Good afternoon, and welcome to the Aimco Second 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, and good day. During this conference call, the forward-looking statements we make are based on management’s judgment, including projections related to 2017 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, our Executive Vice President 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. 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. Business is good and we are on target. Aimco has a simple business plan, focus on customer service and cost control to operate profitably; upgrade our portfolio by accretive redevelopments and acquisitions funded by pair trades; improve the quality of earnings by simplifying our business; maintain a flexible low-risk balance sheet; and commit to collaborative, highly engaged teamwork. The second quarter included a number of proofs that our plan is working and working well. Here are a few highlights. First, AFFO, our preferred measure for current period profitability was $0.03 per share ahead of the midpoint of guidance. Second, property operations were on track with same-store net operating income up 4.9% year-over-year, contributing an incremental $0.03 per share of net operating income over second quarter 2016. Third, our portfolio outside of same-store contributed an incremental net NOI of $0.04 per share over the same quarter last year and our redevelopment and lease-up projects are on plan. Fourth, our portfolio gets better and better, boosted in the second quarter by the purchase of our partner’s 47% interest in the Palazzo communities. We reacquired 100% ownership in three high-quality properties that we know well and have operated since their construction. This pair trade at closing increased net asset value for our shareholders by about $50 million and has the potential for further value creation through accretive redevelopment. And fifth, early in the second quarter, Aimco was recognized once again as one of Colorado’s top workplaces, one of only a dozen or so among the hundreds considered to have earned this recognition for the fifth consecutive year. For these good results, I offer sincere thanks to my Aimco teammates, both here in Denver as well as across the country. It’s a privilege and a pleasure to work with you. And now for a more detailed report in the second quarter, I would 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 second quarter in [indiscernible]. We continue to improve our overall performance through the strong leasing efforts at our redevelopment lease-up properties. Across all redevelopment projects, we transacted on 541 apartment homes in the quarter, the majority of which were at Park Towne in The Sterling, which were at a 138% of pre-redev results. These contributed towards an incremental revenue lift of $1 million when compared to the same quarter last year. At our two largest lease-up communities, Indigo in Redwood City and One Canal in Boston, we transacted on 135 apartment homes during the quarter, contributing towards an incremental $7 million of revenue versus the second quarter of 2016. Now turning to same-store sales. We finished the second quarter with revenues up 3.4%, expenses down 30 basis points and net operating income up 4.9%. Turnover for the quarter was 48.4%, 50 basis points better than the second quarter of 2016. Move-out reasons for the quarter are unchanged versus recent results or our long-term averages. And our residents gave us a better than a four-star rating in customer satisfaction for the 15th consecutive quarter with a 4.24 out of a possible five stars matching our high watermark from the first quarter. Looking at rates, which transacted in the quarter. Blended lease rates were up 2.7% with renewal rents having solid increases of 4.6%. We saw particular strength in Seattle, Atlanta and Denver. Renewal rents in these markets increased more than 5% compared to the expiring leases. Where those leases expired and were not renewed, our new leases increased 1% versus the prior lease, a 200 basis point improvement over the first quarter. We saw particular improvements in Seattle, San Diego and Boston, where new leases had premiums between 3% and 9%. Turning to the second quarter same-store revenue growth. Our top performers had revenue increases from better than 5% to nearly 9% for the quarter. This was led by Seattle followed by San Diego and Miami. Our strong performers, which had revenue growth from about 3.5% to better than 4% were Los Angeles, Boston and Atlanta. Our steady markets with 2.5% to better than 3% revenue growth were Chicago, Denver, New York and Washington, D.C. And with revenue growth between flat and about 2%, we had the Bay Area and Philadelphia. Finally, and looking at our early third quarter results, July month-to-date blended lease rates are up 3.2%, the renewals up 4.6%, new leases up 2%, about doubling June’s results. July’s average daily occupancy is on plan at 96%, 60 basis points better than prior year, and August and September 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. As Terry previously mentioned, on June 30, Aimco reacquired our partner’s 47% interest in the Palazzo communities for $451.5 million. These communities are located in the Mid-Wilshire district of Los Angeles. And for those of you not familiar with the area, it includes some of the best retail in the city, median home prices of $1 million and high-income customers with the proclivity to rent. This submarket is projected to have average annual revenue growth of 3.4% over the next 10 years and relatively mild supply pressure at just over 2% over the next year. Preparing this acquisition with the disposition of lower-rated communities in Rhode Island, Virginia, Maryland and New Jersey, that are on average over 22 years older have lower rents and lower margins and are in submarkets with revenue growth projected to be about 30% lower over the next 10 years than the Palazzo’s. This trade is expected to result in a 150 basis point higher free cash flow internal rate of return to increase our average monthly revenue per apartment home across Aimco’s portfolio to nearly $2,100 and increase the percentage of operating revenue earned in our primary markets to 93%. During the second quarter, we invested $47 million in our planned redevelopment activities. Construction at The Sterling in Philadelphia is now complete and the community is over 95% occupied. And at Park Towne Place also in Philadelphia, our two completed towers are 90% leased, construction on the third tower is about 70% complete, and leasing is well ahead of plan. In fact, we are nearly 60% leased on this tower even as construction continues. During the quarter, we commenced two new phase redevelopments at Palazzo East in Los Angeles and at the Flamingo in South Beach with planned investment of $38 million. And finally, thanks to the fantastic work of our team in Northern California, as Keith noted, we completed the lease-up of Indigo in Redwood City nearly three months ahead of schedule. With that, I’d now like to turn the call over to our Chief Financial officer, Paul Beldin.

