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Apartment Investment & Management (NYSE:AIV)

Q1 2012 Earnings Call

May 04, 2012 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

John E. Bezzant - Executive Vice President of Transactions

Daniel S. Matula - Executive Vice President of Redevelopment and Construction Services

Analysts

Eric Wolfe - Citigroup Inc, Research Division

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

Jana Galan - BofA Merrill Lynch, Research Division

David Harris - Imperial Capital, LLC, Research Division

Paul Morgan - Morgan Stanley, Research Division

Richard C. Anderson - BMO Capital Markets U.S.

Robert Stevenson - Macquarie Research

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

David Bragg - Zelman & Associates, Research Division

Taylor Schimkat - Keefe, Bruyette, & Woods, Inc., Research Division

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

Operator

Good afternoon, and welcome to the Apartment Investment and Management Company First Quarter 2012 Earnings Conference Call. [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.

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 2012 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 we may -- from what we 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.

Participants on today's call will be Terry Considine, our Chairman and CEO, who will provide opening remarks; Keith Kimmel, Executive Vice President, in charge of property operations; and Ernie Freedman, our CFO, who will review first quarter results and 2012 guidance.

Also in the room today are John Bezzant, EVP, Transactions; Miles Cortez, EVP and Chief Administrative Officer; and Dan Matula, EVP of Redevelopment and Construction Services. We are available to answer questions at the conclusion of our prepared remarks.

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

Terry Considine

Thank you, Lisa, and good day to all of you on this call. Thank you for your interest in Aimco. Business is good. With great thanks to my teammates all across Aimco, we are on track to meet or beat our guidance for 2012, with FFO up 9% year-over-year and AFFO up 22%. More importantly, we are making steady progress on 4 long-term goals.

First, our portfolio gets better and better. Our Conventional portfolio revenue per unit is now $1,263, up 9% year-over-year and up from $800 7 years ago, a compounded annual growth rate of 7%. This gratifying increase is due to same-store rent increases, higher rents on acquired and redeveloped properties and the sale of lower rent properties. We expect this process of steady improvement to continue as we concentrate our capital in fewer submarkets with greater and more certain rent growth. In addition, we are reducing our investment in our Affordable segment, selling 40 properties last year and expecting to sell another 60 properties this year. Our remaining business will be simpler and of higher quality.

Second, we are ramping up our redevelopment activities. We began this year with 4 redevelopments underway and we have since started a fifth. We expect to start 5 more during the balance of the year. For all 10, we expect to spend about $400 million over the next 2 or 3 years. On completion, we expect rents on the redeveloped units, un-trended and at today's levels to average $2,200 or so. We expect free cash flow IRRs greater than 10% and cash and cash returns greater than 7%. Given that the average cap rates in these markets are about 4.5%, we expect to get -- create considerable value for our shareholders. These projects will also improve our portfolio quality and increase our average portfolio rents. We have a deep pipeline of similar opportunities, and we expect to start them in future years, market conditions permitting.

Third, we are working to strengthen our balance sheet by reducing our leverage while maintaining its nonrecourse long-duration and fixed-rate character. We expect to end this year with total leverage, defined here as debt plus preferred stock divided by annualized fourth quarter EBITDA equal to 8.7x. We are on track to meet our longer-term goal of 7x over the next 3 years or so, assuming only market growth in property income, amortization of property debt from retained earnings and contribution from completed redevelopment projects. We are also considering alternatives to accelerate both our portfolio upgrading and our balance sheet delevering by the sale of properties that we would otherwise sell in 2013 and '14, with the use of proceeds to redeem our high-cost preferred stocks.

Fourth, we continue to simplify our business and to reduce offsite costs. As previously reported, we're under contract to sell our Asset Management business later this year. As I've just mentioned, we are reducing our affordable line of business. We have eliminated 7 public partnerships during the first quarter. And over the past 8 years, we have reduced property partnerships by 90%. This simplification supports lower offsite costs, improved management execution and greater transparency to our shareholders.

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.

