Good day, and welcome to the Aimco Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [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 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, 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 to Terry Considine. Terry?

Thank you, Lisa, and good morning to all of you on the call. Thank you for your interest in Aimco. For Aimco, last year was a good year. At the bottom line, AFFO per share was up 8% but it’s more important than the one year result that our success in our five areas of focus provides a foundation for the long-term sustainable profitability we seek for the shareholder capital and entrusted to us. Here are few highlights. In property operations, same-store NOI growth was 4.2% over 4% growth rate for the seventh consecutive year. Keith and his team successfully completed the lease-ups of One Canal in Boston and the Indigo in Redwood City, both well ahead of schedule. In redevelopment in Center City, Philadelphia, we completed the construction and lease-up of The Sterling and of our third tower at Park Towne Place. And we began construction on the fourth and final tower at Park Towne. In portfolio management, we again improved portfolio quality with average revenue per apartment home now more than $2,100 a month, up 7% year-over-year. As to our balance sheet, we have a low leverage investment grade balance sheet, safer because our leverage is primarily nonrecourse and long-dated. We have abundant liquidity with more than $500 million available on our revolving credit facility and we have great flexibility with unencumbered properties worth more than $1.8 billion, up about 13% year-over-year. And as to our team, our intentional culture emphasizes customer focus, personal responsibility for results, collaboration and respect for others. It’s the foundation for the stable and cohesive team that achieved the accomplishments we’ve just reported. As we begin the new year, I am upbeat and energized by our opportunities. U.S. economy is strong and accelerating. Tax reform will provide an additional lift and will increase…

Thanks, Terry. I am pleased to report that we had a solid fourth quarter in operations, led by strong performances in Los Angeles, San Diego and Boston. Same-store revenues were up 2.8%, expenses were up 2.1%, and net operating income was up 3.1% for the quarter and 4.2% for the full-year. Our residents continue to reward us with high marks as they gave us better than a 4-star rating in customer satisfaction for the 17th consecutive quarter with a record 4.29 out of a possible 5 starts. This strong customer satisfaction limited our turnover to 48.5% for the quarter. For the full-year in 2017, turnover was 47%, a 160 basis-point reduction from 2016. This lower turnover was a key contributor to our operational efficiencies and our full-year expense results. We saw increased average daily occupancy and finished at 96.3% for the quarter. That result was 20 basis points better than that fourth quarter of 2016 and our best fourth quarter of occupancy since 2010. Move-out reasons for the quarter are similar when compared to the recent quarters in our long-term averages. Looking at leases which transacted in the quarter. Blended lease rates were up 1.6% with renewal rents having solid increases of 4.5%. We saw a particular strength in Denver, Seattle, Nashville and Chicago. 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 were 80 basis points lower than the prior lease as we traded for higher occupancy during the winter months. We saw continued improvements in Los Angeles and Miami where new leases grew 2% to 3%. Turning to the fourth quarter same-store revenue growth. Our top performers had revenue increases over 4% for the quarter. This was lead by Los Angeles where…