Thanks, John. Starting with our financial results for the second quarter. AFFO of $0.51 per share and pro forma FFO of $0.61 per share were each $0.03 ahead of the midpoints of our respective guidance ranges with the outperformance driven primarily by lower than anticipated interest and G&A expenses as well as somewhat better performance by our non-same-store real estate operations. Next, Aimco’s balance sheet remains strong with abundant liquidity and limited exposure to capital markets. In the second quarter, we continued to take advantage of a low-interest rate environment and priced seven loans totaling $79 million. These loans have a weighted average interest rate of 3.46%, a spread of 129 basis points over the corresponding treasury rates at the time of pricing. Additionally, in conjunction with the Palazzo acquisition, we assumed $141 million of existing property debt and funded the remainder of the purchase price with a $250 million term loan and line borrowings. We expect to repay the $311 million of incremental corporate debt with proceeds from future property sales. Upon completion of the pair trade, this transaction will be neutral to Aimco’s total amount of leverage. However, due to the NOI yield variance, our leverage to EBITDA ratio will initially increase by approximately two-tenths of a turn. Since computing our leverage ratios using a trailing 12-month EBITDA is not reflective of current operating results and has variances demonstrated by the Palazzo transaction, we have based our leverage ratios on an annualization of current quarter results as adjusted for material transactions completed during the quarter. Now, turning to guidance. In early June, we updated our guidance. In that update, we maintained our AFFO, FFO and same-store NOI guidance and revised our expectations for year-over-year same-store revenue and expense growth. We remain comfortable with this view and expect full-year revenue growth of 3% to 3.6%, expense growth from 0.80% to 1.4% and NOI growth of 3.75% to 4.75%. Today, about two-thirds of our full-year 2017 transactions are completed, 14,000 leases for occupancy in January through July and 2,600 executed leases for occupancy in August and September. The blended rent increase achieved in all 16,600 leases is 3.0%, and our year-to-date average daily occupancy is 95.9%. And while there are many different paths to revenue growth and the future is inherently unpredictable, maintaining our average daily occupancy and blended rental rate increases from the first seven months of the year during the balance of 2017 would be one path to the midpoint of our revenue guidance. As the full-year FFO and pro forma FFO, our beginning of the year guidance remains unchanged. Finally, in yesterday’s release, we set guidance for the third quarter AFFO per share of $0.50 to $0.54 and FFO per share of $0.60 to $0.64. With that, we will now open up the call for questions. Please limit your questions to two per time in the queue. Laura, I’ll turn it over to you for the first question.

Thank you. [Operator Instructions] And our first question will come from Nick Joseph of Citigroup.