For a more detailed report on the first quarter operations, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Keith M. Kimmel

Thanks, Terry. We’ve started out 2012 ahead of our expectations. Conventional Same Store revenue was up 4.2% year-over-year and up 1.2% compared to fourth quarter 2011. We were pleased with our overall performance, and particularly with first quarter sequential revenue growth driven by both improved rate and higher occupancy. Revenue growth is our top priority, and the commitment and focus of the team in the field is notably visible in our results.

Staying on revenue for a moment. First quarter blended rates were up 3.4%, with new leases up 2% and renewals up 5.1% on a lease-to-lease basis. Both new and renewal lease rates improved each month during the quarter and relative to the first quarter of 2011.

During April, these rates continued their positive momentum, with blended rates up 5.2%, with new lease rates up 4.7% and renewal rates up 5.6%, all while April's average daily occupancy was 95.9%. May and June renewal offers went out with 6% to 8% increases, and July renewals are going out with 7% to 9% increases. Turnover was 45.2% for the quarter compared to 44.5% for the first quarter of 2011.

Our focus on customer retention continues to serve us well, not only because we achieved higher rent increases on our renewal rents but also because it allows us to keep our cost down. We have not seen any material changes and reasons for move-outs over the last several quarters, with the top 3 reasons being: Career moves at 23%, pricing at 19% and purchasing homes at 15%.

While we always hate to lose a customer, we are replacing move outs with better qualified residents at higher rents. We had 5,200 move ins during the first quarter with an average income of $81,000, a median income of $59,000 and an average rent income ratio of 21.8%.

First quarter Conventional Same Store property operating expenses were down 40 basis points year-over-year, mainly due to the mild weather and a tight control of payroll costs. The net result of all this was a year-over-year NOI growth of 6.8%.

Let me provide some specific market color. Our top 10 markets represent 2/3 of our revenue. The top 5 performers had revenue increases from nearly 6% up to 12% year-over-year. This was led by the Bay Area, followed by Phoenix, Orange County and Miami. In the middle of the pack with 4% to 5% growth range, our consistent performers were Boston, Washington D.C. and Philadelphia.

Rounding out the top 10 markets, those with the most upside were Los Angeles at 3.6%, San Diego at 3% and Chicago at 1.5%. Chicago is an area of opportunity in which we have underperformed the market. However, it has begun to rebound during the last month as evidenced by our trailing 4-week new lease and renewal price increases at 6.9% and 7.6%, respectively.

As we expand our Bay Area portfolio, we are pleased to announce the Pacific Bay Vista leasing office will begin accepting applications this coming Tuesday. This marks the addition of 308 units in our top-performing market.

With all that said, we are building upon our first quarter success with a solid April, which sets us up well for the second quarter and into the peak leasing season. And with great thanks to our team in the field for a strong start to the year, I'll turn the call over to Ernie Freedman, our Chief Financial Officer. Ernie?

Ernest M. Freedman

Thanks, Keith. Today I'll report on financial results, portfolio and redevelopment activities, balance sheet targets, and finally, I will provide a guidance update.

Beginning with financial results, first quarter pro forma FFO of $0.40 per share was $0.05 above the midpoint of our guidance range, primarily due to $0.03 from property operations, with $0.01 driven both by lower utility costs from the mild winter and reduced personnel costs; and $0.02 the result of timing of expenses, which we expect now to incur in the second and third quarters; $0.01 due to lower offsite costs and $0.01 from other items.

Turning to the portfolio. During the quarter, we sold 9 properties with about 1,500 units, including 3 low-rated Conventional properties at an average NOI cap rate of 6%. These properties had average revenue per unit of $753 compared to our portfolio today of $1,253. We also sold 6 Affordable properties at an average NOI cap rate of 7.7%.

In March, we acquired a 488-unit property located in Phoenix for $69 million, with $29 million of debt in place. The property's revenue per unit is approximately $1,110 and dollars, and its rents are approximately 47% higher than the local market average.

During the quarter, we also acquired the remaining partnership interest in 7 consolidated real estate partnerships that own 13 properties. The fair value of the real estate corresponding to these interests totaled $124 million before property debt. Our acquisition cost was $38 million.

