Apartment Investment and Management Company (AIV) Q4 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Apartment Investment and Management Company Earnings Conference Call. [Operator Instructions] And now I would like to turn the call over to Lisa Cohn, Executive Vice President and General Counsel. Please go ahead, ma'am.

Thank you. Good morning, and good afternoon. During this conference call, forward-looking statements we make are based on management's judgment, including projections related to 2011 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. Also, we will discuss certain non-GAAP financial measures, such as funds from operations. 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. The participants on today's call will be Terry Considine, our Chairman and CEO, who will provide opening remarks; and Ernie Freedman, our CFO, who will review fourth quarter results, capital markets activity and guidance for the first quarter and full year 2011. Also, in the room today and available to answer questions are Miles Cortez, our Chief Administrative Officer; John Bezzant, EVP of Transactions; Keith Kimmel, who runs our Property Operations; and Dan Matula, who runs Redev [Redevelopment] and Construction Services. I will now turn the call to Terry Considine, our CEO. Terry?

Thank you, Lisa, and thanks to all of you for your interest in AIMCO. We had a good fourth quarter and a very solid 2010. In a few minutes, Ernie will discuss operating and financial results and provide 2011 guidance. But before I turn the call over to him, I'd like to offer my perspective on where AIMCO has been and where we are going. As we all know, the last few years have been extremely difficult for the U.S. economy and it's not been an easy time for apartments either. But the apartment business has fared far better than the overall economy. Looking back, here's how AIMCO did. Total Same Store income was up 3.7% in 2008, it was down 3.3% in 2009 and it was up 80 basis points last year. In other words, Same Store net operating income was positive for two of the last three years. And taken together, Same Store net operating income over that same three-year period was up 1.1%. So the big picture is we have a steady and improving business, and our conventional Same Store net operating results are better than peer averages for the past one, three and five years. And our conventional Same Store operating margin actually improved during the great recession to better than 61%. And during all of this, our balance sheet got better. For example, recourse debt was largely eliminated, costs were lowered, near-term maturities were reduced, liquidity and capacity were increased. These results are quite solid and reflect the hard work and the professionalism of the entire AIMCO team, and they have my admiration and thanks. As we turn to the new year, we begin with cautious optimism but also concerned about the pitfalls that may lie ahead. On balance, we expect a gradual and halting recovery in the U.S. economy, but also continued high unemployment, so that consumers will be price-sensitive and cautious, labor costs will be subdued and the Federal Reserve will be motivated to keep interest rates low even at the risk of unwelcome inflation. We are concerned that capital markets remain vulnerable to shocks, such as we saw last year with the Eurozone sovereign debt crisis, and as we may see this year, perhaps following the headlines in the Middle East or perhaps in response to the financial strait to state and federal governments. So with that as backdrop, our first priority is to maximize revenue by maintaining high occupancy and working to increase rental rates. Now I've read the peer reports and the projections of data providers and some are more optimistic than I am. If they prove correct, and I hope they are, I expect AIMCO rent increases will track their projections. But we are not, at least not yet, projecting such large increases, and so we are making our plans assuming that the road remains a little bumpy. As a result, our second priority is continued strict cost control, both at our properties, where we're managing costs quite carefully, and off-site where we continue to reduce costs, including G&A by deploying labor saving technology and by simplifying our business. For example, liquidating non-core activities and reducing the number of partnerships and their related expenses. Notwithstanding our cost discipline, we plan to continue and even increase substantial repairs and maintenance spending and also to increase the number of revenue enhancing capital projects so that our properties are in a good position to attract whatever rent increases may be available. Along the same lines, we expect to ramp up our redevelopment activity with a handful of redevelopment starts later in the year. We expect to strengthen our balance sheet by avoiding recourse debt, reducing refunding risk by extending the duration of our debt, already 1/3 longer than the peer average, taking advantage of today's interest rates to lower our cost of leverage and reducing leverage overall by embracing the discipline of property debt amortization. We are actively pursuing acquisition opportunities in our target markets and regularly underwrite properties and make offers to buy them. But for the time being, we see more attractive investment opportunities within our existing portfolio, in tender and merger activities within our partnerships and in property upgrades and the redevelopment of properties we already own. In sum, our theme is more, steady as she goes, than happy days are here again. As the economy does accelerate, as we all hope, we'll be ready and in a good position to participate fully. With that, I'll turn it over to Ernie Freedman, AIMCO's Chief Financial Officer. Ernie?