Thanks. I just want to start on L.A. and Denver. Obviously, earlier in the year, it was a lot slower than you expected. I think you attributed that to Aimco’s specific issues. So I was just wondering if you can give us an update on those two markets, and if those issues are fixed going forward?

Hey, Nick, it’s Keith. I’ll walk through it. So first, both in L.A. and Denver, we had a sluggish first quarter. And when we think about it, we always want to internally look at ourselves first and just think about what are the things we can do and we had some operational opportunities. And in Denver, in particular, we had some service opportunities and some openings and things that we thought we could be better at. And so we feel very good about those being solved and I think it’s reflected in the improvement in the numbers. Looking at Palazzo in the Mid-Wilshire, that was really kind of the topics of conversation when we were thinking about L.A. And of course, in Los Angeles, we break that into Greater L.A. and then of course those buildings in the Mid-Wilshire. The Mid-Wilshire buildings, we also felt like we had some opportunities operationally. And what we’ve seen is, we’ve seen some media left in those particular buildings in the Mid-Wilshire corridor there somewhere around 200 plus basis points over the past several months. With that being said, there is still supply in staples, and there’s still some pressure on rates since a little bit sluggish at times. But we are feeling much better about how we’re looking forward. I’d also just step away and talk about the Greater L.A, Simi Valley, Ventura County. Those are portfolios are running really strong, 97% occupancy, as an example, we saw blended rates better than 6% there, and so those continue to do well.

Thanks. I appreciate the details. And then just for the Palazzo assets, now that they are wholly owned, is there any change to how they are operated? I imagine that JV partners had some say in terms of operations.

Nick, it’s Terry. What I would say is first that, JPMorgan was a terrific partner, and we felt that we had a good working relationship. Patti Fielding on our team was the person to work with them. And I think that she and we found it a constructive relationship that help make us better. But you are right, with unified ownership, there will be changes and we will have a greater opportunity and greater incentive to do not only better in operations, as Keith discussed, but to pursue accretive redevelopment.

Thanks. Are there any specific operating changes of how you operate wholly-owned assets versus how those assets were being operated before?

We’ve tried to do in each case the best we can.

Thanks, Terry.

Thank you.

And our next question comes from Juan Sanabria of Bank of America Merrill Lynch.

Hi. I was hoping you could give us a little bit of color on some of the targeted NOI cap rates on the dispositions to bring you back to kind of the leverage-neutral position post the Palazzo acquisition.

Yes. You bet, Juan. Thank you for the question. This is Paul. As we are marketing the properties that we are selling, as John mentioned in his remarks, these properties are located in Rhode Island; in Southern Virginia; Maryland; in Plainsboro, New Jersey. And the expected NOI cap rate on these assets is about a 6.2% NOI cap rate. We think about it more from our free cash flow cap rate, because capital replacement spending is very real and impactful. And after we adjust for expected capital replacement spending, that yield is about 5.3%, and that compares to an initial stabilized yield from an NOI perspective. The Palazzo’s a 4.2%, and on a, as John mentioned in his prepared remarks, the spread on a free cash flow yield is about 1,200 basis points.

Okay. Thank you.

I’m sorry. I’m sorry, Juan. I got off, my memory failed me. It’s 130 basis points. Sorry for that moment of panic.

Thank you. That’s okay. We don’t have them. And then could you just talk about kind of Boston and D.C., those two markets kind of big markets for you, what you are seeing, particularly on D.C.? We’ve heard kind of different commentary from some of your peers. And kind of how you expect those two markets going forward to perform and as the supply kind of comes off and there still should be improvement to 2018, but just what you’re seeing and what you expect going forward?

Juan, this is Keith. I’ll take that one. I’ll start in Boston. When we think about Boston, Boston has been one of our better performing markets when we look across the portfolio and it had a really good quarter. One of the things I’d tell you is that, we made some trades. We were running pretty rich with occupancy and wanted to make some trades for rates that will earn in over the next 12 months or more. And so for us, we continue to feel good about our Boston portfolio. Moving to our D.C. portfolio, really two different places, we’re in suburban Virginia and Maryland. Both are about 2.5% revenue growth is what we saw. And so what we’ve seen historically over the past several quarters is some shifting back and forth, one performing better than the other at times. And in this particular quarter, they are pretty much on top of each other. What we saw in Maryland was some greater absorption of inventory. Our occupancy moved up and really was a change in – well, that really drove the change and they’re both getting on par with each other.

