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Apartment Investment & Management (NYSE:AIV)

Q1 2013 Earnings Call

May 03, 2013 1:00 pm ET

Executives

Lisa R. Cohn - Executive Vice President, General Counsel and Secretary

Terry Considine - Chairman and Chief Executive Officer

Keith M. Kimmel - Executive Vice President of Property Operations

Ernest M. Freedman - Chief Financial Officer and Executive Vice President

Analysts

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

Jana Galan - BofA Merrill Lynch, Research Division

David Bragg - Zelman & Associates, LLC

Nicholas Joseph - Citigroup Inc, Research Division

Robert Stevenson - Macquarie Research

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Buck Horne - Raymond James & Associates, Inc., Research Division

Jeremy Metz

Operator

Welcome to the First Quarter 2013 Apartment Investment and Management Company Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. Lisa Cohn, Executive Vice President and General Counsel.

Lisa R. Cohn

Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2013 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.

Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President in Charge of Property Operations; and Ernie Freedman, our CFO. We are available to answer questions at the conclusion of our prepared remarks.

And I will now turn the call to Terry Considine. Terry?

Terry Considine

Thank you, Lisa. And good morning to all of you on this call. Thank you for your interest in Aimco.

Business is good. Aimco had a solid first quarter to start the year. The big picture that I'd like to communicate is this, the Aimco team is systematically executing the plan that Ernie and I have laid out to you over the past few years. This plan covers 5 main areas: Property operations, portfolio management, redevelopment, balance sheet and simplicity. Let me walk through a few particulars in each of these.

In property operations, while we'll hear from Keith in a few minutes a detailed report in the first quarter, I would like to direct your attention to 2 specifics. First, our same-store revenue growth rate is higher this year than last, up 50 basis points from 4.2% to 4.7%. Second, our same-store property expenses before taxes, insurance and utility costs are flat year-over-year and are actually down for the past 5 years, a remarkable accomplishment in cost control.

Next, in portfolio management, we remain committed to a portfolio that is broadly diversified amongst coastal and job growth markets, and across price points averaging BB+ with the belief that this diversification will provide more predictable results over the business cycle. When we make investments, we follow a paired trade discipline explicitly comparing what we expect to buy to what we plan to sell. We have been conservative about acquisitions, but we do expect that we will make some investments to reduce our allocation to non-core markets and to improve our locations within core markets.

Here are 2 important results. First, average revenues per unit are up 8% year-over-year and are up 20% over the past 3 years. Second, we continue our exit from the Affordable business and have sold more than 100 Affordable Properties in the last 3 years.

Next, in redevelopment, we expect to invest $130 million to $160 million this year with yields about 7%, assuming untrended rents and about 8% at the rents expected at stabilization of these projects in the next year or 2. And these will have free cash flow internal rates of return north of 10%. These 8 projects underway this year are expected to generate about $2 per share of net asset value at stabilization.

Turning to our balance sheet. Our leverage is in line with peers and in fact considering its long duration, nonrecourse nature and the absence of a large construction pipeline, Aimco's balance sheet is safer than the industry average. As Ernie will detail in his remarks, we are on track to meet our goal of leverage-to-EBITDA of less than 7 to 1 by early next year, and we expect to end next year with a leverage ratio in the mid-6s. This improvement based on rising property income and debt amortized from retained earnings also leads to lower interest expense, adding a few cents a year to our bottom line.

Finally, our business is simple. We have a clear plan, a high quality of earnings with limited nonrecurring income and a high level of transparency. Our management team is cohesive, collaborative and having fun. We are pleased that the Denver Post recently recognized Aimco as one of the top places to work in our state. It's my great pleasure to work with a talented team, not only here in Colorado, but across the entire country.

In this steady progress across all areas of our plan translates in the bottom line. Year-over-year, first quarter FFO is up 20%, first quarter AFFO is up 31% and the first quarter dividend is up 33%. Looking to the full year, Ernie is raising FFO and AFFO guidance to a full year 10% increase in FFO and 15% increase in AFFO. Net asset value is increasing similarly and smartly. And as you know we base our dividend on AFFO, so you can look for continued dividend growth in 2014.