As to redevelopment activities, we expect to have 10 active redevelopment projects in 2012. We continue construction activity at our $94 million redevelopments of Pacific Bay Vistas at San Bruno, California. As Keith mentioned, we will start leasing activities next week, and expect our first move-in during the third quarter of this year.

During the first quarter of 2012, we began redevelopment of The Palazzo at Park La Brea, located in West Los Angeles. The Palazzo is a high-end property in a great location. Our customers are looking for an even more unique experience. And to address this, we've commenced a $15 million program to further upgrade our 115 penthouse units to an even higher finish. Penthouse residence will also have exclusive access to a new rooftop patio and lounge area. Delivery of amenities in the first penthouse units is expected in the third quarter of this year.

We anticipate completing 2 smaller projects in South Florida during 2012. The remaining 6 projects include 1 each in Seattle, San Francisco and Chicago; 2 in Center City Philadelphia, and we expect to begin phase 2 of our redevelopment of Lincoln place in Venice, California. Phase 1 of Lincoln Place was completed in April, and residents have started to move into these completed units.

We expect to invest a total $400 million in these 10 projects over the next 2 to 3 years, with current returns greater than 7% and free cash flow internal rates of return in excess of 10%.

We plan to invest $125 million to $150 million during 2012, and a deep pipeline of opportunities exist within our portfolio that allows for future redevelopment investment of $150 million to $200 million per year.

Regarding the balance sheet, during the first quarter, we provided leverage targets that we expect to meet by 2015. Specifically, we noted our goal to have debt plus preferred equity to EBITDA at less than 7x, and EBITDA coverage of interest and preferred dividends of greater than 2.5x. As a reminder, we expect our debt plus preferred equity to EBITDA coverage to be at 8.7x by year end.

Using third-party NOI projections for the years 2013 through 2015, we expect coverages to improve by almost a full turn to approximately 7.8x by the end of 2015. Production of debt through scheduled amortizations and earn-in from our redevelopment activities would improve coverages further to about 7x by the end of 2015.

So our base case of continued revenue growth, property debt amortization and earn-in from redevelopment activities gets us to our target by the end of 2015. That said, we are looking for opportunities to accelerate reaching our target.

Looking ahead, we are increasing full year pro forma FFO guidance to a range of $1.76 to $1.84 per share and AFFO of $1.21 to $1.31 per share. We are increasing full year guidance for Conventional Same Store net operating income by 25 basis points to a range of 5.5% to 7.5%. The increase in Conventional Same Store net operating income guidance is driven by a decrease in our expected expense growth rate of 2.25% to 2.75%, a 25-basis point decrease at the midpoint. We are maintaining our revenue guidance for the full year of 4.5% to 5.5% increase.

Affordable Same Store NOI guidance is increased by 50 basis points to a range of 0.5% to 1.5%. Taken together, total same-store NOI growth is now expected to be in a range of 5% to 6.75%, a 50-basis point increase. Higher NOI expectations are driven primarily by better-than-expected first quarter results.

For the second quarter, pro forma FFO is projected to be $0.40 to $0.44 per share, with year-over-year Conventional Same Store NOI growth projected to be 4.5% to 5.5%. Second quarter Conventional Same Store NOI is projected to be flat to up 1% compared to first quarter. We do expect that revenues will be up sequentially about 1.5%.

Before we take questions, I would like to point out that we have added 2 new schedules to our financial supplement. First, we have added Schedule 6b [ph] which details Conventional Same Store property operating expense trends, and second, Schedule 10 has been added to provide expanded disclosure related to our redevelopment activities.

Also, to provide more disclosure and allow for meaningful comparisons with many of our peers, we provided both rental rate per unit and total revenue per unit in our earnings release. The operating results by market information we provide in our supplemental schedules include revenue per unit information. Approximately 10% of our rental revenues come from sources such as utility reimbursements, parking and storage.