Okay. And just lastly, if I could, do you guys have any views on supply, just views in first-half versus second-half 2017 and thoughts about what you guys are expecting in 2018?

Yes, Juan, I’ll start and then I’ll open up to the group to see if there’s any additional color that people want to provide. As we entered the year, we expected the supply deliveries to be fairly balanced, although slightly weighted to the first-half of the year. What we have seen through the first six months is that a decent percentage of the supply has been pushed to the second-half of the year. And so according to MPF Research, which is our data provider on this subject, in our markets where we have A price point assets and where we expect new supply to be delivered an excess 2%. We expect to see about 17,000 deliveries in the second-half of the year, and that compares to about 10,000 in the first-half. But while the total number of deliveries is increasing, it’s also very important to look at where those deliveries are occurring. And so the – about 25% of these deliveries are occurring in Atlanta and we only have about 1% of our NOI in Atlanta. So while the total number of units delivered is large, the impact on Aimco should be relatively muted. And then another 20% of deliveries are occurring in the Central Business District in Boston, as well as South San Mateo County. Those are two submarkets where we have lease-ups that we’ve completed at One Canal and at Indigo. And so for those reasons – for those supply reasons, we’re very pleased that Keith and the team were able to wrap up those lease-ups ahead of schedule.

Juan, what I would add to that, and this is Terry. Supply is a constant fact of this business and it’s Adam Smith. If we have excess profits that attracts new competition, and that will be a continuing factor that we think about. And we address it at Aimco in a couple of important ways that I just want to point out. First of all, we have a commitment to be in C+ assets with half of our portfolio, which is relatively isolated. Secondly, we are geographically diversified, and because markets are not synchronous, we have some markets that aren’t being pressured by new supply. And third is there are many things besides new supply that govern outcomes. And you can see that in Keith’s results this year, they include having higher customer renewal rates, having lower turnover, lower bad debt, good cost control, and those allow us to deal with new supply and still produce acceptable operating results.

Thank you.

And our next question will come from Austin Wurschmidt of KeyBanc Capital Markets.

Hi, thanks for taking the question. Just curious what other opportunities you are seeing on the acquisition or pair trade side that might be of interest. And if there’s anything else in the portfolio that’s Palazzo like, where you could move to a wholly-owned position that you are seeing or anything you are considering today.

Sure. Down the acquisition front – this is John. On the acquisition front, we continue to look at deals as we have for the last couple of years. We don’t have anything else on the immediate horizon. In terms of joint ventures, Palazzo was far and away our largest. We have small – a few small ones left around, primarily on the light tech side of the business. But there’s nothing else of the magnitude of Palazzo’s coming down the pipe.

Great, thanks. And then I’m just curious, you guys have talked about the successes you’ve had in the redevelopment opportunities in Philadelphia, and revenue was flat year-over-year this quarter. So can you just give us some additional color around the strength and opportunity on the redevelopment side? And then what’s weighing on the performance within the broader portfolio in Philadelphia?

Yes, Austin, this is Paul. I’ll address the question. Patti, please jump in if I miss a point or two. On the numbers that you were citing relative to our performance in Philadelphia, that is our same-store pool. And so that does not include the work that we’ve been doing, both at Park Towne and at Sterling in Center City. And so those properties have been going through the lease-up process, and they have leased-up in a manner consistent with our underwriting, consistent with our expectations. And actually in the case of the third tower at Park Towne Place, the lease-up pace has been much quicker than what we had underwritten and expected.

And, Austin, this is Keith. I’ll just – the other same-store portfolio in Philly – most of those assets are located in University City, and we’re just seeing more pressure with supply that’s in that area.

Great. Thanks for the detail.

The next question comes from John Kim of BMO Capital Markets.

Thanks. Good morning. I just wanted to know on Flamingo South Beach, how big the second phase of the redevelopment can be and if it’s going to entail the entire community or just a few of the units?