In sum, business is good. We're working hard to take full advantage of the excellent apartment market conditions, and we're making solid progress to position Aimco for the longer term.

Now for a more detailed report on first quarter operations, I'd like to turn the call over to Keith Kimmel. Keith?

Keith M. Kimmel

Thanks, Terry. We're off to a good start in 2013. Our on-site teams continue to consistently provide excellent customer service to our residents. And as result, we achieved renewal rate increases of 5.3%, 20 basis points higher than the first quarter of last year. Of those leases that expired and were not renewed, new leases were signed at rates that were on average 2.6% higher than the expiring leases. An improvement of 60 basis points over the first quarter of last year.

As a result of our team's hard work, we achieved blended lease rate increases of 3.9% for the quarter, some 50 basis points higher than the first quarter of last year. Of the customers that decided to move out, 22% were for career moves, 19% did not renew due to price and 14% moved out to purchase homes. We continue to be successful in replacing move outs with better qualified residents at higher rents. The average income of those new customers who moved in during the first quarter was $100,000. The median income was $63,000 and had a rent-to-income ratio of 21%.

Our operations teams also continue to find innovative ways of showcasing our distinctive products and services to provide additional value for our customers, while generating other income growth of 13.5% compared to the first quarter of last year. With this solid execution, first quarter Conventional same store revenue was up 4.7% year-over-year and up 0.8% compared to the fourth quarter.

Looking at our 10 largest markets, which make up 2/3 of our revenue, the top 3 performers had revenue increases from over 6% to nearly 9% for the quarter. This was led by the Bay area, followed by Miami and Chicago. Our steady performance for the quarter with midrange growth from 4% to 6% were Boston, Denver, Los Angeles, Orange County and Washington, D.C. And rounding up the 10 largest markets in the 3% range, we have Philadelphia and San Diego.

As we look ahead, we're building upon our first quarter successes with a solid April, establishing an expectation of a strong leasing season. April blended lease rates were up 4.2%, with new lease rates up 3.4% and renewals up 5.1%. April's average daily occupancy was 95.6%, on plan and solid progression from the first quarter. May and June renewal offers went out with a 6% to 9% increase.

And with great thanks to our entire Aimco team, I'll turn it over to Ernie Freedman, our Chief Financial Officer. Ernie?

Ernest M. Freedman

Thanks, Keith. Pro forma FFO of $0.48 per share exceeded the midpoint of our guidance by $0.04, primarily due to $0.01 of stronger-than-expected results in our non-same store Conventional portfolio and a bit less than $0.03 from the sale of one of our Affordable assets that generated a pay off on a fully reserved loan, which is recognized in interest income.

Operating results for our same-store portfolio in the first quarter exceeded the midpoint of our guidance range. Our average rent per unit was up 4.4% over last year, while other income went up 13.5%, leading to an increase in revenue per unit of 5.3%. Total revenue was up 4.7% as we had a year-over-year decline in average occupancy of 60 bps. Year-over-year occupancy comps eased throughout the rest of 2013 compared to 2012.

Operating expenses increased 4.9% over last year. Real estate taxes, insurance and utilities combined were up almost 10%, while the net of all other expenses were flat. Insurance costs, in particular, were higher than anticipated due to a few high severity health insurance claims. Better performance in utility costs from the mild winter helped to offset this.

On the portfolio management front, asset sales during the quarter were on plan with the sale of 3 Affordable Properties. We continue to expect that 2013 asset sales will be heavily weighted toward the end of the year, reflecting the extended closing schedule associated with the sale of Affordable Properties, as well as the timing of opportunities to reinvest the proceeds from asset sales.