Thank you, Keith. On the transactions front, in the fourth quarter of 2017, we sold two affordable properties and three of our lower rated conventional properties, producing $381 million in net proceeds. And by mid-January, we completed the few remaining property sales that funded the equity for the 2017 reacquisition of our partner’s interest in the Palazzo communities. In total, these property sales closed at prices that exceeded their underlying values and our published NAV at NOI cap rates around 6 and free cash flow cap rates around 5. The Palazzo pair trade reallocated capital from weaker submarkets in Southern Virginia, Southern New Jersey and suburban Maryland to the Mid-Wilshire submarket of Los Angeles where we expect to achieve superior long-term revenue growth, higher rents and higher operating margins, and added $50 million of net asset value to our portfolio in the process. Similarly, our redevelopment activities in 2017 continue to create value. As Terry noted, we completed construction in Center City, Philadelphia on our major redevelopments at The Sterling and the third tower of Park Towne Place, and we continued several projects elsewhere. In total, during 2017, we invested a $158 million in our redevelopments. This investment created roughly $0.35 of value for each dollar invested, leading to NAV creation of more than $55 million. This creation of value to redevelopment along with operational earnings growth are the primary drivers of our economic income performance in recent years. As Terry explained, we measure economic income as the change in our net asset value plus dividends paid. For the past five years, Aimco’s economic income has increased at a compounded annual growth rate of nearly 14%. Looking to 2018, we expect to complete the redevelopment of the final tower of Park Towne Place, continue construction on Parc Mosaic in Boulder, Colorado with anticipated first deliveries in mid-2019, and carry on the planning and execution of redevelopment and development activities at other communities. We expect these activities to create another $50 million to $60 million in net asset value to the Aimco portfolio. While our 2018 guidance does not include any acquisitions, we continue to look for opportunities to make accretive pair trades that improve our portfolio. With that I’d now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Thanks, John. Today, I’d like to spend a few moments on our 2017 results and our balance sheet and then turn to the 2018 guidance that was published yesterday with our earnings release. At the beginning of 2017, we guided to three primary financial metrics. First, at the midpoint, we guided to an 8% increase in AFFO, and achieved it. Second, also at the midpoint, we guided to a 5% increase in FFO, and delivered a 6% increase. And third, we guided to a 3.5 to 5% increase in same-store net operating income and achieved growth of 4.2%. And in doing so, we continued to demonstrate our ability to reduce cost through innovation, delivering a 1.3% reduction in controllable operating expenses and overall expense growth of 70 basis points. Next, turning to the balance sheet. Our balance sheet remains safe and strong with minimal 2018 maturities and over $500 million of capacity available on our revolving credit facility. During the fourth quarter, we closed or rate-locked $189 million of nonrecourse fixed-rate property debt. These loans have a weighted average term of approximately eight years and an interest rate of 3.48%, a spread of 117 basis points over the corresponding treasury rates at the time of pricing. For the year, property debt refinancing activities lowered our weighted average fixed interest rates by almost 20 basis points to 4.64%, generating more than $6 million of prospective annual interest savings. In short, 2017 was a good year for Aimco, both in operations and in our investment activities where we realized gains on sold properties of almost $300 million. We also recognized an impairment, resulting from a January 2018 decision to sell a property as part of a legal settlement. In this settlement, we agreed to sell our interest in our La Jolla Cove…

[Operator Instructions] Today’s first question comes from Austin Wurschmidt of KeyBanc Capital Markets.

Hi. Good morning. Thanks for the time. John, given your comments on continuing to look for acquisitions today in a pair trade manner combined with the comments talked about earlier on the call and referenced NAV and how you think about it, given the discount where are you trading versus NAV today. Would you consider stock buybacks and just what are the latest thoughts there?

Austin, I appreciate you directing the question to me. I think I will defer over to Terry on the question of stock buybacks.

Austin, thank you very much for very good question. It’s something we think about regularly. It’s part of our tool kit. And as we work through the year ahead, we’re open to all options.

And then, maybe touching on dispositions, you guys had assumed 600 million in your 2017 guidance, I think you’ve closed about 450 million included what closed subsequent to year-end. So, curious what’s driving the delta there and then how should we think about the timing on the balance of dispositions, assumed in your 2018 guidance?

Yes. Austin, and just heads up to everybody else on the call, we have a bit of a rough connection and so we’re getting bits and pieces of your questions. But, I believe it was regarding our disposition guidance for the year and what we actually did. As you noted, during 2017, the bulk of our dispositions activity took place at the end of the year. We have closed a few deals here in January of this year that are really carryover deals from 2017, and the bulk of our 2018 guidance we anticipate will take place toward the end of the year as well.

And our next question comes of Juan Sanabria of Bank of America Merrill Lynch. Please go ahead.

On the asset management business and the tax benefit roll-off, how should we think about that beyond ‘18, when are you going to exit the business? And you referenced capital coming back to and being able to be redeployed, how much capital are we talking about?