Hey, John, it’s Terry. We don’t want to get ahead of ourselves in reporting on it. But what we’re considering is a very thoroughgoing substantial investment in upgrading that property, which is located, as you know, on a remarkable piece of ground.

Are there any expansion opportunities as part of that?

We’ll talk about it when we’re ready.

Okay. And now that the dust has settled in on Indigo, what had the stabilized deals end up becoming? And do you see it contributing higher than average same-store revenue growth as sort of the second cycle of leases?

Hey, John, this is Paul. When we did our underwriting for Indigo, we expected a stabilized NOI yield of just under 5%. While we are complete with the lease-up of the community, I would say that it’s not yet at – operating at a stabilized manner. If you think about a lease-up, as you go through that process, you typically have a period of stabilization, because people that are early adopters and move in just as construction is finishing, there’s a little bit of a construction discount element to that. And so as those leases turn and burn off, we expect our yield to continue to increase and we are right on pace with that 5 0 expectation.

And rental growth, it sounds like it’s going to be higher than average?

That is outside of same-store.

John, Terry commented that, just to remind everyone, Indigo is outside of same-store. But as far as our rental growth expectations, when we did our underwriting for the deal, we looked at long-term historical averages, and we will see what the future holds. To-date, actual expectations have been in line with underwriting.

Okay, I appreciate it. Thank you.

The next question will come from Dennis McGill of Zelman & Associates.

Thanks. Good morning. This is Pete Peikidis here with Dennis. A question on full-year same-store guidance. So if we take the midpoint of 3.3% and take what was achieved here in the first-half of 3.4%, it sort of implies that the back-half is likely to come in somewhere around 3.2%, right? So if we think about the supply coming onboard and when that hits in the second-half of the year, how do you look at the third quarter versus the fourth quarter in terms of revenue growth?

Yes, thank you for the question. As we look at the remainder of the year, what we mentioned early in our prepared remarks, that we have about 70% of our leasing transactions already complete and done. As we move forward through August, we’ll pick up about another 10% to 12% or so of our year. And so the impact of new supply on us will be rather muted, because as we look at third-party forecast, we see the lion’s share of that’s roughly, I believe, it was about a 17,000 number of units delivered. More of those were expected to be delivered in the fourth quarter than in the third quarter. And by that point, our revenue growth is effectively baked for the year.

Great, thanks for that color. And then if we look on the expense side, it looks like the operating expense bucket posted a modest decrease year-over-year. I was wondering if you could give us some color on the buckets within that, say, payrolls and repair and maintenance?

This is Keith. I’ll take that. So I think the first thing that’s important is just realize it’s not a single number when we think about expenses. It’s made up of several pluses and minuses, accounts that are up and down, particularly when we think – I’ll give you an example, where we spend more in repairs and maintenance, where we are maintaining our assets, preserving the quality and ensuring our customers are having an exceptional experience. I think that can be seen through the customer satisfaction scores that we talked about. Additionally, we are spending more on our top-performing team members, in which we would know that finding team members and retaining them is important, and so we spend more there. And then ultimately, we want to offset those things, where we take advantage of innovation and efficiencies, where we can find ways to centralize work or more importantly, find ways that if we can even eliminate work. So it’s multiple accounts in different places, and it’s very strategic in a way we approach it.

Great. Thanks for taking my questions.

The next question comes from Michael Lewis of SunTrust.

All right. Thank you. I have a question about the composition of the same-store pool. So there’s puts and takes every quarter. This quarter, that pool is about 4,000 units less than it was in the first quarter, but about 3,000 of those units came from this other market’s bucket, which was the softest performer a quarter ago. So I guess, my question is, what’s the story with those units? And then is there any way to kind of quantify what the impact on the same-store results was?

Yes. Thank you for your question, Mike. If you’ll recall, when we updated our guidance at NAREIT in June, we updated our expectations for dispositions for the year. And in that process, we identified our properties that had the lowest expected future free cash flow internal rate of returns. And as part of that analysis, expected future revenue growth plays very heavily into those expectations. And so not surprisingly, those communities that have the lowest expected revenue growth for the next 10 years, also happen to have the expected lowest revenue growth for the current year. And in our guidance update, we quantified the impact to our same-store pool of removing those properties, and that was about a 20 basis impact for the full-year at the NOI line.