Thanks, Terry. On today's call, I will cover the following subjects: first, our operating and financial results for the fourth quarter and full year 2010; second, our balance sheet; and third, I'll provide first quarter and full year 2011 guidance. As to operating results, fourth quarter and full year total portfolio NOI, total Same Store NOI and Conventional Same Store NOI were all positive year-over-year. Specifically, total Same Store NOI, which includes Conventional and Affordable Same Store, was up 6.1% for the quarter and up 80 basis points for the year. The components of total Same Store include Conventional and Affordable properties. Conventional Same Store NOI was up 5% for the quarter and up 20 basis points for the year. Affordable Same Store NOI was up 15.3% for the quarter and up 4.8% for the year. For our Conventional Same Store properties, rates on new leases during the quarter were, on average, 90 basis points higher than expiring lease rates, making the fourth quarter the first time since the second quarter 2008 that new lease rates were positive on a lease-to-lease basis. Rates on renewal leases during the quarter were on average 1.6% higher than expiring lease rates. Conventional Same Store expenses were down 3.7% for the quarter, primarily due to adjustment of previously estimated real estate taxes, after successful settlement of appeals during the quarter. Controllable operating expenses such as personnel costs, marketing and turnover were also lower than fourth quarter 2009, while we have continued to increase spending to upgrade our properties. For the year, Conventional Same Store expenses were down 1%, primarily due to lower real estate taxes with controllable operating expenses essentially flat. Regarding January 2011, average daily occupancy for our Conventional Same Store portfolio was 96.4% and new lease rates were up 1.4% from expiring lease rates, while renewal rates were up 2.5% from expiring lease rates. Overall, year-over-year monthly revenue growth has been positive since August, with January 2011 revenues up 2.1% from January last year. As to FFO. Fourth quarter pro forma FFO of $0.39 per share was $0.03 per share above the midpoint of our guidance range, primarily as a result of property operating income of $0.05 per share above expectations, including $0.04 for Conventional Same Store, primarily due to higher occupancy and property tax adjustments that were not contemplated in guidance and $0.01 from Affordable property operations due to higher average rates. These favorable results were partially offset by the write-off of uncollectible fees, which totaled $0.02 per share. Turning to our balance sheet. With our term debt fully repaid in July, our only recourse debt obligation is our revolving line of credit, which other than collateralized letters of credit was undrawn at December 31 when its available capacity was $260 million. We have no property debt maturities during the first quarter. For the full year, we have $105 million of property debt maturing. Of this amount, $79 million occurs in the second quarter, which loan we rate locked in the third quarter of 2010 and will be refinanced this quarter. The loan is a seven-year fixed-rate loan at a rate of 3.56%. The remaining $26 million of maturities represents four loans that we will refinance in the ordinary course during the year. We will continue our efforts to look for opportunities to extend 2012 through 2015 property debt maturities to reduce refunding risk and to take advantage of current interest rates. And we remain on plan to reduce somewhat AIMCO financial leverage, both by cyclical recovery of property income and by scheduled amortization of our property debt, which averages about $80 billion per year over the next few years. During the fourth quarter, we issued 600,000 shares under our ATM program at a weighted average price of $24.50 per share, generating $14 million in proceeds. This cash was used to complete two partnership merger transactions. And finally, we announced on Wednesday that our board of directors has declared a $0.12 per share quarterly dividend, which represents a 20% increase. Looking ahead to 2011 for the year, FFO was projected to range from $1.46 per share to $1.56 per share. Page 6 of our release includes a reconciliation of 2010 FFO to 2011 guidance at the midpoint. Specifically $0.13 per share increase from operations due to higher rates; $0.09 per share in lower offsite costs, including G&A; and $0.02 per share in lower preferred stock dividends. These positive variances in recurring line items are offset by the following negative variances, which are non-recurring in nature: $0.12 per share from 2010 and 2011 property sales, $0.06 per share due to the impact of refinancing floating rate property debt to fixed rate during 2010 and 2011, $0.05 per share from lowering non-recurring revenue and $0.03 per share due to lower interest income due to reductions in receivables. Our particular assumptions for the full year 2011 have been provided in our earnings release and include the following for property operations. We expect total portfolio net operating income, which includes our Conventional Same Store properties, Conventional Redevelopment properties and our Affordable properties to increase year-over-year 2% to 4%. We anticipate year-over-year Conventional Same Store NOI growth of 2 1/2% to 4 1/2%, which includes revenue growth of 2% to 3% and a 1/2% to 1 1/2% increase in expenses. Within our assumption for revenue growth is the expectation that both the new lease and renewal rental rates will increase 3.6% over expiring leases. Third-party data providers have forecasted in our markets that new lease rates will be up somewhere between 3.1% and 6.2%. As Terry noted earlier, we remain cautious about the overall economy and today project that our new lease rates will be towards the lower end of the range of third-party estimates. However, our performance in 2010 is tracked by third parties, and consistent with our own results, is at the high end of performance amongst our apartment REIT peers. If the market turns out to be stronger than we are currently projecting, we are confident we will fully participate in this improvement as we did in 2010. Please refer to Page 5 of our earnings release for additional guidance assumptions, including projections for recurring and non-recurring Investment Management income; offsite costs including G&A; capital expenditures; transaction activities and property debt activity. A comment about acquisition and refinancing activity. Our current guidance does not contemplate us completing acquisitions beyond our partnership transactions. However, we have included in guidance $2 million of pursuit cost as we continue to seek additional accretive investment opportunities. Regarding refinancing activity, we are pursuing many opportunities to refund loans maturing in the upcoming years. It may be economic for us to incur prepayment penalties to lock in today's lower interest rate and extend those maturities. Depending on the outcome of our new business effort and refinancing activities, pursuit costs and prepayment penalties may be higher than currently contemplated in guidance. Lastly, for the first quarter of 2011, FFO is projected to be $0.33 to $0.37 per share, with year-over-year Conventional Same Store NOI growth of 3.5% to 4.5%. Before we take questions, I would like to mention that we will again be hosting several property tours in 2011, the schedule for which is included on Page 6 of this morning's earnings release. If you are interesting in attending one of these events, please contact Elizabeth Coalson to sign up. With that, we will now open up the call to questions. [Operator Instructions] Operator, I'll turn it over to you for the first question.