As Terry mentioned, we intend to sell most of our Affordable Properties, not subject to tax credit agreements in the near term, and our remaining Affordable Properties over the next several years, as the tax credit agreement expires. With this in mind, we have modified our definition of Affordable Same Store properties to exclude those not subject to tax agreements -- tax credit agreements.

So as you look at our portfolio, you can think of the Affordable Same Store properties as those that will wind down over the next several years, and the other Affordable Properties as those we intend to sell in the near term.

Looking ahead, we are increasing full year pro forma FFO guidance by $0.02 at the lower end, upper end of our guidance range, which takes into account our stronger first quarter results. For the second quarter, pro forma FFO is projected to be $0.45 to $0.49 per share, with the year-over-year Conventional same-store NOI growth projected to be 4.4% to 5%. Second quarter Conventional same store NOI is projected to be up 1.5% to 2.5% compared to the first quarter.

For the remainder of the year, we anticipate third quarter FFO to improve slightly from the second quarter, with growth coming from sequential improvement in operations. The fourth quarter is expected to have a significant improvement over the third quarter, as we anticipate further and larger gains in sequential operations results. Also, as we noted in our initial guidance, we will have some benefit from nonrecurring revenues occurring in the fourth quarter.

With that, we will now open up the call for questions. [Operator Instructions] Amy, I'll turn it over to you for the first the question, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Karin Ford at KeyBanc Capital Markets.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

You noted in your comments that your revenue growth in 1Q '13 was higher than it was in '12, and it looks like that held true for how much you guys were pushing rents in 1Q '13. So it's fairly unique, relative to the rest of your apartment peers. What do you think is different about Aimco that's allowing you to do that?

Terry Considine

Karin, I think you just made us all pause and catch our breath to think about it. We focused each day and each week property-by-property and unit by unit type trying to find the right price or rental rate that will optimize the margin contribution. So it's balancing both the revenue received and the cost avoided. And with a diversified portfolio, we look for greater steadiness and predictability. We like where we are. The renewal rates have been quite steady in this plus or minus 5% range for the last couple of years, and we'd expect our revenue to come in consistent with guidance.

Karin A. Ford - KeyBanc Capital Markets Inc., Research Division

That's helpful. My second question is on the GSEs and their plans to pull back on the multi-family lending side. Could you just talk about what impact, looking forward, do you think that might have on cap rates and does that potentially hit Class B and C properties more so than Class A properties?

Terry Considine

Karin, I think any reduction in participation by any lender, certainly, ones as large as the GSEs will have some impact across both cap rates and interest rates available at all price points. But I think the effect will be largely muted, as you well know that the world is awash in liquidity right now. For Aimco we have a significant amount of our borrowings with non-GSE lenders. And for the moment we don't expect a material impact in the forecast horizon.

Operator

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

Jana Galan - BofA Merrill Lynch, Research Division

I had a question on the redevelopment pipeline. And for the 6 projects you have, it looks like you pushed out stabilization for 4 of them a couple of quarters. I was just curious why that was? And then also it looks like the expected costs went up a bit?

Terry Considine

Jana, this is Terry. I would say that the push out is because we were just taking a little bit longer to get it done. And I would say that's also the case about the costs. We don't see significant cost increases in terms of construction cost inflation. It's just as we work through it, we're finding we're just a tick optimistic in our estimates. But what I would come back and emphasize is that those projects taken as a whole would have 7% yield today at today's untrended rates, 8% expected at stabilization and double-digit free cash flow internal rates of return.

Operator

Our next question comes from Dave Bragg at Green Street Advisors.

David Bragg - Zelman & Associates, LLC

Just to follow-up on that question a little more specifically. Can you talk about Pacific Bay Vistas. You've had cost increases there before, but this quarter was significant. Is it that you're continuing to address the issues you've highlighted before as part of this more offensive and that you see higher rent rates as a result?