Okay.

And Mike, what I would add to that, it’s Terry, is when we described that at – in making our guidance adjustment, one of our long-term shareholders made the point, I see you’re doing exactly what we hired you to do. You are selling lower growth properties to invest in higher growth properties. And that’s exactly what you can expect, not just in the balance of this year, but going forward.

Understood. And then my second question, I wanted to ask about New York. It’s slowed, but I think it’s holding up relatively well, given a lot of supply in the city. But maybe you could talk about your portfolio positioning in that market and how you feel you’re positioned in terms of location and price point, which maybe is a little bit different than some competitors.

Yes, Mike, as a reminder, our portfolio in New York, particularly in the same-store pool is comprised of about 500 units. The vast majority of those units are locations on the Upper East and Upper West Side, so they are primarily walkup buildings. And so it’s a very different product type than what many of our competitors have in New York.

Great. So I guess, my question is more kind of, do you feel like that’s an advantage at this point. I would imagine, yes, but obviously, the new supplies, high price point, Class A, any comments on that?

Michael, I think the numbers speak for themselves. It’s a great place to be. It’s also a portfolio whose land value is comparable to, or sometimes in excess of its current income value. So we like it very much.

Okay. Thanks a lot, guys.

And our next question will come from Conor Wagner of Green Street Advisors. Mr. Wagner, your line is open. Mr. Wagner?

Hello, can you hear me?

Yes, we can, Conor.

Can you hear me?

We do, Conor. Can you hear us?

Yes, sorry about that So on the same-store pool, you pulled the Palazzo asset out of there at Los Angeles. What was the impact on L.A. fundamentals there, or how can we get a better view on Los Angeles?

Yes, well, Conor, at the beginning of the year, we had to remove Palazzo West from our same-store pools, because it was undergoing redevelopment. We pulled out Palazzo East and The Villas of – at Park La Brea, the two other communities in the Palazzo joint venture from the same-store pool during the second quarter, and that was done based upon the redevelopment expectation at those projects. And so as we look at the impact for the full-year, there’s probably, say, a 10 to 15 basis point impact to the NOI line from that change. But it’s – other than – but it was consistent with our expectations, just pull those out as we were updating our guidance in June.

Okay. Is that 10 to 15, positive or negative?

It is positive to the same-store pool.

Okay. And then on Boston, Keith, you mentioned that was one of your better-performing markets. But it looked like the sequential number decelerated versus last year, and you have a pretty tough sequential comp going into 3Q. So what’s your outlook for Boston for the rest of the year? And if you can – if the sequential comp looking 2Q 2017 versus 2Q 2016, if that’s misleading to us, just how should we think about that?

Conor, thanks. And you are looking at it the same way we are. There is a sequential decrease. The – it was pretty much deliberate. We had been running in the high-97s, moved it down into the 95% occupancy. So that we could take some additional rates that it would earn in over time, knowing we had some tough comps. And that the way that we would be able to offset that would be the get earning for break and not an occupancy play.

And then how’s that been going so far in 3Q, again, as you are facing a pretty tough comp there?

We’re one month into it and it’s been pretty good so far.

Great. Thank you.

And next, we have a question from Michael Kodesch of Canaccord.

Hey, thanks for taking my questions, guys. Just really quickly, you mentioned in the second quarter, the beat was largely driven – or beat towards your expectations is largely driven by G&A and interest expense? Were there any one-time items in there? I noticed you guys reiterated your G&A guidance for the year, but just kind of I want to better understand that?

Yes, Michael, thank you for the questions. As we were thinking about – as while I was thinking about updating guidance, my recent experience with revenue guidance was fresh in my mind. And I thought, I would just take a wait-and-see approach on the remainder of the year and decided not to build in those – the outperformance in the second quarter into our full-year numbers.

Okay. So would you say, just taking an air of conservatism, just going on – just with all the supply coming in, or just because it was recently updated?