[Operator Instructions] Our first question comes from Jay Habermann of Goldman Sachs.

Terry, just surprised there weren't any comments on Tim's departure. Could you give us some sense of, in terms of the plan to identify his successor and the timing of such an announcement?

Jay, as my comment would be that Tim has a wonderful opportunity. He'll do a great job for Blackstone. We'll miss him here. We don't plan to fill that position. We'll just flatten the organization; historically AIMCO has not had a Chief Operating Officer. We had one for a couple of years, a decade ago and Tom Toomey held that title and one for the last year while Tim Beaudin held that title. In general, what I would say is that over the past few years, we've significantly streamlined and refocused AIMCO and we've done so for several reasons but one benefit has been to substantially reduce offsite costs, including G&A. And that's good, not bad, and generally filled our vacancies by promoting from within. Our senior management team averages eight to 10 years of AIMCO experience, so we're used to working together and it shows that amidst this turnover, we've not missed a beat. In fact, our results have improved vis-à-vis our peers and our G&A has been reduced from 7% of revenue in 2008 to about 4.5% last year.

In terms of the partnership acquisitions, can you give us a sense of the total size of such investment over time and the types of yields you anticipate there? And I guess, just continuing on that theme of transactions, can you comment on the asset sales and I guess what drove the nine cap there?

Jay, this is Ernie. I'll address the question around the partnership merger and tender activity, and I'll let John Bezzant to talk about the cap rates with regards to the sales that happened in the fourth quarter. We expect to finish most of our merger and tender activity within 2011, and we laid that out in our guidance, is what we think those expectations were in terms of the amount of assets. For us, we had a great thing with the merger and tender activities, we already know the assets. It greatly reduces our underwriting risk. In addition, these activities help to serve to simplify our business, and we're able to reduce overhead as we eliminate added expenses from those partnerships, like audits, tax returns and things like that. Concerning the returns, looking strictly at the real estate, the returns are going to be very similar to what we will be able to get out in the marketplace acquiring assets, but we get that extra benefit of knowing the assets better and also helping to reduce our offsite costs. With that, I'll ask John to comment on cap rates from our sales activity in the fourth quarter.

