underwriting.

Thanks. And then just, I guess on Indigo as well, you mentioned almost being fully occupied. How is the lease up on a rate basis relative to your initial expectations?

Good. As you noted - this is John by the way. We're several months ahead of our pace of where we thought we would be on Indigo. At this point, it’s literally crossing the 90% threshold this week and we are mid-90s on our under - versus underwriting. We've made a conscious decision last fall to accelerate pace and we took a little dip back then and our rate versus underwriting has actually been building since that point in time and we anticipate by the time we're full, we’ll be up into the high-90s and chase into our underwriting very quickly next year.

Yeah. And I would just add that as we made that decision, we looked at the expected IRR impact and decision to forego a little bit of rate to fill up the building quicker with the net benefits to our return.

The next question is from Juan Sanabria at Bank of America.

Good morning. Just a question on LA again. The same store revenue guidance in the midpoint. Does that need a recovery in the LA market to get to that midpoint and can you talk about the cadence of supply in that market and do you expect any improvements in your growth, particular in the peak leasing season.

And Juan, this is Paul. I'd say that as we think about our revenue growth achievement for the year, it's portfolio, it's not market specific. LA is a large market for us. It is impactful, but it's just one of many factors. As we look at supply, we updated our supply expectations for the next 12 months this week based upon a new third party data and what we saw as we reviewed that information is that we have seen an uptick of supply in the Mid-Wilshire sub market of LA. And so while that was an area that we had forecasts during the 12-month period ending December 31, ‘17 of not having significant level of supply, that has now ticked up to be over 2%. And so supply is impacting us there and we saw that in our results for the quarter and we expect that LA will continue to be a slog for these A price point communities.

And what percentage of your LA market is being hit by that exposure in terms of NOI?

It's really three properties. It's broadcast center, it's Palazzo East and it is the villas of Palazzo.

Can I have the percentage of NOI though? Is it like 80% of your NOI in LA?

Pardon me, Juan.

What percentage of NOI with regards to your LA portfolio do those three assets represent?

Let us follow-up with you on that. I don't have the exact breakdown at that level of detail.

Okay. And one more question for me, just, what are you guys thinking and what’s the latest thought in terms of potential scope and planning over the club in Miami?

Sure. Juan, this is John. We continue in an early phase view of scope and plan there. We've kind of talked a little bit about it and there have been a few press release about scope of the project there, but we're looking at a rehab of the existing building and potentially adding another tower there. If we could proceed with that project, we will do it with a development partner that's got some expertise and then high-rise construction. And I would anticipate a go-forward decision on that no sooner than probably middle of next year. We’re in very early days on this.

The next question is from Rich Anderson at Mizuho Securities.

So just I don't want to kind of wrap up on the future sort of progression of FFO. At $0.58 in the first and second quarter, if you get your guidance this quarter, you don't really get anywhere near the midpoint. I know you've talked about some of the items, but is it redevelopment ramping and bringing to market and getting NOI from that, is it the reversal of property taxes. What are the - can you kind of break out the drivers that get you to a run rate in the second half of the year that get us to that 245 type number.

Yeah Rich, we’ll really drive the FFO and AFFO acceleration in the second half of the year is the impact of our lease up building of One Canal and of Indigo. If you recall back, in July 1 of last year, Indigo was [indiscernible] July 1 of this year, it will be completely full. And so the impact of our lease up buildings or NOI in 2017 is about $0.13. So it's a powerful factor.

And aided a little bit by some you know claw back on the property tax line item.

There will be some benefit in property tax and you also have the typical seasonality of expenses where the first quarter is our period where our controllable operating expenses particularly around contract maintenance for snow removal and utility cost are the highest. And so we'll see some easing of that as we always do.

And then second question, you mentioned kind of sounds like wind down of your tax credit partnership business in five years. Is that at that point where AIMCO becomes basically conventional multifamily company with a redevelopment angle, pretty beautifully boring type stuff?

Actually Rich, I would say we’re there today because what we're doing with that asset management business is that we are earning a fee stream and that fee stream is fairly certain because of where we are in the lifecycle of those partnerships. And so while there will be some earnings contribution to those fees that will diminish over the next five or six years, our business is truly the operation of real estate and that's where we are laser focused.