Keith reported in his remarks the average income of our customers who moved in during the first quarter. In addition, he provided our calculated rent-to-income ratio of 21.8%. I wanted to provide some background on how we calculated the 21.8% amount. When reviewing our collected data, we noted that we had some significant outliers with regards to very high household income at properties like The Palazzo, Flamingo and Calhoun Beach Club. We did not want those outliers to skew our calculated rent to income metric when aggregating our entire portfolio. We've calculated our rent-to-income metric by taking each apartment home's ratio, adding them together and then dividing by the number of homes. So the low rent-to-income percentage at some of our high-end properties does not then overwhelm the overall results when blended this with the rest of the portfolio.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Eric Wolfe at Citi.

Eric Wolfe - Citigroup Inc, Research Division

You guys announced a branding initiative in July of last year. And since that time, you've obviously changed around a couple of things, including your website. So I'm curious as you move more towards a higher rental rate properties, whether you would consider around changing the names of your properties as well, just so that there's one sort of consistent brand that you're putting out there to customers?

Keith M. Kimmel

Eric, this is Keith. What I would say is that we've heard of some others that are really starting to experiment with this, and we think it's certainly intriguing to see if they have success. And we'll continue to watch how it's being executed and see if it's beneficial to them. And we're certainly very in-tuned with it and we'll be watching closely.

Eric Wolfe - Citigroup Inc, Research Division

Okay. And then second question is on the dispositions. You mentioned that you might accelerate some of the ones earmarked for 2013 and 2014 into this year. So what does that depend on? And when you think about once you sell those assets, what the portfolio looks like, can you give -- maybe give us some statistics around what the average revenue per unit will be or the average margin? Just trying to think about how the portfolio will change once you sell all those assets.

John E. Bezzant

Eric, John Bezzant, I'll start it. In terms of what we pick and what we're selecting, it continues to what we've done over the last few years, several years really in terms of profiling the entire portfolio and selling what we consider to be the lower-rated assets. And that's going to be in terms of anticipated return over the coming years off of those properties. It's the rent levels at the properties. It's the specific submarkets they happen to be in and some various demographic measures within those submarkets. As it relates to the portfolio as a whole, we haven't, in some of the prior conferences, provided some detail on where portfolio rents will move. The anticipation is, is that -- they’ll move in accordance with the magnitude of what we actually execute, how's that? They're going up. And I think in terms of what to expect and when we will decide to pull the trigger, it will really be driven by pricing. We've got some very good execution this quarter in the properties that we sold and we will continue to look for good executions as we look forward.

Ernest M. Freedman

Well, let me remind you, Eric, what's baked into our base plan, at least for this year before any potential acceleration, is rents ended this quarter about $1,253. We noted in our release that when executing our plans today with our expectations, what Keith and the operations team are going to deliver with rental growth, we then meet our revenue per unit at about $1,370. And at the end of the day, roughly half of that is coming -- the increase from the prior year is coming from rental increases and roughly half is coming from the fact that we sold lower rate of sales. If we're successful in accelerating some sales, you'll see a similar acceleration with regards to the piece having to do with the sales and properties. But as John pointed out, it's a little bit early for us to be projecting where things could go, as we're exploring it and seeing what the opportunity is.

Eric Wolfe - Citigroup Inc, Research Division

Right. But the decision to sell is going to be mainly based on what kind of pricing you're going to be getting on these assets, not so much in terms of what the reinvestment opportunity is, seems like you have most of the dispositions I guess earmarked for redeeming your higher cost preferreds?

Ernest M. Freedman

Yes, at the end of the day, Eric, we're focused on the economics of the sale. And we sell for a price that we think is the right price and we can achieve it. That's the priority for us. And assuming that that happens, then the opportunity would be for us to take out preferred equity.

Operator

The next question comes from Karin Ford of KeyBanc.

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

On the last call, I think you said you expected blended rents to be -- blended rent increases for the year to be approximately 5%. You got 3.4% in 1Q. I wanted to see if there was any change to that expectation. And given some of the positive trends you laid out post quarter here on this call, why you chose not to move up revenue guidance?

Ernest M. Freedman

Karen, this is Ernie. Well, one, what you pointed out is correct. On our last call, we expected blended rents to be at 5%. Two, we're in April or now May, we have the April books closed, and we're just at beginning of peak leasing season and we just -- we don't want to get ahead of our ourselves too much. We're, as Keith mentioned, very pleased with where we're at. It puts us a little bit above expectations, we’re expected to be in. We would hope that once we're -- in our next call in July or in early August, having much of the peak season behind us, we'll be able to speak pretty definitively about where we think that's going to come out.