Yes. There was an element of conservatism to it. But to answer your first question as well, Michael, there weren’t any significant one-time items that impacts our results in the second quarter.

Great, thanks. That’s all for me.

And the next question comes from Rich Anderson of Mizuho.

Hey, thanks. Good morning. I hope you can hear me.

Good morning. Sorry, Rich.

Okay. So just a couple of theoretical questions for Friday, I guess. Do you guys find yourselves being invited into sort of retail – current retail locations as sort of a mixed-use component as the e-commerce force is impacting that property class or causing them to maybe expand their horizons a little bit? I’m wondering if that is becoming a new phenomenon in real estate in general and multifamily in specific?

Rich, it’s Terry. I would say that the tremendous changes that are occurring in the retail business are likely to invite more mixed-use and more non-retail uses and more multifamily participation, so that wouldn’t surprise me. But nor can I say that we’ve seen it particularly.

Okay. And then I think I read some place, and this could be right or wrong. But that Amazon is – I think it was Amazon or maybe it was Facebook that’s going to build their own housing for their people in the Silicon Valley. And I’m wondering, have you seen any evidence of sort of atypical builders of multifamily real estate, again, kind of taking the e-commerce theme to brick-and-mortar? Is that something that you hear about, or is it just too soon?

Facebook announced plans to build, I think it was 1,500 apartment homes on their campus, and that will take more than 5 years probably to execute, given local zoning and other requirements. And some of the same people complaining about high rents have also complained about high density. It’s not something that’s going to happen overnight nor is it by itself a particularly material increase to the supply and demand factors on the peninsula. But I do think it’s just Adam Smith at work, that where rents are high, their profitability will be high, and it will attract new competition sometimes from merchant builders, sometimes from investment builders and sometimes from technology companies looking to provide lower-cost housing for their employees.

And to that point, have you guys thought about becoming a developer or a real estate partner to some of these enormous companies that need housing for their employees?

I think it’s a great idea. If you’d make a few introductions for us, we’d try to do a good job for them.

Excellent. I’ll make some calls right after this. Thanks.

I appreciate that. Thank you.

And our next question comes from Rob Stevenson of Janney.

Good afternoon, guys. Can you talk a little bit about where you guys are relationship-wise and/or legal-wise with Airbnb? I mean, I know that there’s a lawsuit, et cetera, but are you seeing – are you cracking down on Airbnb within your facilities? Are they being helpful in terms of letting you know who is doing it within your facilities? Can you just talk a little bit about the current status there?

Hey, Rob, thanks for the question. It’s Lisa. I’ll kick it off and then Keith can give you some more of the details in terms of what we’re doing on site. We had tried to work out arrangements with Airbnb that were not successful, which is what really prompted the filing of the lawsuit. It’s not our desire to be led to this. But it really is our desire to do our number one job with respect to our residents, which is to pick their neighbors. As we said many times, our residents rely on us to provide a safe environment and we focus on having communities and communities that are not transient. And we’ve talked a lot about our retention in the sector and our focus on customer service and how we screen potential residents on their financial wherewithal, criminal background, et cetera. And so creating a stable, respectful community matters to us and we hold our residents accountable for that. And so Airbnb has not been interested in cooperating with us. In fact, if you’ve ever been on their site, they do their best to kind of mask specific addresses of their listing. But we are resolute in terms of what we believe and in terms of what we provide as customer service and the safety and security of our communities. And the fact that, we are the owners of the real estate and so we have a say, the only say in who comes on our site, and Airbnb guests, frankly, are trespassing and that’s not what we’re interested in. Keith can give you a bit more color in terms of what we’re doing to ferret out Airbnb hosts and guests on our sites, while we try to work this out with Airbnb on a global basis. Keith?

I would just – what I’d add to Lisa’s comments is that, we find those guests to be very disruptive to our communities, particularly when you think about common spaces and many times don’t treat our apartments or our homes – they don’t treat them like their homes. They treat them like they’re on a vacation and they will have parties and be really causing a ruckus. And so we have taken some very specific steps around how we not only empower our own management team, but security teams and others to get them off of our property, particularly when they are illegally. And then beyond that, I just – I would say, that it’s – what we have found more and more is this isn’t Mrs. Smith who needs to rent her apartment out for an extra day to make some extra income. It’s more folks that are utilizing this as a business model, in which they have more than one unit and they’re renting it out and using it as a hotel type of thing. And we just do not support that at all in our communities.