I will talk about the financial impact for the next couple of years and then Terry or John, if you want to add any color, please jump in. In my prepared remarks, I mentioned that we expect 2017 over 2018 a $0.03 decline from our asset management business. As we look forward into 2019, without getting into particulars about the business as a whole in 2019, we know that there will be a small decline in the amount of low income housing tax for the amortization. As a reminder, those are fees paid to us by our investors to originate those low income housing tax credits. And so, those are expected to decline by approximately $2 million next year or a penny. We don’t expect to have any other declines from sales in 2019 from the communities, although we do work with our partners to explore opportunities to sell. And as we mentioned in our prepared remarks, we think that will be a good thing, because it will allow us to reinvest that capital into our conventional operations.

Juan, what I would add to that is that there is a pretty financial description if you will, financial impacts of the asset management business in our net asset value disclosures. And so, I think you might look there. They are valued at the discounted cash flow of the relatively certain payments that we expect to receive fees and other elements of the original syndications, but that disregards the upside potential of redevelopment. And so, whether we will see that through the run-off according to an existing schedule or be accelerated by a transaction is as unknown at this time and we will keep you posted.

Great, thanks. And then, I was just wondering if you guys have targeted any new redevelopment starts or if you could talk about maybe what’s next on the horizon, whether that be Parc Bay Plaza, anything in the New York City area on the Upper East Side and kind what the latest for Calhoun?

Thanks, Juan. We do have some identified projects that are in -- continue through plan including those that you just referenced. Yes, club in Miami, project up on the Upper East Side in New York that are, what I would call further out. And those would be really more of a development type of a project where we would be building some new buildings. On the redevelopment side of the pipeline, we have an existing pipeline that’s identified in Schedule 10 of our release. We have a handful of others that are in the planning process that when we are ready to implement them, we will announce them.

And our next question comes from John Kim of BMO Capital Markets. Please go ahead.

Terry, in your prepared remarks, you highlighted the diversified nature of your portfolio on a geographic basis. And I’m just wondering, going forward, if tax reform or if the impact from SALT has changed the way that you look to allocate capital going forward?

John, that’s a very good question. I thank you for it. I have an incomplete answer. I think that tax reform has been a tremendous stimulus to the U.S. economy. And it will affect different regions differently. And we would like to maintain a highly diversified portfolio. And so, it gives us a change that we need to think through for different markets. And we don’t have anything to report on it today, but it’s the right question. And we hope to have a more complete answer perhaps by the end of next quarter.

Okay. So, little bit too early to tell at this point?

Yes. We’re thinking about it, but we’re not prepared to act on it, and it’s easier to report when we’ve taken action.

Got it, okay. Looking at your 2018 outlook versus your initial outlook from last year, one thing that kind of stood out to us was the property upgrades. So, you exceeded your target for 2017; and then for 2018, it looks like that range is higher than your initial outlook for 2018. Can you just discuss why this is happening. And if this is really the upgrade from kind of like your Cs and B minuses to a higher grade product.

John, I think you’re referring to the model that we published a year ago for 2018, which provided some broad parameters and applied those parameters in a mathematical way to forecast a range of potential outcomes. And so, there were some variability between what was modeled, and then as went through the detailed budget and planning process where we identified specific opportunities of specific projects to improve our communities. And so, you’re right, it is slightly higher from the model to what we’ve published in our guidance. And the reason is that Lisa and Keith and their teams have done a wonderful job of identifying communities that we expect to earn about a 10% return and a 9% plus IRR by investing dollars on those projects. So, we’re excited about these opportunities. And I think it will benefit the portfolio both next year and along into the future.

And our next question comes from Nick Joseph from Citi. Please go ahead.