Jay, as we've communicated previously, we are recycling capital through the portfolio. And we have aggressively focused ourselves into selling off the bottom of the portfolio. Now what you're seeing in the relatively small sample from the fourth quarter last year is tertiary and secondary market sales, handful of properties in primarily Michigan and Indiana and a couple of properties with some special situations, environmental issues and some other things going on. You will not see, on a go-forward basis, a similar cap rate. It's certainly not our expectation as we move forward. And it's not reflective of the portfolio as a whole and certainly not what we are planning as we look forward to this coming year.

Our next question comes from Swaroop Yalla from Morgan Stanley.

Ernie, I was wondering if you can give a little bit more color on the 2011 outlook in terms of revenues, which are not Same Store, whether it's the Affordable and the Conventional Redevelopment.

Sure. In our other categories within our Affordable portfolio, we expect -- and I'll answer it for NOI but revenues track this also. So for Affordable Same Store, we actually expect NOI to be up about 7%, which is driven mainly by revenue increases. We've had a handful of some of our larger Affordable properties that have gotten their market adjustments and they've been favorable for us, so Affordable Same Store is going to be a big positive for us. Offsetting that is some of the activity in our other Conventional portfolio and we really don't have much in the Redevelopment portfolio today. So it's not really driven by that. In our other Conventional portfolio, which consists of our New York assets, we do have some revenue decreases. We have one large tenant, commercial tenant that we expect to have to spend some time trying to fill that spot during 2011. So on a year-over-year basis, we expect those revenues to be down through having revenues down for our other conventional portfolio.

And Terry, just a comment on your strategy of focusing on B and B+ quality apartment. We have been hearing reports on sort of the A’s and A-‘s doing much better in this recovery cycle. So I was wondering why you're not looking at sort of more offensive rehabilitation and redevelopment to take advantage of that phenomenon.

Swaroop, I think those are excellent questions and the kind of issues that we’ve thought a lot about during our planning for next year. First, I would say in general, A will recover a little bit faster, at least have historically. And looking at our portfolio, our A’s are probably a little bit faster than our B’s. Secondly, in terms of our portfolio, we don't structure our portfolio for one quarter or one year or a short period of time, but to be broadly diversified and predictable over the business cycle, and so we like our mix, our heterogeneity. Third, in terms of upgrading through redevelopments, I agree with you, that's an opportunity and it's one that we are beginning to ramp up, but I'm cautious about that. I think during this year, as Ernie said, we'll have a couple of redevelopment starts. Dan Matula is here. He's been working, he's chomping at the bit to get started on some. But I want to be sure that the economy is stable and that we're not going to have an upset in the capital markets.

Our next question comes from Andrew McCulloch from Green Street Advisors.

It's Chris Van Ens, but Andy's with me here as well. First question, expected expense growth for 2011 looks to be under control again this year. Can you speak to what you're expecting across the major expense food groups in 2011?

Andy, this is Ernie. I'd be happy to cover that. The big food groups being personnel, being real estate taxes and being utilities for us. Personnel we think is going to be on the flattish side, and as Terry talked about, we have some opportunities with the technology initiative and taking into account that we had merit increases in 2010. We think we can find ways to staff more efficiently across our portfolio to keep personnel costs relatively flat. Regarding real estate taxes for 2011, we're expecting a very slight increase less than 1%. We're looking at the fact that we have some appeals that are still in place for the tax year 2010, even going back further. We're hopeful that will settle favorably and that should help offset any increases that may be coming there. So we think in those two big items, things are flattish. From the utilities perspective, we also think things are going to be pretty good. We've been able to lock in lower utility costs for gas than we had prior year and that's helping to offset increases we are seeing in water costs, as well as in some electric. So in the big three we're feeling pretty good. There's going to be some increases though on our expenses. At our midpoint, we're expecting expenses to go up about 1% and the increase will be driven by our continuing work around repairs and maintenance, and putting our properties in the condition they need to be, working on landscaping, things like that. So net-net, with the big three, Andy, kind of be in the flattish range we feel pretty good that we can keep expenses under control in 2011.

Two quick housekeeping questions. First off, why do property management revenue turn negative in the quarter? And secondly, as far as disposition guidance for 2011, just to clarify, is that gross dispositions or AIMCO's share of gross dispositions?