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

Okay. My second question is just on the Affordable portfolio. It sounded like there was a slight change in philosophy on that. I think you had said previously you wanted to maintain that at roughly 10% of the portfolio. And then in the release today, it said that you were hoping today that it would be fully disposed off in the next few years. Can you just talk about your view on the Affordable portfolio and how that's changed? Is that...

Terry Considine

Karin, this is Terry. And you're right, our thinking about that has changed and what's driving the change is just the observation about the fiscal budget pressures that the government faces and the unpredictable outcomes that it might have over time. So this has been good for us, it continues to be good for us. We have wanted to bring it down a little bit in size, and we expect those reductions to continue to reduce its importance to Aimco.

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

Would you consider a large portfolio of sale in that regard?

Terry Considine

You bet. Make me an offer.

Operator

The next question comes from Jana Galan of Bank of America.

Jana Galan - BofA Merrill Lynch, Research Division

I had a question on the pick-up in the new lease rates and kind of more curious if you felt this was more of a result of where we are in the recovery, where B [ph] rents start to accelerate or maybe more due to kind of fully being up and running on LRO for a year?

Keith M. Kimmel

Jana, this is Keith Kimmel. I'll take that question for you. I think there's a couple of things to consider. The first is that I just -- I want to point out that while we have released that we were on -- we moved to YieldStar, we've always had a professional revenue management system as part of our operating platform. And so we certainly believe that YieldStar has helped us to be able to have some simplicities in using that system. We wouldn't really contribute that as being the direct result of having some real acceleration. As you look at the A, Bs and Cs, that's a different topic. And so really we look at new leases being the barometer of kind of how they're performing. And so at the moment, what we're seeing is about 140-basis point spread between the As and the Cs. Of note, what's a little bit interesting is we're starting to see some acceleration with the Cs, which previously had been really driven by the As. And so, of course, that's one of the benefits of having a blended portfolio like we have. And we're pleased to see that there's some balancing out happening.

Jana Galan - BofA Merrill Lynch, Research Division

And then maybe just a quick question on the insurance expense. I noticed a lot of your peers have that going up. I was curious if there was a reason, anything specific why it kind of fell for AIV?

Ernest M. Freedman

Well, on the insurance line item, we were under our old policy plan through the end of February. So our new policy to go in effect in March, and we did see an increase there. So you will see increases for the rest of the year there, Jana. Separately though -- we run through -- in a lot of areas we are self-insured with health -- specifically on the health side, and we just happened to have a good quarter with regards to health claims that drive a good performance there for insurance.

Operator

Next question comes from David Harris of Imperial Capital.

David Harris - Imperial Capital, LLC, Research Division

On the redevelopment program, you talk about putting $125 million to $150 million in this year. What size do you think that program gets to over the next year or 2?

Ernest M. Freedman

David, this is Ernie. We have opportunities where we could ramp it up to $150 million to $200 million a year over the next couple of years. And just depending on progress and planning and then other opportunities, maybe even a touch higher than that. I don't want to get too far ahead and provide guidance for future years. But we're comfortable with that, kind of that $150 million to $200 million range is a pretty good number to pencil in for the upcoming few years. And we'll provide more specifics as we get closer to those future years.

David Harris - Imperial Capital, LLC, Research Division

Okay. And just to be clear, that's an annual investment rate, so the program itself could actually be larger than that?

Ernest M. Freedman

That would be the annual investment rate, yes. And then within the pipeline, because often some of our programs are running between 18 and 30 months, you'd have a higher overall investment currently, but that will be our rate per year.

David Harris - Imperial Capital, LLC, Research Division

Right. And would you envisage buying in additional sites? Or do you think this program can be almost entirely predicated on assets that you own currently?