Hey, it’s Michael Bilerman here with Nick. Terry, you sort of opened the door in your opening comments talking about NAV and why you think it’s relevant and why you focus on it. And you talked about the unstabilized, the acquisitions, basically the 20% a year gross NAV that’s not in there that arguably will start earning income and then has cash flows. But, I guess if you take the other side of it, one of the important things for NAV is it does give you a sense of overall value relative to where a stock is trading. And you sort of dismissed the share buyback question pretty quickly, sinks an arrow in quiver, in your toolkit. The reality is Street NAVs are $50, you think stock is worth 53. Stock’s trading at $41 million. You trade at the widest discount to NAV in the apartment space at almost 20%; your peers are at 10%. So, it’s not only just an absolute discount, it’s a massive relative discount to your peers. Why aren’t you more confident in your answer about saying, yes, we see this discount and we’re going to do something to take advantage of it, and we’re going to either put the Company up for sale, look for M&A opportunities or be aggressive at buying back our stock? It’s preposterous that you are not like being aggressive enough at trying to narrow discount that you think is there.

Well, Michael, I think you are focusing on a very important question. So, I appreciate it, and it’s one that’s very much on my mind and the mind of our team here. And it’s one that’s also on the minds of our shareholders. And it’s something that we will address in a productive way. But, I wanted to bring your attention what our shareholders keep telling us, which is they are focused on a long-term asset allocation, they are focused on longer-term results, they are not as interested by where the stock trades day to day, and that they look at the long-term record which is satisfying to them, and relatively quite good. And, I think that this will work out in the course of time.

But, why won’t you take more aggressive action as Chairman and CEO of the Company? I mean, you can -- strategic alternatives and selling the Company is one thing, but you are at a leverage position, now where you are underleveraged, you have confidence in the private market. Why not buy back stock at a 20% discount to what your investors and analysts think your NAV is and a 25% discount to what you think it is, why not do it?

Those are good questions. I’m going to say that we would like to talk about results and actions, and we just haven’t made a decision on that.

And our next question today comes from Ivy Zelman of Zelman & Associates. Please go ahead.

Terry, maybe you can chat a little bit about your portfolio, as you said about 50% is really more in A and class B and C. Remind us how much are Cs versus Bs I guess first. And then, what you think the supply that’s still elevated for 2018 is impacting your forecasting and your outlook for ‘18, where there is any trickle fact and maybe some pressure on rents as As are coming down or maybe you are not incorporating any impacts from the supply?

Well, Ivy, thank you very much. It’s good to hear your voice in this call. I think that the Bs and Cs are broken roughly 35% Bs and 15% Cs, plus, I would call them because they have high average rents compared to the nation but lower in their market. So, they tend to be in high-rent markets and tend to have high land values. I think that the impact -- our experience is that the impact of new supply is primarily at the A price point, and that in inside Aimco, if you did a gross screen, you’d see that perhaps 40% of our -- 40% of our capital would screen to be inside those kinds of markets. But, if you adjust for the ones where we have an A for the overall market but a B price in the submarket, and if you adjust for the ones where job growth is quite high, then, we end up with about 20% of our capital in the submarkets where we expect that Keith will earn his keep this year by competing with lease-ups that often discount their rent to absorb that incremental supply. A related part to that -- to your question, as I heard it, was that trickledown effect from the A markets to the Bs and Cs, and there is. There is no doubt about that. And I think that you and your team have written persuasively about the general slowdown in rent growth. And so, we fight that every day; there are offsets to that in improving retention, increasing ADO and controlling cost. And I think that at the end of this year, you and others will be satisfied with the job that Keith and his team do in that area.

Just to make sure I understand it then, you are incorporating some modest impact, deceleration in markets where you’ll see some trickle effect, I think you said 20%, is that correct?

20% of our capital is in markets that we think that are pretty directly impacted. And yes we go through on a property-by-property basis and so we will have less optimism on -- in those areas and greater optimism elsewhere.

And then, another one, if I could, on the competitive landscape and the transaction market for you guys. recognizing that you are obviously competing on the value add product and cap rates have really compressed. Can you give us a perspective of are you still interested in doing value add or are you pulling some because the valuations or more steep at this point, and just then maybe comment on a lending [ph] market and what you are seeing their please?

You are exactly right that it’s a competitive market, and we see lots of properties that we think are priced beyond our ambition. But, we are interested to see properties where we think that the redevelopment skills and the operating skills that have been developed can make it an accretive transaction for us. And so, that’s why we keep looking.

