Good day, and welcome to the Aimco First Quarter 2018 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, Executive Vice President and General Counsel. 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 will now turn the call to Terry Considine. Terry?

Thank you, Lisa and good morning to all of you on this call. Thank you for your interest in Aimco. Aimco enjoyed a solid first quarter. In property operations, revenue was up. Same-store occupancy was the best first quarter result in the past 7 years. Blended rent increases were 2.7%, up 60 basis points year-over-year and this positive trend continues in April. In redevelopment and development, projects are on time, on budget and are creating value. In portfolio management, we improved our portfolio with pair trades for two selected acquisitions where even in a fully priced market, Aimco's operational expertise can produce significant value creation and we funded both with well executed sales so that's the pair trade increased expected free cash flow internal rate of return by 400 basis points. In February, we purchased Bent Tree Apartments, a community located close to two Aimco communities in West Fairfax County, all three built by the same developer in the late 1980s. We know the market, we know the buildings and we know exactly what to do to increase Bent Tree's profitability. Later in April, we announced the partnership with, a prominent Philadelphia developer who contributed to Aimco's portfolio of six-A quality apartment communities in the Philadelphia market, mainly in Center City, and University City. We are pleased to welcome Carl as a partner, and we're gratified that his confidence at Aimco resulted in him becoming a top 20 investor by taking $90 million of OP units valued at $53 per share, consistent with Aimco's published net asset value. Later in Aimco -- later in April, we agreed to sell our asset management portfolio and four remaining affordable communities, completing our methodical multiyear exit from this line of business. In doing so at a price of $126 million in excess of our published net asset value. These transactions and indeed, all the good work at Aimco are due to a hard-working team energized and shaped by Aimco's intentional culture of respect and collaboration, customer focus and responsibility for results. I'm grateful and humbled that Aimco was recognized in April as a top workplace in Colorado for a sixth consecutive year, a record of long-term excellent shared with only seven other companies across our entire state. For these successes and all their hard work, I offer sincere thanks to my Aimco teammates, both here in Denver and across the country. Now for a more detailed report on the first quarter, I'll 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. The same-store revenues up 2.6%, expenses up 2.1% and net operating income up 2.7%. We had strong average daily occupancy of 96.3% for the quarter, 30 basis points better than the first quarter of 2017. We continue to provide exceptional customer service. Residents gave us better than four stars for the 18th consecutive quarter with 4.26 out five stars. Our high customer satisfaction limited our turnover to 45.8% for the quarter, 470 basis points better than the first quarter of 2017. Lower turnover continues to be a key contributor to our operational efficiencies and expense results. Looking at leases, which transacted in the quarter, same-store blended lease rates were up 2.7%, with renewal rents having solid increases of 4.9% and new leases up 40 basis points. We saw new lease rates of 46% in Miami, Los Angeles, and San Diego. These are some of our most important markets, which account for about a quarter of our same-store NOI. We had the most pressure on new lease rates in Seattle, Nashville, and Baltimore. These less impactful markets only represent 4% of same-store NOI. Turning to the first quarter same-store revenue growth. Our top performers had revenue increases over 3% for the quarter. This includes Miami, the Bay Area, San Diego, and Denver. Strong performers, which had revenue growth over 2% were Boston, Los Angeles, Chicago and Seattle. With revenue growth of flat to 1%, we had Washington, D.C. and New York, and finally, revenue was down in Atlanta and Philadelphia. As a reminder, our Philadelphia same-store portfolio is two communities and does not include our premier redevelopment properties. Those Philadelphia redevelopments, along with our substantial portfolio outside of same-store have started off strong in 2018. The…

Thank you, Keith. As Terry discussed, we identified and executed on a few unique transactions in recent months that are indicative of our pair trade philosophy and our eye for opportunistic investing. In February, Aimco closed on the purchase of Bent Tree apartments in Fairfax County, Virginia, just a few miles Southeast of Dallas airport for $160 million. Keith mentioned this team's progress increasing rent since acquisition, but the ability to raise rents is only part of the story. Bent Tree presented an opportunity for us to take advantage of Aimco's specific knowledge to execute a trade we believe will outperform the market in general. Specifically, we saw opportunities in the following areas, the market. As Terry noted, Aimco operates two very similar properties, located five and 10 miles from Bent Tree, Shenandoah Crossing and Berkshire Commons. The building, these other two properties were built by the same developer that built Bent Tree. We've taken both of those communities through various capital enhancements in recent years and understand clearly where the market demand is and what it will pay. The team, we promoted a new manager to Bent Tree from Berkshire Commons. She knows the market, knows the property and has quickly set about implementing the Aimco management plan. And finally, the system. Aimco's ability to operate efficiently provides us an opportunity to outperform prior operations and the market. We found a similar opportunity when we announced in mid-April that we had entered an agreement to acquire a portfolio of six communities in Philadelphia. These communities, three of which are best-of-class renovations of the storage structures and three of which are new construction, fits seamlessly in Aimco's Philadelphia portfolio, with the Center City and University City focus that complements our existing properties and bring a world-class team of local knowledge…