Ernest M. Freedman

Well, the answer is both, David. A good example is the property we bought in Corte Madera, The Preserve at Marin, which formerly was referred to as Madera Vista, which was a great opportunity for us to put it right into our redevelopment pipeline. We've closed that in August of last year, and we think it's a great addition to the portfolio. We do have plenty of opportunities within our own portfolio as well to get us to those numbers. But as John and the acquisition team is able to find the right opportunity for us, we have the expertise to create value there. We would consider that as an opportunity and compare that to other investment alternatives for us.

David Harris - Imperial Capital, LLC, Research Division

Okay, terrific. And then maybe I missed this, forgive me. Did you cite how much of benefit there was in terms of expense savings on the weather -- from the weather in the first quarter?

Ernest M. Freedman

Yes, on a net basis, David, it was about $0.01, not quite $0.01. Clearly we had a large savings on utility expenses. But on conventional side, we collect utility reimbursements of almost 67% of that. So when you actually net those 2 numbers, it's not as big as one may think. On the affordable side, a much smaller part of our portfolio, we do get the benefit of the savings, and there's not a utility reimbursement. Overall though, it's right around $0.01 for us, David.

Operator

The next question comes from Paul Morgan of Morgan Stanley

Paul Morgan - Morgan Stanley, Research Division

On the kind of just the accelerated disposition potential, I mean, can you help me just think about how you're prioritizing the use of proceeds should you do a lot more this year than you originally planned? I mean, you've mentioned the preferred, should we think of kind of everything goes to the preferred that's redeemable until that's exhausted, and then you've got your redevelopments and then after that your incremental acquisitions? Or is there a different way of prioritizing that I should think about?

Ernest M. Freedman

Sure. That's a good question, Paul. With regards to what our use of proceeds are -- right now, we've identified that we would like to take out our highest cost preferreds. As many of you may know, today, we still have a little over $600 million of preferred equity that we can call. And that's at rates ranging from 7.75% to 8%. We're not looking to accelerate enough sales to be able to pay all those down. So you mentioned a couple of other items that we potentially consider. But Paul, those other items that you talked about, specifically redevelopment, is already accounted for on our base plan in terms of being able to fund that. I don't want to get ahead of myself and give any kind of indication of how many proceeds we may be able to accelerate with regards to accelerating some sales, but I'm comfortable saying it won't be enough to pay off the $600 million of preferreds that are callable today.

Paul Morgan - Morgan Stanley, Research Division

Okay, and then just -- and then going to the redevelopments. Just on Pacific Bay, should we think of that as being sort of pro rata coming online over a year starting in the third quarter? And then maybe if you have any updates on timing in Venice and in Corte Madera, the 2 that you mentioned in your supp?

Ernest M. Freedman

I'll be happy to. Actually, I'm glad you asked that, Paul. It gives me an opportunity to talk again about our Schedule 10, which is a new schedule and not everyone may have seen it. On Schedule 10, we do lay out some timing for Pacific Bay Vistas. And I would just point to that, that we expect construction to be completed by the second quarter of 2013, and that we will have stabilized occupancy in terms of having a full house by about the third quarter of 2013. So your point is exactly right, that over the next roughly year or so, starting in the third quarter, we would deliver pretty much pro rata various buildings within that project and people being able to move in. Specifically, with the Lincoln Place and The Preserve at Marin, which is in Corte Madera, Lincoln Place we did complete phase 1 and we have the returning tenants moving in. That commenced in the middle of April, and that will continue for the next couple of weeks here. As we talked about before, there's really no change in our -- in the plans on what would be phase 2 and phase 3. We're working to secure financing. We're hopeful that the financing secured probably in the next, I would say, few months, let's make it 4 months. And once that is in place that would allow us to begin construction on phase 2 and phase 3, which is the remainder of the property. At The Preserve at Marin, we would expect that probably in the coming 3 to 4 mon -- we start demolition work there. Actually, let me ask Danny to speak a little about some of the details. But we start demolition work in the next, Dan, couple of months, we would expect then to see some heavy construction activity?

Daniel S. Matula

Yes, we would expect to probably kick off reconstruction of that project in the third quarter. And if all goes well, begin to deliver units late in the fourth quarter of this year.