And then, just again on the competitive landscape on what lenders are willing to, are you seeing any change for the positive, lenders easing a little bit after being stringent, any change there?

I think for the interest rate markets, lenders remain quite aggressive, there is a plenty of liquidity, and that the life insurance companies where who are our primary lenders, if anything, are little bit more aggressive than they were a year ago.

And our next question comes from Rob Stevenson with Janney.

Number of your peers are seeing 5% plus increases in payroll due to upward cost structure on both wages and benefits. You guys are actually down a $1 million year-over-year on the offsite cost in your guidance, and it didn’t seem like it was a major factor in the same-store expense guidance either. What are you guys doing to keep the personnel cost down? Is it more technology, mix of more part time people hordes and hordes of unpaid interns, what are you guys doing?

It’s not hordes and hordes of unpaid interns. Listen, it’s a combination of things. And so, let me just walk you through it. Really, it’s about innovation and productivity. And where we have found that we can take fraction or that had been done onsite, move it to our shared service center in which we get a much greater efficiency. When we actually look at the average compensation for our team members, it’s actually gone up greater than 5%, especially for those that are our top performers. So, at the end of the day, we are paying our team members more, rewarding those that are great, and we are finding ways to be much more efficient within our operation onsite.

And then, Paul, what’s the litigation cost to date regarding Airbnb?

Our litigation costs to-date have just not been all that significant, wasn’t impactful to our 2017 results.

And by your comments earlier in terms of excluding it from guidance, are you expecting that to pick up over the course of ‘18?

This is Lisa. We do. As you probably saw, we had a challenge in our California case, but we’re succeeding in our Florida case. And as with most legal proceedings, there are ups and downs, and these cases are going to turn on some complicated legal issues. We’re going to be appealing the dismissal in California to the ninth circuit and in Florida we survived the motion to dismiss. And the fundamental issue for us is that we just object to their intentional interference in our private property rights and our contracts and the impact that that has on our residents. We’ve consistently said that our most important job is picking our residents and our residents’ neighbors. And what Airbnb is doing is preventing us from fulfilling that promise to our customers. So, as we proceed with the litigation, there will be some increased costs coming into 2018.

And our next question comes from Conor Wagner with Green Street Advisors. Please go ahead.

Keith, you mentioned on rent growth that it would be similar new lease and renewals. So, is the assumption around 4.5 for 2018 on renewals and around 50 to 75 bps on new lease fair?

Conor, this is Paul. That math that you just did, works. But as you know, there are a million different ways to achieve revenue growth, so it could be a function of higher rent, lower renew, higher new, lower renewal or combination of both those and changes in occupancy. So, there is a lot of different levers to pull but the high level math that you just walked through, certainly works.

Thanks, Paul. And then, Terry, you opened up the call, you said you’re upbeat and you’re energized. We note that you’re going to celebrate your 25-year anniversary in the public market next year. Just like to know what you’re thoughts are for yourself and your role in the Company over the next three to five years.

Well, Conor, just to put gasoline on the fire, it will actually be my second 25th anniversary of being in the public market, since that began in 1971.

You said it, not me.

At Aimco, all facts are friendly. I’m enthusiastic and energetic about my work. I’m delighted by the team with whom I spend my days. We do good work and we expect to do that for the foreseeable future.

And for you specifically, as of right now just for the investors that are listening in, you feel -- again, the future is uncertain but making three to five-year commitment in your role as CEO and Chairman is something you’re comfortable with?

I am.

Great, thank you. And then, Terry, just on a lighter note, I know, you’re the only apartment CEO who has Boston and Philadelphia in the Super Bowl and given that Philadelphia is going to riot in either case of the outcome, have you increased your CapEx, your maintenance reserves in that market for Q1?

Well, you point to a material risk, because Philadelphia will riot in either case but Boston may celebrate too and burn the town down. So, either way, it’s going to be an expensive Sunday.

And our next question comes from Richard Anderson with Mizuho Securities. Please go ahead.