Thanks John. I'd like to cover today a number of subjects starting with our financial results for the first quarter. AFFO per share of $0.54 was up 6% year-over-year and $0.02 ahead of the midpoint of guidance. One $0.01 of outperformance is due to stronger than guided profit operations, including a benefit from Bent Tree, which we own for about half of the quarter. The other $0.01 is due to the timing of capital replacement spending. Our balance sheet remains safe, liquid, and strong. We have limited refunding risk, less than 1% of our property debt matures during the balance of this year. The weighted average maturity of our leverage is 8.7 years, up slightly from year end. We are liquid with abundant capacity, more than $0.5 billion available on our revolving credit facility and $2 billion in our unencumbered properties available as dry powder to support additional borrowings. We have limited entity risk because we continue to use primarily long-term fixed rate non-recourse property debt. During the quarter, we closed $242 million of fixed-rate senior loans at a weighted average interest rate of 3.48%, lowering the weighted average interest rate of our total fixed rate debt by almost 10 basis points to 4.55% and reducing annual interest expense by more than $3 million. We also placed $119 million of five-year floating-rate property loans with interest at 30-day LIBOR plus 125 bps, an all-in rate today of 3.17%. The five-year term fills a hole in our maturity ladder, and after the expected repayment of our term borrowing, reduces our exposure to floating interest rates to less than 7% of total leverage. Next, I'd like to cover the financial highlights of our year-to-date transaction activities. Our investment discipline is to fund these acquisitions by paired trades. Proceeds from the sale of…

Thank you. [Operator Instructions] And our first question will come from Austin Wurschmidt of KeyBanc Capital Markets.

Hi good morning out there. So, last quarter, you guys talked about the midpoint of revenue growth was comprised of an increase in average daily occupancy of 10 basis points and blended lease rate, growth of about 2.5%. You achieved better results in the first quarter with occupancy of 30 bps, blended lease rate growth was 2.7%. And those trends continued, if not improved, a bit into April, particularly on the occupancy side. So just curious if you expect that to trend lower through the balance of the year? Or if you're just being a little bit conservative as it remains early in the year.

Austin, thank you for your question. This is Paul. And you recapped the fact exactly right. We're off to a great start to the year, but it is 25% of our business. So we like what we have achieved so far, but we have the other 75% of our leases yet to transact, and we look forward to reporting our progress as we proceed through peak leasing.

And then, so when you look at the supply picture quarter-by-quarter, do you expect that to ramp, remain fairly steady or decrease as the year progresses? And then what's kind of the early expectation as you look into 2019 versus 2018 supply?

Austin, this is Paul and then I'll turn it over if anybody else wants to add some additional color. I think we collectively all have learned predicting supply is somewhat challenging, particularly when you talk about it on a quarterly basis. What we see in our submarkets is that, that supply in aggregate is expected to be delivered at a fairly ratable pace throughout 2018, that's always subject to change. We'll see what actually happens, but that's what the third-party forecasters are currently projecting. And I just like to remind everybody, as we think about supply, we look at it when supply is meaningful, and in our definition, that is supply as a percentage of existing stock of greater than 2% and that supply is being delivered into a submarket where Aimco has price-point communities. And so as we look at supply in that lens, we have roughly about 20% of our gross asset value that would meet that criteria, and that's actually a fairly similar, if not maybe down slightly, from where we were in the end of the fourth quarter.

Great. Thanks for taking the questions Paul.

And the next question will come from Nick Joseph of Citi.

Hey, it's Michael Bilerman here with Nick. Terry, you spent a bunch of time talking about Dranoff took equity at $53 a share on an OP basis, but I wonder if you can just step back, and even at current pricing, it's about 20, 25 basis points on the total deal yield. It's only 15% to 20% of the total, taking out 80%, 85% in cash, its tax, right? So, if it's in a long-dated piece of equity for him, it almost doesn't matter where the stock price is or what the unit is because his basis is what it contributed to the assets. I guess, why focus so much on something that's arguably somewhat not material in nature to the overall transaction?