Right so, but there will be a need to replace those income streams. How do you respond to that? How do you how do you replace that?

Oh sure and as we look at that and even look at it from two perspectives, starting with net asset value. The IRR on that fee stream is about 7% and so if you think about our redevelopment activities where we typically do IRRs of 9% plus mostly in excess of 10% it will be very accretive from the NAV line. Now what there might be is some AFFO and FFO dilution as these partnerships are wound down and our investment options might take a period of time to ramp up. But as we look out the dilution, there's two elements of earning solution. The first is in our deferred tax, second the deferred tax credit income, which we have long scheduled out for everyone in our supplemental schedules. And then the second is the reduction and fees earned from the operations of the properties, those underlying partnerships are slowly liquidated. And we don't really see much of any impact of dilution from that piece of it until about the 2021 period. And at that point in time we'll have dilution of call it $0.04 or $0.05 or less per year. And so looking at that today that's about less than 2.5% of FFO, but as we expect FFO to continue to grow and to expand, it will become even less of a factor, so we...

The next question is from John Kim at BMO Capital Markets.

Your percentage of As in your portfolio have gone up from 43% a couple years ago to 51% today and given the outperformance of Bs and supply coming online over the next couple of years, do you sense that you want to have a better balance between As and Bs going forward?

John, it's Terry, we’re happy with something in the neighborhood of 50/50. There will be different times in the cycle when a change in that mix might favor one or the other. But that rough proportionality balances the defensiveness of the Bs and the income growth that's possible inside the As.

50/50 and then no Cs is the correct?

C pluses we have are basically in high rent markets, so their rents are quite comparable to the Bs.

The weakness you’re seeing in LA is that supply pressure coming just specifically from the Mid-Wilshire sub market or you’re also finding that downtown is having a bigger impact than previously expected.

John, it’s Keith. There's no question that inventory that’s down in the Staple Center is impactful. It's more of a trickledown effect as people move within the different neighborhoods whether it's in Hancock Park or North Hollywood. What’s of interest is that when we really look at it, it's our entry level one bedrooms and two bedrooms those price points that ease the pressure.

And then just a question on the Airbnb and now that the lawsuit has been public, any update on that and any impact on revenues pushing back on your restrictiveness policy?

This is Lisa, thanks for the question. In terms of the litigation it's early days and since you asked the question I'll just add a little commentary around our views on it. We've been really pleased with the positive response that we have received from so many apartment owners who like us object to Airbnb’s trespass on private property rights and that is they should not be permitted to profit by using property without the property owner's consent. And even more we're gratified by the positive response that we've had from our residents. You've heard us say many times before the most important job we do is pick your neighbor. And to that end we screened potential residents on credit, we screen them on criminal background checks, and we hold our residents accountable for being good neighbors. And Airbnb circumvents that and puts our neighbors - puts our residents at unnecessary risk and so that's simply unacceptable to us. From a revenue standpoint I’ll let Keith or Paul dive into that, but it's a really small percentage of our portfolio at any one time but from a philosophical standpoint incredibly important to us.

John, this is Keith, as we think about it's you know typically maybe a couple hundred units, 200 units or so at any given time that we've been navigating with this Airbnb issue.

[indiscernible] any other REITs that are going to join you as far as their stance against Airbnb?

It's hard to say, people are cheering us on, but we'll see what makes the most sense as we proceed through this.

The next question it from Conor Wagner of Green Street Advisors.

So on the revenue growth assumptions, Paul, you mentioned that what you guys have to do to hit the midpoint, but it seems like what you have to do to is hit the high end as pretty aggressive especially given the trends that you've already disclosed for April. Do you see the high end as a realistic possibility?

We said guidance for the year is going to be a year of uncertain and as well we provided a wider than typical range. And I would agree that based on what we know today, the high new guidance looks to be challenging but the environment could change as we progress through the remainder of the year.

And then, John, on the Calhoun redevelopment, just on my simple math it looks like you're getting a 5.5% yield on the increased rents versus the costs there and that's assuming hundred percent contribution from the rents. Is that fair is there something I'm missing and then given that level of return what was your decision for making process there versus selling the asset or do something - doing something else with it.