Terry Considine

David, no. At Pacific Bay Vistas, as we highlighted I think 2 quarters ago, after we completed the first couple of buildings we saw an opportunity to improve our design to deal with the moisture intrusion. As you know that's a very moist microclimate. And so we went back, redesigned it, tested it and we're now back in full swing. But the effect of it was a time delay which added to our cost and a certain addition in terms of the capital cost of the construction. I wouldn't expect that to be revenue enhancing and the impact on that particular property will be to reduce it's free cash flow internal rate of return from well over 10% to something closer to 10%.

David Bragg - Zelman & Associates, LLC

That's helpful. And then, Terry, on the purchase in San Diego, I'd like to touch on that. We're still looking for a little bit more in terms of parameters around what you look for when you're out there in the acquisition markets. So on that one, can you disclose the cap rate and talk about the process behind identifying that asset and how that asset might give us an indication of what you'll be looking for when you do make select an acquisition going forward?

Terry Considine

Well, I think, David, just as you know, but to review. We look at all of our capital allocation activities based on a free cash flow internal rate of return. By free cash flow, we mean after capital replacement spending and we use a standard charge of $1,200 a door across all of our investment activities. And we look at that whether we're making disposition, an acquisition or development. And in terms of then where we buy, you can see that very clearly in our indicated portfolio allocations, as reported in our documents. We have identified markets where we would like to have greater allocations and markets where we'd like to have lower allocations. And within those markets, we have identified preferred submarkets, where we'd like to own better located properties and sell weaker submarkets. So La Jolla is actually a wonderful example of what we're trying to do. La Jolla is one of the most desirable addresses in the entire country. Prospect 400 is one of the best located properties in La Jolla. It is, as real estate people would say, very good dirt. It's a small property, extremely well located and has great redevelopment potential.

David Bragg - Zelman & Associates, LLC

Okay. That's helpful. And then just on that asset, you mentioned in your press release the plans for significant capital upgrades. Can you talk about that and what that could result in, in terms of your going in cap rate and a stabilized yield?

Terry Considine

It would be premature to talk about the property upgrades we've disclosed in the last few weeks. But what you can expect is that we'll go through exactly the same discipline we've talked about on other cases. We'll look at where -- what, who's our target customer, what they would like to see in the property, what the opportunities and costs are of meeting their needs, and how much rent they would pay in return. What I would say about this location is, this is one of the most expensive housing locations in the country. They contiguous in quite similar condominiums priced in $1 million to $3 million range. And the upside in rents could be quite high.

Operator

Our next question comes from Nicholas Joseph at Citi.

Nicholas Joseph - Citigroup Inc, Research Division

Was the $0.03 benefit from the repayment of the note receivable you received in the first quarter originally in full year guidance?

Ernest M. Freedman

Dave, this is Ernie Freedman. It was not in our full year guidance. It's above and beyond what we expected, both for our nonrecurring revenues and in our total numbers for FFO and AFFO that we provided last quarter.

Nicholas Joseph - Citigroup Inc, Research Division

So the guidance raised by $0.02 really is more of a reflection of this?

Ernest M. Freedman

Exactly that. The benefit we got was slightly less than $0.03. We raised guidance $0.0.2 and I'm keeping a little in my pocket just to be a little conservative early in the year, that's exactly what it is.

Nicholas Joseph - Citigroup Inc, Research Division

Okay. And then could you talk about, I guess, going back to Dave's question, can you talk about the acquisition pipeline today?

Terry Considine

Nick, this is Terry. I wouldn't say that we have a -- that we would expect to make a large number of acquisitions. We've been quite disciplined about them. And we've made, I think, we made 3 last year and we made 1 so far this year. I would not expect to see a high volume of acquisitions but we regularly look at what's available in the market and we look for anomalies where for some circumstance of taxes or debt structure or other. We think we can make an acquisition that will further our announced portfolio management goals.

Operator

Our next question comes from Rob Stevenson at Macquarie.