Ernest M. Freedman

Similar to what we did with Pacific Bay Vistas in December, and those are very large projects for us. And as we get to the point where construction, significant construction, is starting, we're going to provide, in a separate press release, sort of the timing have to be around our earnings release, some specific details around those. So you can plug that information into any models you may have in terms of the potential value creation from each of those projects. So you can be on the lookout for that information on those 2 projects probably in the next couple of months.

Operator

The next question comes from Rich Anderson of BMO Capital Markets.

Richard C. Anderson - BMO Capital Markets U.S.

So back on the preferred redemption pieces. I guess I'm curious, it's been kind of sticking out there for a while now. Actually, you look back and saw the last time you did a preferred redemption was the G [ph] in the fourth quarter of '10, I believe, but that was at 9.4% coupon. But it's still pretty expensive stuff. What's holding you back from -- I mean, why wouldn't you sell assets and pay that stuff down? It seems like a no-brainer. What -- is there something holding you back?

Ernest M. Freedman

No, I keep asking John, Rich, to get down a little bit faster. So no, we've come to that conclusion. I've been asked, Rich, would you consider refinancing them because, because we could refinance them in a lower rate than they are today, but we committed that we want to bring leverage down. And so the question is being able to successfully sell real estate at prices that we think is fair and absolutely we think it’s a very good use of proceeds and we're now on board.

Richard C. Anderson - BMO Capital Markets U.S.

Okay. But since 2010 till now, you didn't think they were expensive or just occurred to you that they are expensive now?

Ernest M. Freedman

I would say back in 2010, 8% weren’t so far out of the market as they are today.

Richard C. Anderson - BMO Capital Markets U.S.

But you probably could have sold assets still and made some money there, but relative to your debt cost expenses.

Ernest M. Freedman

Well, Rich, we are where we are today, and what we're going to do going forward. So I think we’ve laid out what we want to do and to talk about where things were at in 2010, we're in 2012 now.

Richard C. Anderson - BMO Capital Markets U.S.

Okay. I just -- I have lost my train of thoughts, excuse me. The second follow-up question is I asked this on a few calls earlier and didn't really get a great response, maybe this is to Keith. Everyone talks about reason for move out, do you guys track reasons for move in?

Keith M. Kimmel

Rich, I have noted that that was a question that you've asked and I think it's an interesting one. One of the things I would tell you is that we think it's a pretty straightforward kind of point, which is that when we look at all the move-out reasons and not only of our own, but what we see from our peers, that it's really reciprocal. Career moves always seems to be the leading move-out reason, not just from ourselves, but many times from our peers. And so we know that's a big driver, and of course relocation. I think the other that really is interesting for our move-ins is that we have a compelling value proposition that really is driven by product quality and service quality and the fact that you have people that are moving up in a lot of cases out of the gray market or other apartments into a really professionally managed community. So interesting point, and we're very focused on it.

Richard C. Anderson - BMO Capital Markets U.S.

Well, I mean, I guess everyone has these percentages of reasons for move out. Is there any thought to having it as structured as you have the knowledge for the move-out? As have -- being able to tie a percentage to the reasons for move-in? Or is that a difficult thing to do when people are coming in the door?

Keith M. Kimmel

Well, I mean, Rich, I think it's quite valuable that you brought it up us a point. It is a little bit difficult sometimes to get out of the perspective resident coming in what their reason for moving in is, but it's something that we do ask of course every resident that moves in. But tracking it hasn’t always been something that has been noted, and we appreciate your insight and thinking about it in a different way.

Richard C. Anderson - BMO Capital Markets U.S.

Okay. And Ernie, the other question I lost for a second was did you provide a base case disposition number for 2012? If you did, I missed it.

Ernest M. Freedman

Yes, we provided dispositions, $550 million to $650 million of real estate value at Aimco share. We provided that guidance last quarter.

Richard C. Anderson - BMO Capital Markets U.S.

And that's Aimco share, $600 million?

Ernest M. Freedman

Yes, that would be with -- that's on both our conventional and affordable sales. What we expect in terms of gross asset value that we would sell.

Operator

The next question comes from Rob Stevenson of Macquarie.