I'll answer the second one first around gross dispositions, Andy, that is the gross amount. And that stuff on AIMCO's gross share, that's the total value of the asset that's being sold that we have there. Regarding the property management going negative, we actually had to write-off some receivables with regard to property management fees. In terms of assets we sold in the fourth quarter from the Affordable side, it's projecting assets that we think we're going to sell next year and based on what sales price we expect to get. We did anticipate and book some reserves thinking that a few of our fees that are due for property management will be collectible.

Our next question comes from Eric Wolfe with Citigroup.

Just to piggyback off Jay's question on your disposition plans this year. Could you give us a sense for how the quality of those assets that you're planning to sell relates to your overall portfolio? And what sort of cap rates you're expecting?

Sure, this is John again. Quality wise, you're going to see that this is -- from our perspective; people assess quality in different ways. For us, our primary metrics that we are looking at on the sale front are average rents, rent in relation to the submarket rents that the properties happen to be located in and how that property sits then in relation to our overall portfolio on a long-term yield basis, an IRR model. What we are looking at selling for 2011 are properties that fall generally within the bottom 25% to 30% of that portfolio. You'll see cap rates that generally will be lower than the 9% that you saw in Q4 last year. Again, we had a couple of special situations there, but some of it going to be -- there's going to be some noise quarter-to-quarter. If we happen to sell a couple of small outlier properties, and that was always sold in the quarter, you may see higher cap rate than you would expect or that you would extrapolate for the whole portfolio. But in general, as we look forward into 2011, you're going to see average cap rates in the 8% and, again, depending upon the mix from quarter-to-quarter that may be high eights, it may be low eights, and we may beat it every now and then.

Over the last couple of days, we've heard a lot about the public companies getting back into development. But could you tell us how much private capital is entering the space right now looking to development? And whether that capital is generally going to less supply-constrained markets, meaning through the south or more supply-constrained markets in the northeast and California?

Eric, this is Terry, and we've looked around the room and I don't think anyone of us feels particularly knowledgeable about that. There's a lot of talk and I think my experience is that it's easy to underestimate the animal spirit of real estate developers. And it's likely with the conditions being as good as they are that you'll see more activity than is now expected.

But do you think the capital is there for them to develop? I mean, what's your assessment of the construction market at right now? Where LTVs are at? And what type of sponsor it takes to get the development loans?

I think it's very dynamic. I think that construction financing has gone from a hard to get to more available but still more difficult than a few years ago. And my guess is the year from now it’ll be much more available.

Our next question comes from Rob Stevenson from Macquarie.

Can you talk a little bit about the markets at both ends of the spectrum in terms of your 2% to 3% Same Store revenue growth assumption for this year? What markets you expect to be meaningfully below that and versus what markets you expect to be meaningfully above that?

Rob, let me ask Kieth Kimmel, our leader of operations to address that. Kieth?

Rob, we would say that we're really seeing in the strength markets, particularly in places like Miami, San Francisco, Los Angeles and Atlanta, and the D. C. area where we're seeing a lot of strength and those would be on the higher end of that spectrum and some of the weaker markets continue to be a little bit consistent, that would be Houston, Orlando, Tampa and Phoenix continues to still be challenged.

Are any of those markets supposed to be or expected to be negative from a revenue standpoint in 2011?

No.

So everything is positive, it's just not as positive?

Correct.

And then one for you Ernie, if you guys hit the midpoint of your guidance range, how much additional room does that give you according to your estimates under your covenants?

If we hit the midpoint of our guidance range, we should be consistent where we are today. And with our current coverages at 140 and 120 gives us an excess of -- I don't have the number right in front of me, Rob, I'll need to get back to you on that, but it's well in the tens of millions of dollars of EBITDA.

But it's basically flat from today. So if you hit the higher end of the range, you start to pick up some additional slack.

Exactly. So if we do a little bit better, it will improve from our 157 debt service coverage ratio that we have today, yes.

Our next question comes from Michael Salinsky from RBC Capital Markets.

First, could you just talk about the decision to open the ATM in the fourth quarter to fund some of the partnership buyouts? And as we look forward to 2011, is the plan to continue to use the ATM to fund those buyouts? Or will you be more prone to use proceeds from asset recycling?

