Apartment Investment & Management AIV
Q2 2012 Earnings Call Transcript

Operator: Jana Galan, BofA Merrill Lynch.

Jana Galan - BofA Merrill Lynch: I was curious can you provide the cap rate on the Chelsea and the San Diego acquisitions?

John E. Bezzant - EVP, Transactions: This is John Bezzant. We don't typically provide cap rates on our acquisitions.

Jana Galan - BofA Merrill Lynch: Then just a question on the updated FFO guidance. You beat the second quarter by kind of $0.05 of the midpoint that you were previously expecting, but you'll need to get up $0.02. Am I missing anything with the higher share count or timing of disposition or are you seeing something that's making you a little bit more cautious for the second half than what you're thinking last quarter?

Ernest M. Freedman - EVP and CFO: Jana, this is Ernie. I can walk you through that. You're right to point out that we had a beat in the second quarter by $0.05 and we only raised guidance by $0.02. The reason we didn't raise it by the full $0.05 is one of those pennies has to do with what you described the share count from doing that second equity offering, because of the timing of that where we'll have seven months preferred dividend expense – seven months of share count, but only six months of savings from the preferreds. We lose a $0.01 there. Also we had an outperformance in operations in the second quarter and for the year we kept our guidance the same. So, that's about a $0.01 there, so that was around timing of expenses or some things like that, and then the other $0.01 is just kind of rounding with some things. So, that's why we kept guidance where we did and raising it the $0.02 versus the $0.05.

Operator: Rich Anderson, BMO Capital Markets.

Richard Anderson - BMO Capital Markets: I just wanted to ask about acquisitions and you identifying them as being some large percentage over the market average in terms of rents and why that's a good thing? I mean, you've said you're 15% above the local area in San Diego, will you rather be 15% below the local area, I not understanding that fully?

John E. Bezzant - EVP, Transactions: It's really a matter of quality of the asset in relation to the local market. As we've talked about over the years, we want to be a B, B plus portfolio that we define as kind of 90% to 120% of local market average rents. San Diego asset falls right smack in the middle of that, as a good solid B plus asset. The Chelsea asset is an A asset, it's an A minus asset. We look at that, both of those opportunities as well as the Phoenix asset we bought earlier in the year, which would also be in relation to Phoenix price point kind of an A minus asset. We look at all of those, as value-add plays. Those are – we are opportunistically buying, where we see opportunities. We're using these acquisitions to cover via (10.31) some tax liabilities on some of the lower rated assets, as we sell them. But we….

Richard Anderson - BMO Capital Markets: I guess the quality thing. I guess, doesn't that though still, even if you do redeploy or deploy some proceeds, doesn't that kind of limit your upside, if you're assuming that you're buying pretty low cap rates in some good markets and you're at 15%, 20%, 25% above the area, I'd say that the ability to raise rents from that point could be pretty tough, you know?

John E. Bezzant - EVP, Transactions: Well, there's couple of ways to look at it. Certainty at that price point, we've got a customer that’s different than what we would have in a (C) asset. We feel like, we've got an opportunity to raise rents there through product quality and customer type that we draw into those properties, its different than if we went in and bought (C) assets. Nominally we could take that at a phase rate, so if we had $600 rent, there is more room to raise rents to get up to average, but those $600 rents at a property are reflective of property condition, age, economic obsolescence on the property, other things. So again, we feel like on the properties that we’re buying, we’ve got opportunity to have outsized growth. Some of that is related to the submarket, where they're located and that we feel like we've got submarkets with greater growth potential than those in the submarkets where we are reselling and some of it is related to the physical asset itself, either through management enhancements and improvements or through physical improvements at the property.