I mean, to tell you, we’re in early phase, this is early phase of the project, but I’m going to hand it over to Patti Fielding to give you some of the detail around the underwriting and the future phases.

Hi, its’ Patty, thanks for the question. When you think about Calhoun you've got to realize that it’s a multi phased redevelopment project. And we are in the planning process on phase 2 to Phase 3. We believe that we've got an ability to increase the yields overall. While we made the decision to proceed, we consider the IRR which is north of 10% overall on the entire project. As far as yields on the rocks on the pipeline and the portfolio as a whole for redeployment opportunities we're very comfortable that everything we're looking at is north of 6% overall.

So the 10% IIR is based on completing all three phases at Calhoun?

It is, it should be north on all three phases at Calhoun. And so we’ve got to look at it holistically. I mean when you look at the project this is a really unique and special piece of dirt in our portfolio. And Calhoun is like nothing else in the Minneapolis market, it’s surrounded by multi-million dollar single-family homes across the Lake Calhoun. This submarket benefits from highly educated workforce. This is 16% Fortune 500 Companies that are there. Their headquarters are there including the United Health Care targeted by CMC a very, very strong market. The property itself contains 333 units that’s highlighted on the schedule. The first phase does not historic portion of the development which is a 12 story tower that was built in 1998, 275 units. Phase 2 and phase 3 is comprised of the 57 unit vintage building that's nine stories high. And the two towers are joined in the middle by a four story parking garage at about 38,000 square feet of commercial unretail space. We can't replicate this location and we can’t be the history and the nostalgia of this building and its position in the market is second to none. It's an invaluable piece of real estate. And so we have to look at it holistically asks what the long term positioning and value play is on this property and we're in it for the long haul, where this is a lot term hold ad this is a very long-term stable market that this property is in.

Hey Conor, I’d remind you too and these multi-phased projects, we do like this, like Park Towne, like Sterling. Often times the first phase we've got some heavy lifting around some core in the building just maybe a little bit of deferred opportunity to catch the building up. And so of the heavy lifting in the first phase and some of the gravy is in the later phases.

And so then what is the total expected cost for all three phases.

We're not at this we are ready to discuss that as we get phase 2 and phase 3 through investment committee will be in a position to give you the details on that.

When you say investment committee, it sounds like you've already decided to do it or that the only reason you do phase one is because of the gravy that John just mentioned on phases two and three. So it seems like the whole thing has already been spoken for. So I'm just trying to understand that one just understand the cost so we can understand the full scope. But then two, part of the focus on the redevelopment program has been to do it more incrementally so that you know things aren't working out you can pull back quickly or you can be a bit more nimble but as you're describing this project it seems like well it's going to be done in phases. it really only makes sense financially to do the entire scope of work done.

Conor, this is Jerry and he think you make it very good point that if we if we stop on phase one the returns will be accretive but not extraordinary. We haven't finished our work in two and three we expected that we will finish it we can see what's coming. And I think you’ll be satisfied but it's not your exactly right this was about sticking so it's.

Just ballpark then is it like at all in 100 million type project or can you give us a range.

Let's talk about it maybe in June when we're together.

The next question comes from [indiscernible].

Just a quick one can we guidance differently Paul, you kind of reiterated guidance you’re bottom line is kind of the same you're fundamentals you're expecting to get back to the midpoint you know you mention G&A and interest expense for you know favorable to expectations in the quarter I mean do you see that playing out for the rest of the year is there anything driving that were there anything else in you know kind of driving guidance pretty same there.

Hi, Michael, thanks for asking about interest expense in particular we were slightly ahead of our expectations for the first quarter for interest expense and we actually think that's going to carry forward as we progress throughout the remainder of the year. A part of that is that the as we set our expectations for interest rates on our ten year financing that we're going to do the ten-year treasury has dropped a little bit since that time who knows where it's going to go in the future is there's some risk to that but looking at it today we see opportunity. And then another factor impacting interest rates is a decision that we have a couple maturities that are upcoming in the second and third quarter. Where we're just going to take advantage of the arbitrage between floating and fixed rates and carry some of those materials on our line balance for a period of three to six months and get a little bit of a pickup out of that. G&A cost, we were a little bit lower than expected in the first quarter but as we look at the full year the range of G&A cost that we provided in connection with our guidance January so looks to be on track.