This is Ernie. With regards to the fourth quarter and to using the ATM, we like having the discipline of match funding our equity activities and as we were acquiring assets through the partnership and tender we thought it was appropriate and the right time to use the ATM and to be able to match fund that way. Regarding 2011, we'll look at it as we do the activity as we think what makes more sense. We clearly have the opportunities, property sales proceeds, as well as the ATM. We’ll look at both and make a decision at the time and we think is the better approach in terms of raising funds to continue that activity.

And the partnership buyouts, I mean is that something that you expect to concentrate, I mean, in the front part of the year, back half of the year, or pretty evenly spaced out?

It's more toward the middle of the year. It's similar to the ones that we completed in or we went through the process in 2010. We had to go through that one on our public partnerships; we have to go through an SEC review. So there will be a group that happens in the first part of 2011, but the majority of them will happen midway through the year as we have to go through a similar process with this next group.

And could you just remind us what kind of returns you're targeting on the redevelopment? And also, if you could provide an update on what the plans are and the timeline for Lincoln Place.

Let me turn it over to Miles to talk about what's happening with Lincoln Place and Dan as well. And then we can also -- Dan can address what we're thinking about with regards to returns and how we look at returns, with regard to our redevelopment activity. Miles?

Mike, as most of you know, Lincoln Place is a 795-unit property located on the west side of L.A. in the heart of Venice. And we continue making good strides relative to our plans to redevelop it. Last year, midyear, we reached settlement agreements with both our existing tenants and the city of L.A. Late last year, we submitted all of our applications for entitlements and the discretionary approvals we need, and we hope to have all the entitlements in place by the end of the first quarter of 2011 or early in the second. With respect to the plans, let me turn it over to Dan Matula. Dan?

Michael, relative to the plans, I mean we're moving full speed ahead. We're wrapping up conceptual design and we're expecting to be in a position to submit full building plans to the city of L.A. by the end of May of this year. And then from there, we're somewhat at the city’s mercy to go through the plan check and permitting process and we'll see where that takes us.

Just to follow back the return threshold you guys are looking for in redevelopment?

Yes, I mean relative to our returns -- I mean, we like to look at our returns on more of an IRR basis than just a return on capital. And generally, we're looking at internal rates of return that are above what we can currently achieve on acquisitions. Those are going to vary a little bit from market to market, but that's usually the way we gauge and determine our investment opportunities.

What's the delta versus an acquisition? I mean, you say above to what degree?

This is John again. On an acquisition front, I would tell you that everybody has their own unique underwrite and our model happens to carry a model that is reflective of our experience with our portfolio. And so we weighed capital heavier than some other people underwrite in their model. But we would tell you that our underwriting on the acquisition market out there today would be somewhere in the 8% range on a unlevered basis for IRR. And that on the redev [Redevelopment] side, we would be looking at something 150 to 200 points higher than that.

[Operator Instructions] Our next question comes from Rich Anderson from BMO Capital Markets.

You guys are among the more conservative of your peers in terms of your outlook and you made that clear in the beginning of the call. But can you identify one or two things that you are doing strategically different that if you didn't do, you would be getting the kind of comparable Same Store NOI growth for 2011? As it is now, you're 150 to 250 basis points below your peers, at least, in terms of your forecast. So what are you doing that's holding that back?

Rich, this is Terry. And I'd say, first of all, when we look at our guidance for next year, there's three big items that I would highlight that pulled it back. The first is that we have almost no non-recurring income. The second is that we're accepting a significant increase in interest expense in order to fix our interest rates long term and to insulate us from any future increase in interest rates. And the third is that we have a cautious outlook on market rate in running apartments and when we look at the economy. We gave you the range of the providers. The providers are equally optimistic broadly across all of the REIT portfolios. My expectation is that performance will be comparable across all of them. And so some of that is my own sense of caution, and I would ask you to look at the actual results of last year and not at the peoples’ expectations unless you, like Rex Ryan, think the Jets are in the Super Bowl next Sunday.

But I mean you're clearly focused on maintaining a high level of occupancy. So maybe are you not pushing rate as hard, is that a fair statement? I mean, obviously, maybe it is a fair statement. But I mean can you kind of quantify, if you were feeling better would you allow occupancy to dip down in to like the 95% range?