Robert Stevenson - Macquarie Research

You've been pretty clear in terms of the dispositions on the Affordable portfolio, the expectations there. Can you talk little bit about the 12,000, the roughly 12,000 units that you have in the other category within the Conventional portfolio? What the sort of plan is for those and sort of timing? Is this basically stuff that you would sell to offset acquisitions? Is this stuff that likely to be teed up after you get done with the Affordable? Can you just talk a little bit about that?

Terry Considine

Rob, that's exactly right. That's all inside our very explicit laid out portfolio management plan that we look at all of our properties, as I said before, based on a free cash flow internal rate of return. And we look both for -- in making any trade, we think of it as a pair trade that we're going to sell one or the other properties in order to buy something that we like better, as we said in La Jolla. And that we would be looking both for higher rates of return as measured by a free cash flow internal rate of return, as well as qualitative improvements as measured by price point.

Robert Stevenson - Macquarie Research

Okay. But the 300 to 350 of disposition guidance for this year is primarily Affordable, is that correct? Or some of that includes expectations of some Conventional?

Ernest M. Freedman

It's the latter, Rob. We expect about half of our disposition proceeds this year to come from those Affordable sales and about half would come from the Conventional sales. So Conventional sales are expected to happen in the late third quarter throughout the fourth quarter. We have a number of properties that we put into the market on the Conventional side in the last few weeks, and we'll see what the better takes are and we will see some Conventionals close before the end of the year.

Robert Stevenson - Macquarie Research

Okay. And then I'll ask the obligatory D.C. market question. You talked a little bit about how you're seeing performance vary across the various submarkets that you guys operate in D.C. and whether or not there's any difference price point-wise et cetera as well?

Keith M. Kimmel

Rob, this is Keith. Listen, D.C. is a market that we're very focused on as well. Occupancy was strong at 95.8% in the first quarter. We've seen a little moderation, but we really believe that our product being outside the Beltway and at a B price point, will have less impact than maybe some others will with the new product coming in, in downtown. With that said, we'll be cautious and we're very focused on keeping a close eye on it.

Robert Stevenson - Macquarie Research

Is there any difference performance-wise between sort Maryland suburbs versus the Northern Virginia suburbs?

Keith M. Kimmel

There's a little bit but not a whole lot. It's really been pretty close. Alexander is a little bit further down than some of the others as an example outside Maryland and Fairfax.

Operator

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

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Ernie, on your comments about the changes in the same-store portfolio for the Affordable portfolio. Based upon the changes, what are you guys expecting from that portfolio maybe in terms of same-store revenue growth and NOI growth there in terms of contribution to earnings for 2013?

Ernest M. Freedman

Sure. Specific to Affordable same store, which is now the 48 properties that we'll be holding longer term. Mike, we expect the revenue growth probably in the 2 range and expense growth very similar to what we expect on the Conventional side. So overall NOI growth there is going to be flattish to maybe up 1 point in that small portfolio, which represents today about 5% or so of our total contribution for NOI.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. That's helpful. And second of all, Keith, can you go through kind of how the As versus Bs versus Cs performed across the portfolio? And if you could see a unique way to look at it just given the -- is that the same operator across all 3 portfolios?

Keith M. Kimmel

Sure, Michael. We really look at new lease prices as the best parameter -- barometer, excuse me, as we really think about how they're performing. One thing though we've noticed, this particular quarter is, we've seen over previous quarters about 150 basis points spread between the As, Bs and Cs, it's tightened up to about 100 basis points. What I would tell you though is we have really seen some variability in marketplace, so depending on where the assets are located throughout the country that we can see some variants.

Michael J. Salinsky - RBC Capital Markets, LLC, Research Division

Okay. And when you just think about redevelopment conditions in the back half the year. Any plans for additional starts at this point or is just pretty much working through the stuff you have right now?

Ernest M. Freedman

Mike, this is Ernie. It's pretty much working through the stuff we have right now. We do have a couple of our larger multi-phased projects we've talked about and there will probably be spending on those that hasn't start as of yet. We're focused on our capital replacement spending. We're in the throes of planning for the next class. We think we have a pretty deep pipeline of opportunities in the future years. But most of the focus on redevelopment this year within our $130 million to $160 million guidance is on those projects that we have ongoing currently.