Well, that question was taken from me, but I have one more. So, Terry, at the beginning, you mentioned disposable income as a consequence of tax reform. And I’m curious how this kind of parlays into single-family market from the perspective of Aimco. Imagine, single-family becomes more of a competitive factor in rental housing. First of all, do you agree with that? And second, do you think some of the other elements of tax reform, namely to cap some mortgage interest deductibility and property tax deductibility provide a material offset to this potential increase in single-family as a competitive threat to apartments?

Rich, thank you very much. that’s a good question; it reflects your usual focus on the big picture. I think that tax reform and the improving economy is good for single-family demand, not so much because of the rising income, although, I think that’s important, but because higher interest rates will make it easier to cumulate down-payments. And that’s been the block to demand, particularly at the entry level. I think that the caps on deductibility won’t materially affect that because most people at the entry level will have benefited from the standard deduction anyway. And so that -- it doesn’t affect their -- the money they have available to pay debt service. The impact on the apartment business will vary very much depending on the customers involved. If the customers involved are primarily young couples getting started, then, there will be very direct competition from single-family housing to pull those people out of two or three-bedroom apartments that you might see across the Sun Belt. But of course, we’ve redeployed away from that. So, today, most of our apartments are in areas where the competitive single-family housing is quite high. And most -- about half of our customers are single occupants. So, they’re just not as attracted to home purchases. But, there’re plenty of apartments that will be subject to the discipline and the impact that you just asked about.

And our next question comes from Buck Horne of Raymond James. Please go ahead.

I just wanted to drill down a little bit on some markets that you guys have a fairly positive outlook on for the coming year, but in which you do have some A priced properties, some high quality locations, in places like Los Angeles and San Diego and Miami, but where -- we think there’s some growing supply pressure, you seem to have a feeling that you’re going to kind of perform similar to last year with those supply pressures. Maybe walk us through how you have that comfort level and why you think you’ll be able to perform similar to last year there.

Buck, first of all, again, a terrific question, very thoughtful. I read your piece this morning and made a note about -- to look into CoreLogic and to be sure I understand their submarkets. Because what I touched on in my remarks and want to remind everyone on the call, is that supply is very local. And so, when people look at a market, for example our largest market Los Angeles and they say supply is up in Los Angeles, that is -- that can be true but irrelevant to Mid-Wilshire or to Calabasas if the supply is concentrated Staples. So, you’re talking about broad areas, and it matters very much where that local supply increase is. As we sort through our portfolio, we think, as I said, about 20% of our capital will be challenged by competitive new supply. And that’s probably up a little bit over last year but it’s in the same zip code. And, in those areas, we have to work harder at customer satisfaction, customer retention, and manage your costs. And that’s exactly what Keith did in 2017, it’s exactly what we predict will happen in 2018.

And I guess, secondly, did you have to take any impairments or write-downs on tax assets or other tax management related income due to the new legislation?

Hey, Buck, this Paul. Thank you for that question. As far as the impact of the tax legislation, just so everybody is clear, it impacts only two lines of our financial results for those of you that have the supplemental schedules handy, in our supplemental package, Scheduled 2 outlines our FFO by line item. And so we have two income tax related line items there. One is associated with historic tax benefits, the others are our other tax benefits. So, those are the only two items line items that are impacted by tax reform. And so, as we evaluated the impact of our deferred tax assets and liabilities on our balance sheet, we are able to write down the liability for these deferred taxes that we’ve incurred but not yet paid and that created a benefit, but then that caused us also to evaluate the deferred tax assets we had on our books and how we’d be able to use those in the future. And so, the net of tax reform on our recorded assets and liabilities was about a net $500,000 benefit to FFO, which we’ve excluded in the process of reporting pro forma FFO. So, fairly inconsequential.

And this concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.

Thank you all for your interest in Aimco. If you have questions afterwards, please feel free to call Paul Beldin or Lynn Stanfield or myself, I’m Terry Considine. We want to be transparent and give you the information we can. And we look forward to seeing many of you at the investor conferences that line the calendars as we look at the year ahead. So, thank you very much.

And thank you, sir. Today’s conference has now concluded and we thank you all for attending today’s presentation. You may now disconnect and have a wonderful day.