It's all balanced and it's all done not at the portfolio level, but at the unit level. And so it gets quite specific and there are many properties where we're raising rates quite a good deal. But we're -- balance occupancy and rate to look at revenue and with consideration of turnover costs. And so you just have to look at all three contributors. If your rates go up a lot and your occupancy goes down and your turnover costs go up, why it's negative to the bottom line. And so we just try to balance all three of them. We don't do it perfectly, but. . .

I guess, I'm just saying 96%, 97% occupancy may not be viewed as the optimal, most efficient level, I guess that's the point I'm trying to make.

All we can say is look at the results. If you're looking at capacity utilization and capital-intense assets, higher utilization is usually a good thing.

Our next question comes from Haendel Juste (sic) [Haendel St. Juste] from KBW. Haendel St. Juste - Keefe, Bruyette, & Woods, Inc.: Terry, I just want to go back to something you were commenting on earlier. I understand you guys are looking at acquisitions on an IRR basis, but just to help us with some of our modeling here. Can you give us a sense of the net investment spread between acquisitions and dispositions you guys are targeting this year?

I think it is a positive spread in a free cash flow basis, just pull back and let me get a common vocabulary for us. As John described, we look at things on a free cash flow IRR. So that's net operating income minus capital replacement spending. We extrapolated forward generally along the lines of the data providers. We adjust exit cap rates for reduced revenue growth expectations after the forecast period, and we do that consistently whether we're looking at acquisitions or redevelopments or sales. So that we can compare on an apples-to-apples basis. When we look at that, I would say our dispositions will tend to be higher NOI cap rate, but lower free cash flow IRR for two important reasons. The first is that rental rate growth in the secondary and tertiary markets, as John mentioned, Michigan, for example, is expected to be lower than in the markets in which we're investing. And secondly, capital replacement spending, which we project generally at about $1,200 a unit is a higher element of free cash flow when you're looking at net operating income, when you're looking at lower rent projects, which in the properties we're selling are probably in the $600 to $800 range. Where the properties we're investing in are probably in the $1,000 to $1,300 range. So those are the two big things that will drive a positive spread, even though the cap rates might be out of whack. Haendel St. Juste - Keefe, Bruyette, & Woods, Inc.: I certainly understand that conceptually, but doesn't really help me with the modeling exercise. So if this is something. . .

Was that more confusing or less confusing than is the pronunciation of your name? Haendel, I'll be glad to talk you through. . . Haendel St. Juste - Keefe, Bruyette, & Woods, Inc.: Second question, just curious on the thought process for the recent dividend increase. You raised it a modest amount. Certainly, there's a lot more room for upside. Can you discuss the rationale for deciding on that increase? And how do you think about this increase going forward? And then just a quick point, one of your peers the other day tied their dividend to a normalized FFO, they call it, curious on what your thoughts are on that? And could we see you ever do something like that?

Haendel, I think that -- first of all, the board spent a fair amount of time discussing dividend policy at our meeting earlier this week. In looking at it, we were mindful that dividends are very important contributor to shareholder return. They're important to all of us in the room because we all own AIMCO common and appreciate those dividends. The thinking is that we want to be sure or cautious about setting new levels until it's exactly clear where the economy is going to go. So some of my own conservatism or caution about the economy, I think is reflected there. We looked at last year where we paid out about 40% of AFFO, which was about half of the payout rate of the next lowest apartment REIT and felt we're a little bit of amiss of an outlier. And then over time, we would probably want to see that payout ratio increase, but still being at a low payout ratio. We want to be sure that the dividend is predictable going forward. And so it seemed to the board that a 20% increase was a significant step in the direction of increasing our payout ratio and balanced the use of proceeds versus a return to shareholders versus alternate uses within the company.

Our next question comes from Buck Horne from Raymond James. Buck Horne - Raymond James & Associates, Inc.: Ernie, I apologize if I missed this earlier in the call. But I was wondering did you quantify specifically what the benefit in the quarter was from the real estate tax reversal of the accrual in the quarter?

I didn't give the specific amount but our expenses were down 3.7%, almost everything else was flattish. That was the big driver for us. It was in the $4 million to $5 million range. Buck Horne - Raymond James & Associates, Inc.: And if you were successful with all the appeals that are kind of in the pipeline, do you have a feel for how much that would benefit the 2011 expenses?