Operator

[Operator Instructions] Our next question comes from Bob Horne (sic) [Buck Horne] at Raymond James.

Buck Horne - Raymond James & Associates, Inc., Research Division

It's Buck. Do you have quick -- I'm sorry this is for Ernie. Do have an estimate of what the total nonrecurring revenues in the fourth quarter is going to be and what the FFO benefit would be, Ernie?

Ernest M. Freedman

Yes. I do. And most of our nonrecurring revenues that we laid out on our initial guidance and what hit in the first quarter was not our initial guidance. It's going to hit in the fourth quarter, all but about $500,000 of that. Our guidance was $8 million to $12 million, of which would lead to an FFO impact, Buck, of about $0.05 because of the tax expense associated with some of that. So we would expect to see on the sequential basis a $0.05 increase, roughly, at the midpoint of that range from third quarter to fourth quarter from that activity. And then we'll have a nice bump up in the fourth quarter from third quarter as well because of our strong sequential growth in NOI because of what happens with both revenues expenses between third and fourth quarter.

Buck Horne - Raymond James & Associates, Inc., Research Division

Great. That's really helpful. Terry, just maybe more broadly. I'm thinking how would you characterize the industry's supply picture right now just more broadly. And do you think there are developers that are still stretching rent growth assumptions or construction cost estimate to get out of the ground or is it -- do you think it's going to get more disciplined? What are your thoughts around that? And I guess related to Aimco, is the spread between developing an asset versus an acquisition now attractive enough that anything -- any new projects might catch your eye?

Terry Considine

Mike, the general point would be that, as you know from having followed us for many years, developers will build when they can make a project pencil. And I they can get a lender to finance it. And so each -- every market in the country will be built to over supply at some point. The reason for diversification, of course, is that they won't all be overbuilt at the same time. And it'll just depend on the individual markets. The markets, for example, in Washington, D.C. today, we had a question about it just a minute ago, it's going to be harder to get a construction loan than it would be in West Los Angeles, where the supplier response and rent growth have been slower since the recession. But broadly, I would expect every market to respond to price increases and increased new supply to offset those rental rates. And i think that -- I'm trying to think the rest of your question was...

Buck Horne - Raymond James & Associates, Inc., Research Division

Yes. Well, do you think -- is there anything that's attractive enough that Aimco would want to increase its exposure to new development projects out there?

Terry Considine

We would do so cautious. We look at that. We've done it from time-to-time. You will remember we did it quite successfully with the Palazzos for example, a decade ago. And I would think that it's something that we would look. We would look at it where it served our announced portfolio management plans of trying to upgrade the location in a particular submarket.

Operator

Our next question comes Hendel St. Just [ph] at Morgan Stanley.

Unknown Analyst

First one for Keith. What are the average turn costs both in dollars and vacancy lost in the portfolio? And how aggressive do you think our plan to be in pushing the rents going forward on your tenant base today given the recent portfolio changes? And how sensitive to turnover are you as you pushed the rents?

Keith M. Kimmel

Well, we always sold to total revenues. So it's certainly -- part of our contemplation is, is that rental rates, occupancy, turn costs and all those things are things that we consider. On average, our turn costs are around $300. And so it's certainly something that we're conscientious of and keep a close eye on.

Unknown Analyst

And the vacancy loss portion of that, how long does it typically take?

Keith M. Kimmel

It varies from market to market. But generally, around 21 days from move out to move in.

Ernest M. Freedman

Just to be clear that covers both the period of time it takes to ready the apartment, which for us is typically about 6 to 7 days. And then from there, just rent it up once it's been completed which will run about 14 days, as Keith mentioned, to get that total.