Thank you, Michael. I think it's one of the things we appreciate and the relative weight to it is, of course, in the eye of the beholder, but I'm very grateful for Carl's place in what we're doing. I think he'll be a great partner and help us in our work going forward.

But that really isn't -- I mean, the reality is it's not a big part of the proceeds that he's taken, right? The majority of proceeds is cash. He's taking units to protect his tax basis. The $53 in the fictional number because his basis is the assets he's selling. And if you just took it at the current stock price, it's only 25 basis points on the transaction from an exit perspective. So, I'm just -- I know why you want the headline, but I think it's a little bit misleading.

It's a free country, you're entitled to your opinion, Michael.

Well, how about we ask this from the other perspectives. If the NAV is at $53, you sold the related assets at a premium to what you disclosed the NAV, why not buy your stock in the low 40s at north of the six and five cap rate then roll in proceeds at market into assets?

You ask this question each quarter and I think it's a good one. And it's something that we think about, we keep in our toolkit. You know that we've made stock buybacks in scale at previous times and we may yet again, but we haven't done it this quarter.

But in the context of spending $450 million, right? The majority of $350 million of which is in cash, either taking debt or using your line of credit, if you truly believe in the NAV, which was certainly justified by the related transaction at a premium to what you put into those numbers, why not use any capacity you have to buy back your script, rather than buying assets at market?

It's a very good question. As I've said, it's something we think about, something we've done in the past and we may do in the future, but we didn't do this quarter.

Okay. Thank you.

And the next question will come from Juan Sanabria of Bank of America Merrill Lynch.

This is actually [Indiscernible] with Juan Sanabria. So a question on your disposition, when you say cap rates on affordable units and also the asset management business, how do you guys value that?

So, I'll give you just kind of rough guidelines. So on the asset management business, it is a little tough to apply a cap rate to it per se because this is a fee-based business. We were not selling underlying real estate, so that's really not the way we looked at it from a value perspective. We look at it as a valuation of the fee and income stream associated with that over the runoff of the business. And effectively, we kind of put it into an IRR-based model that they ended up in the fours. The Hunters Pointe communities were real estate transactions, and those are four caps. Those are mid fours on a cap rate basis.

And Shirley, just to clarify what John said, the free cash flow internal rate of return that he quoted in the fours, it's 4.4% and that's actually the combined free cash flow IRR for the fee stream that John described and the four affordable communities in Hunters Point of San Francisco.

Got it. So, I guess, in addition, you guys flip side, acquisition in Fairfax and also Philly, any other place that you're looking at for opportunity?

Well, in terms of other opportunities, we continue to look all over the country on a regular basis as we've kind of highlighted here this quarter. When we do make a trade, we are making a trade on paired trade basis where we think we can trade out of assets that have a lower long-term value to the portfolio than what we're buying, and we measure that via free cash flow internal rate of return. We have an ongoing pipeline of opportunities that we look at. If you look back to last year, we didn't buy anything. This year, we've done a couple of deals, and I think as we look forward, I would expect we will do very selective deals when we see an opportunity.

Okay.

And next we have a question from Dennis McGill of Zelman & Associates.

First question just has to do with the Philly increased exposure. Was that driven by your interest in expanding in Philly because of some of the metrics that you had mentioned, the City Center area in particular? Or was it more the opportunity came to you and it's sort of met an area that you are perhaps somewhat interested in?

I think it's a little bit of both. I think that as we look at opportunities, kind of following up on the prior question, when we see things come across, we look at it in relation to the submarket specifically where the property is located. We look at it and how that submarket fits within our portfolio. What we have within our portfolio that we could trade out of, that would be an accretive, better trade to come out and go into the new opportunity and so we certainly saw that in Philadelphia. This was not a portfolio that was on the market. This was an opportunity that we had to approach a local owner, developer who had a very high quality portfolio in submarkets that we frankly are quite attracted to and we thought it was a good fit for our portfolio, and Weston and his team was able to put together the deal.

Okay. And then on the operational side, I think you talked about blended rent rates in April were 2.6%, could you tell us what that is versus a year ago?

Yes. Dennis, this is Paul. I believe blended lease rate for this portfolio a year ago we're up about 2.2%.

Okay. And if you think about how that's trended so far this year, it's basically been 2.6% or 2.7% each month, but you would think normally there'd be some seasonal lift. Is there something that's preventing that seasonal lift? Or how are you guys thinking about the normal seasonality versus what you're seeing so far this year?