Transactions guys don't like me to jinx future activity. I want to be careful and say where that is. But it gives us the opportunity to keep real estate taxes flattish, for us, year-over-year. Without that, we would expect real estate taxes to tick up a little bit more than that.

Our next question comes from Jana Galan from Bank of America Merrill Lynch.

I guess going back to the redevelopments; you mentioned you were a little bit cautious on that $50 million to $75 million guidance. So I was wondering maybe how much more is there in the portfolio? And then kind of what goes into the decision whether a community is a candidate for redevelopment or potentially disposition?

Jana, this is Terry. And I would say that our strategy for many years has been to invest in properties with good locations, high land value and the opportunity for upgrading either through expanded density and re-entitlement or just plain product upgrades. And so in this year, we have in the pipeline half a dozen smaller projects that might be in the $5 million or $10 million property range. And we have two larger projects that Dan mentioned in his remarks about; one is Treetops in San Bruno, in San Mateo County, on the Peninsula and second being Lincoln Place in Venice. And I would expect that we'd get Treetops underway sometime in the middle of the year and Lincoln hopefully by the end of the year. But behind them, yes, there's another pipeline of significant assets. We're studying but not prepared to schedule the redevelopment of Park Towne in Philadelphia. We had expected success last night in zoning for an expansion of Riverside in the D.C. area and so forth. We have a deep pipeline.

Our next question comes from Jim Wilson from JMP Securities.

I was wondering within your '11 guidance whether there was any -- if you could talk about any particular parts of the country you're expecting better acceleration and also those that you might expect to be lagging markets? Maybe just focus on your core, of course?

Jim, this is Keith Kimmel. The markets that we see that continue to be strong are Atlanta, Denver, Los Angeles, Miami, San Francisco and the D. C. area. And those are markets that we see that or have been strong and continue to grow. And the weaker markets are some of the same ones, which are Houston, Orlando, Tampa and Phoenix continues to struggle.

And I guess any further portfolio adjustment thoughts of selling or reallocating or anything you want to color on that you might be targeting?

Jim, it's Terry. John leads that effort. I'll ask him to join if he wants, but we're continuing exactly the same portfolio allocation strategy. So you can look at us to gradually exit the non-target markets. We're slightly over-allocated to Affordable. At 12%, we want to bring that down to 10% and I think you could expect to see a sale of perhaps a larger number of properties in the Affordable category where we have a smaller ownership interest. So our unit count will be adjusted and hopefully our overhead and G&A cost adjusted more than the impact on the business.

We now have a follow-up from Andrew McCulloch from Green Street Advisors.

It's Andy here with Chris. Just on the amortization of property debt, you guys continue to talk about deleveraging through the amortization of property debt, but when I look at your refinancing activity, you continue to top off mortgages. I think you did $150 million in toppers in 2010 and $60 million alone in 4Q. I don't have the number in front of me, but I'm guessing that's well in excess of your principal amortization you did in 2010. So just help me tie those two things together.

This is Ernie. A lot of that comes down to timing. We closed a large loan in the fourth quarter that had excess proceeds as you pointed out, and that's why you saw that being higher and that loan balance went a little bit higher. It’s for one of our larger properties. That said, when we look at more of a longer-term basis and activity that we expect to happen in 2011, we’ll use some of that excess proceeds to bring balances down. So over longer periods of time versus a quarter at a time we're continuing to see that we're going to bring our debt down, in fact, through property debt amortization, due to, just so you know, the timing he wants there.

Can you remind me kind of what maybe a debt-to-EBITDA target for AIMCO is today?

Today we're in about 2.07:1, and we talked about wanting to get to 2.25:1, and with the fact that NOIs are improving in terms of making good traction toward that as well, the fact that we are lowering our interest costs. Last year at this time, we thought that would take us a few years to get there. We think that's accelerating a little bit now.

Ladies and gentlemen, there are no further questions in the queue at this time. I would like to turn the call over to Mr. Terry Considine for concluding remarks. Please proceed.

Thank you, and thanks to all of you on the call for your interest in AIMCO. We had a very solid 2010, and we expect 2011 will prove to be another good year. So if you have any questions please call Elizabeth Coalson or Ernie Freedman or myself. We'd be glad to answer them as best as we can. Have a good day.

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