Are you seeing the issues at just certain specific assets and specific markets, or is it more widespread across the portfolio?

We’ve seen it definitely more specifically in places like Miami and Los Angeles, where they are more like vacation destinations, the Flamingo, in particular, The Palazzo, in particular. We’ve seen a greater propensity of this type of activity, but it does finds itself in other places beyond that.

Okay, perfect. I appreciate it, guys.

And next, we have a follow-up question from Nick Joseph of Citigroup.

Hey, it’s Michael Bilerman with Nick. Terry, if you look at the last four years and you take the midpoint of your guidance for this year, you’ve averaged about 5% core FFO growth. In that same time period, your same-store NOI has been over 5%, and you keep pulling assets in and out of the same-store pool, for redevelopments, for sale, stuff that you’ve acquired. And so I just wonder whether you think same-store is actually representative of your portfolio, or does it overstate effectively your portfolio performance. And when do you effectively see core earnings growth to actually be ahead of same-store, especially given that you do have higher leverage than your peers, which should have a greater impact on per share growth?

Michael, I – thank you. It’s a characteristically thoughtful question from you. So I appreciate it. This is Terry.

Is that uncharacteristic?

No, you know I feel otherwise. I think it’s an insightful question. I think that over that same period of time, what you see is a number of moving parts of which same-store is an important one. And the same-store numbers are absolutely correct and representative of that portfolio. A second portfolio is the activities that go on through redevelopment and disposition and so forth. And sometimes, we are trading lower net operating income yields for higher free cash flow growth, which you will see over time. But the third and – factor that I’d point out in terms of overall bottom line is that, we’re going through a transformation of exiting the light tech business, improving the quality of earnings. And so you need to pull those things out, that short-term earnings growth is being offset by the faster growth in these other areas.

So I guess, when does it – when do you inflect where actual core growth is going to accelerate greater than what your top line is being highlighted as, because one would think that you are doing 5% on the top line, just your peer leverage would result in a much higher underlying core cash flow growth. And I’m just curious at what point do those inflect to the positive, where you start getting the benefit of your financial leverage?

I would have to sit down and walk through that. And I don’t look at it as an inflection point. But the – and I’d be happy to call you and work that through offline. But the dynamic of it is well disclosed and let me just give you the elements. We have a residual burn-off of income in the affordable business that is relatively flat in its contribution over the next two years and then burns off over the next four or five. So that’s one element of negativity. Secondly, you will have whatever changes are made in any future pair trades if we are looking at NOIs as opposed to free cash flow. But I think you can see the stronger growth in free cash flow, and I think you can see it in this quarter, and I think you will see it in this year and I think you will see it going forward.

And then just one specific portfolio question, Upper East Side now that the Second Avenue Subway is open and a lot of the scaffolding is down. Have you seen any impact? Has that portfolio rebounded at all?

What we have – and those properties there are doing well. But what’s interesting is that the inquiries we’ve had from people who would like to build buildings on our sites. And I think it’s more likely than not that we will have one or more of those under development, whether by us or by – and some structured as we’ve done in other cases, because the ground value there, including the air rights there is quite valuable and maybe in excess of the income – capitalized income value.

And you are doing that in a joint venture-type format to limit your dollars at risk?

We are always very disciplined about creating financial structures that limit our exposure. We’ve got expressed policies, we’ve communicated to the Street. And – but I can’t talk about a structure of a deal that hasn’t been made yet.

All right. Thanks for your time, Terry.

You bet. Thanks, Michael.

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 very much, and thank you all in this call for your interest. Aimco had a good quarter and we are pleased by that. We’ve got plenty of work to do in the balance of the year, but we expect to be on track. And if you have any questions, please call Paul Beldin or Lynn Stanfield or me, we’d be glad to answer them as best we can. Thank you so much.

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