Unknown Analyst

Understood. All right. Second one for you, Terry. The portfolio of balancing improvements over the last 2 year's have been key to narrowing your relative discount to the peers. But a fairly wide discount still persists. Are you surprised by this and what are your thoughts, your plans going forward on narrowing that remaining discount to the peer group?

Terry Considine

Well, Hendel, I think you're exactly right. Theres a substantial discount today and of course, on the one hand that's a disappointment to me and then on the other hand, it's a great opportunity for those listening to this call. Aimco plans to narrow that gap by just systematically executing a very clear plan. And as I mentioned in my opening remarks, we're increasing property operating results and I think we're increasing our revenue year-over-year at a significant cliff, and I think that will continue and that will meet our guidance, which had wonderful success at cost control. Costs are actually down at a compounded rate of 1.5% or 1.75% a year for the last 5 years. We're increasing our average rents 20% in the last 3 years by selling off the bottom and investing selectively in these higher-quality assets. Our redevelopment program is producing double-digit internal rates of return. Our balance sheet, we've given guidance today that will have a leverage ratio in the mid-6s by the end of next year. And the financial statements have a high quality of earnings and a certain simplicity and transparency. I think as the Street looks at that, I think they'll find it attractive and I think that will close that gap.

Unknown Analyst

Appreciate the response, but in fairness to them, I mean, you've been pretty clear in the past few quarters, maybe even few years on this plan. Is there something here you feel that perhaps the Street isn't getting, not appreciating or perhaps are there additional considerations that you think about your current plan that you would consider that, I guess, aren't being currently articulated?

Terry Considine

No. I think it's just a question of staying with it. We've had wonderful stock returns in the period of time you've mentioned. What causes the discount is our net asset value keeps going up even faster. And so and that's a nice problem to have.

Operator

Our next question comes from Jeremy Metz at Deutsche Bank.

Jeremy Metz

Ernie, just thinking about -- you gave a pretty good -- you laid out the run rate here for earnings as we look throughout the year, and then with the nonrecurring revenue coming in that fourth quarter. And I'm just trying to wrap my arms on it, the bulk of the sale should all really hit late 3Q, 4Q. Shouldn't a good amount of that $0.05 of upside be offset of at that point?

Ernest M. Freedman

Well, Jeremy, that's a good question. But I think the timing of those sales and when they're going to happen is going to be pretty minimal dilution to the FFO line. And importantly, very little with no dilution to the AFFO line. As we do sell assets, there are -- sometimes there's a lag, Jeremy, in terms of our ability to adjust our off-site costs associated with that. We've seen that as we've done sales at the impacts on the short term to FFO could be there a little bit. Over the longer term, that goes away and then AFFO ends up being actually slightly accretive to us because we eliminate some of that capital replacement spending. So we do think that a lot of the sales happening at the back half of the year, specifically towards the end of the third quarter and the majority actually in the fourth quarter, and that's why these nonrecurring income items will happen then. Then there won't be too much of an impact or dilution from those sales in 2013, there'll be some in 2014.

Jeremy Metz

Okay. And then just have you seen anything in terms of pricing and what you have on the market given the acquisitions you're looking at any noticeable change or increase in competition or movement in cap rates?

Terry Considine

The market -- this is Terry. The market today is roughly consistent with what it's been over the last year or so. But if anything, it's slightly better than it was 6 months ago.

Jeremy Metz

And is that in terms of both where pricing is coming in and the comp level of competition you're seeing?

Terry Considine

Both, yes. The one leads to the other.

Operator

At this time, we show no further questions. And I would like to turn the conference back over to Terry Considine for any closing remarks.

Terry Considine

Well, thank you very much. And what I'd like say is we appreciate your interest in Aimco. And here we're on plan, on track and optimistic about the balance of this year. So please call Elizabeth Coalson or Ernie Freedman or me with any questions. And we look forward to seeing many of you at the NAREIT Meeting in Chicago in another month or so. Thanks very much.

Operator

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

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Source: Apartment Investment & Management Management Discusses Q1 2013 Results - Earnings Call Transcript
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