Great that's really helpful and then just I get from a bit more generally. You know we talked a lot about L.A. So how I passed on that one but any supply in other markets that they are coming in more favorable or less favorable to where you thought Is there anything you guys are getting it bleed out to later in the year any delivery delays there or anything like that.

I talked about the deliveries that we have seen versus what third parties were forecasting for our markets and Keith may add some extra color. There what we had expected as we've spoken in January was there to be about 7000 deliveries in our high impacts sub markets during the first quarter. We actually only received a little over 4300 of those. And so there has been some delay but the areas where the units were delivered were in some of the more impacted markets we've talked about Denver but another market that's impacted is Inner City Philadelphia we did see a fair number of deliveries there. And so as we look forward on a twelve month basis in our supply outlook has improved slightly in Philadelphia, it's improved slightly and down and the tail which comes as our Indigo property is improved in Atlanta, Buckhead and Midtown and also improves lightly in downtown Denver although we expect downtown Denver to continue to be a challenge. Keith you have any other color.

Michael I just what I would add to it is just maybe just think back to some of the conversations we had about Washington DC a couple years back. When we look at this quarter we're almost a full percentage point more occupied in the first quarter of ‘17 compared to ‘16 in Washington DC and so very much like you see cyclical process of different markets doing different things. We're starting to see some more acceleration in Washington D.C. as we compared over year over year.

The next question is from [indiscernible].

Thanks for taking the question. Following on the last question about debt maturities, you mentioned second quarter and third quarter debt maturities being able to hold out on the line for a while a bigger slope coming in 4Q is there any ability to prepay that you're looking at carrying out a rate above 6, of I think that's something you're opening up pretty hard.

Yeah but we not only evaluate the ability to retain any depositions that are upcoming injuring seventeen we're also looking very hard at our opportunities ‘18; ‘19 and ‘20. So we're having conversations with folks, we’re dealing with any potential modification and as we have real news to report we’ll share it you.

Okay is any of that assumed in guidance the [indiscernible]?

No, it’s not.

And one question just on the markets where you are facing the supply of LA, Denver, Philadelphia has anything surprised you on the demand front the compound of that issue or is there anything about the nature of the supply that has been a surprise in terms of timing.

Drew, this is Keith. I’ll jump in I would say that the source of demand is concerned we see you sufficient demand to meet our needs it's just you know there's definitely been some more pressure as far as how it's being absorbed and that's pretty atypical when you think about new inventory being coming into a marketplace.

So as you head into the spring and summer, are you planning on holding pricing or is there kind of a decisive move being made to manage for occupancy as long as new lease spreads are negative.

Drew, we make that decision truly building by building and so you know some buildings will be more defensive and really making sure we're retaining our residence if we're seeing more front door pressure and others we start seeing some acceleration easing and when we get more aggressive. o those decisions are made literally building by building.

The next question is from Buck Horne at Raymond James Financial.

Just a quick one from me, just with shares trading at a pretty wide discount to your internal view of NAV just wondering if you have any updated thoughts on potential stock repurchases at the levels or what up potentially think of exhilarating asset dispositions or any other activities.

Buck, it’s Terry, and as you know, we guided as a tool and our tool kits and we look at it and we evaluate it compared to other options. We think we still have better returns in Patti’s business and redevelopment. But you're right it's very price sensitive and we'll keep a look at it.

This concludes the question-and-answer session, I would like to turn the conference back over to Mr. Considine for closing remarks.

Well, thank you all for your interest in AIMCO, we appreciate your following. If you have any questions please call Paul Beldin our Chief Financial Officer or Lynn Stanfield our Senior Vice President in charge of investor relations or me. And we will try and give you a straight answer and we wish you all the best and look forward to seeing many of you in June. Thank you.

The conference has now concluded. Thank you for attending today's presentation, you may now disconnect.