Dennis, this is Keith. We basically produced on our plan to this point when we get into May, June and through August, in our peak season. That is when demand typically accelerates and we see a lift. Its early days, and we will wait and see exactly how that happens, but we're optimistic about our positioning being highly occupied and having strong rates at this point going into peak season.

Okay. Appreciate it. Thank you.

And our next question will come from Drew Babin of Baird.

Thanks for taking my question. Quick question on Miami. Obviously, quite a sequential pickup in occupancy, and I think up 130 basis points or so and good pricing. I was just curious kind of what specifically is happening in Miami? Is it supply burning off? Is it something on the demand side? Any color there will help.

Drew, it's Keith. I'll walk you through the Miami piece. So, in Brickell, we have a very specific building, a Yacht Club that has a lease-up that's going to be happening across the street that's panorama. This particular building, we had anticipated moving, that will start happening in the fourth quarter. It's been a little delayed in their deliveries, so we've had a little stronger occupancy there going into the first quarter. And then the balance of our portfolio also has performed a little stronger than we had anticipated. So, I'd say a bit of it is timing on some supply, specifically in Brickell and the rest of it is doing a little better than we thought.

Okay, that's helpful. And then, quickly on Philadelphia, are you assuming anything specifically? Or can you point to anything specifically in your demand forecast regarding the Comcast Technology Center opening by the end of this year? Obviously, very proximate to The Sterling and then some other assets, but I guess what types of jobs might that bring in? Is that something that's kind of critical to your decision to up weight Philadelphia?

Thank you for the question. This is John. That Comcast Innovation Center is literally across the alley from The Sterling building that we completed the redevelopment on. You heard Keith say earlier, it's over 96% occupied today. We anticipate that that building will do nothing but good for The Sterling. For Park Towne, that's about less than half a mile away from it and the Dranoff buildings there are also within 0.5 to 0.75 of a mile. And so as we look forward, yes, we see a lot of good things happening, not just with Comcast, but with other companies in the area. We've got Vanguard that's bringing some of their operations downtown in the next couple of years. And just the dynamic in Philadelphia. We were there last week with our Board, did a walking tour. We were walking around the streets and there is an element of dynamism, and I realized there are Philadelphia doubters out there, and I candidly have been one of them over time. And you get out and you walk the streets, and there's a different feel in that town right now than there was five years ago and that's really what we're looking forward to and that's what we're looking to leverage.

Great. Thanks for that. And then one question for Paul and the balance sheet. 2019 debt maturities, I assume some of that is pre-payable this year at some point, is there anything in your guidance specifically regarding refinancing of that debt or otherwise paying it down?

Yes, Drew, thank you for the question. You're right. We have about 25% of our 2019 maturities is pre-payable at par, starting in the fourth quarter. We have started discussions with our lenders on that debt and so the potential benefit from refinancing that, that at today's rates was contemplated in our guidance and we're working to achieve that.

All right, great. That's all for me. Thank you.

[Operator Instructions] And our next question will come from John Pawlowski of Green Street Advisors.

Thanks. Terry, my first question is on the portfolio footprint as it sits today. First is your peers. You have the fewest amount of units broadly and spread across the most markets, so that was clearly your G&A is higher than most of your peers as a percent of assets. Why does it make sense to operate such disparate footprint? And are exit markets being actively considered internally?

John, first of all, thank you very much, and I'm confident that you'll have an opinion about Philadelphia as a hometown boy and maybe you can reassure others on the call, that we do look at markets of changing our weighting and other markets where we'd like to increase our weighting. And it's really driven more by investment opportunities than it is by G&A. Our G&A as a percentage of revenue or GADs right in the middle of the pack, and we want to be careful and frugal about it so -- but the main investment issue is where we can put capital and have the highest risk-adjusted returns.

Are you exploring any exit markets right now actively?

As John mentioned, we look regularly across the country at lots and lots of deals, but we do very few because we look for ones that have sort of much higher returns than the properties would sell to fund them. For example, most recently, the spread between buying and selling in the paired trade that Paul described is 400 basis points.

Okay. And last one for me. Terry, when the Board asks you going forward, what are you and the team going to do differently to close the valuation gap than you've done in the past couple of years? What do you say?

Well, of course, what goes on at the Board meeting, goes on in the Board meeting, wouldn't necessarily be what -- wouldn't want to report here on the call. But broadly, I think they think as our shareholders do, that we should focus on our business and increasing net asset value and that over time, this will be reflected in the market.

Okay. Thanks.

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

So, thank you, and thank you all on the call for your interest. I reiterate Paul's invitation to tour Bent Tree or Philadelphia, and I look forward to seeing many of you in a month's time at NAREIT. Thanks again.

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