Robert Stevenson - Macquarie Research

Can you talk to what the rough dollar value of the limited partnership interest that you guys would want to acquire if the current owners were willing sellers? And can you talk about how active that market is today? You did $38 million in the first quarter. Are owners willing sellers today or not given the lack of reinvestment alternatives?

Ernest M. Freedman

Yes, Rob, this is Ernie. I'll take that. We're almost complete with what we expect to do with regards to partnership tenders and mergers. And there are a few more that are outstanding. But those ones that are outstanding certainly have assets that we expect to sell in the next year to 2 years. There are a few private ones that are outstanding, and we have approached owners, and we think -- to see if they have an interest in selling those units to us. But the overall amount of that is very small, well less than $100 million in terms of opportunities for us there, in terms of what we can bring in. And what I would tell you is when we approach those private owners often, one, it's hard to find them; 2, they don't necessarily have a lot of interest in it. So we engage in a dialogue and we’re able to pick up a few units here and there. But for the most part with what we accomplished in the first quarter, there's not going to be much more for us to talk about in terms of closing these partnership tenders and mergers, we're pretty much there.

Robert Stevenson - Macquarie Research

Okay. And the $100 million is both public and private?

Ernest M. Freedman

There's a couple of more that we're going to do this year. Those are mainly private at this point.

Robert Stevenson - Macquarie Research

Okay. And then, Ernie, in terms of the acceleration of the disposition to redeem preferreds, can you remind us like what's the rough magnitude of assets that you could sell this year and not trigger special dividend or that you could account for under the current common dividend?

Ernest M. Freedman

That's a good question. Within our current plans, we definitely have plenty of room for that if we were to do an acceleration it sort of depends on what the transaction would be, Rob. So it would be getting a little bit ahead of myself to say that if we were able to accelerate a number of sales, what impact that would have on what we’d have to from a dividend perspective.

Robert Stevenson - Macquarie Research

The special dividend, I mean, given the history that you guys have had with that, does that sort of -- would that push you to push closings into the next year or something like to avoid that? Or do special dividends at this point not really bother you one way or the other?

Ernest M. Freedman

Rob, we would keep all options open for us. What's most important for us is to generate the best economics from the potential sale. We did do the special dividends in the past, but we want to first focus and seeing what the opportunity is.

Operator

The next question comes from Michael Salinsky of RBC.

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

Just going back to the sale. Would it -- you talked about pulling '13 and '14, so you've also talked about 5% to 10% of the bottom. Would you -- can you quantify kind of how much -- what kind of pull we're talking there in terms of what you would pull forward? And also if there's any preference in selling conventional versus the affordable as you look to accelerate some of that?

Ernest M. Freedman

Let me address that Mike, the second part of your question first, affordable versus conventional. The affordable game plan really hasn't changed in that we expect to sell 60 Affordable assets this year, and if we do have the opportunity to maybe accelerate another 20 to 25 asset sales into this year. But then the proceeds that would be generated from that are pretty small, our ownership percentages are smaller on that and wouldn't have as much of a meaningful impact on use of proceeds to take out preferred equity. And then as Terry talked about in his prepared remarks, overall, longer-term, our expectation was to continue to see that more Affordable sales over the next few years. On the Conventional side, in terms of what the numbers are going to be, again, we're focused on the right economics, in getting what we want to get. And we're looking to do it. We're not committing that it's going happen. We're hopeful that it will happen. Just at this point, you raised the right point, Mike, that we would expect to sell about 5% to 10% of our assets or sorry our lowest-yield assets over the next couple of years. That's the population we're drawing from to see if it makes sense to accelerate some of those into 2012.

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

Okay. It's helpful. Second of all, Keith, did you give April -- the occupancy at the end of April?

Keith M. Kimmel

Sure. I actually did, it was a 95.9% average daily occupancy.

Ernest M. Freedman

That was average for the month.

Keith M. Kimmel

Right.

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

And how does that compare to the prior year?

Ernest M. Freedman

Last year, in the fourth quarter, we were at 95.9% for the entire fourth quarter. Last year in April we trended down. I don't have the number in front of me, Michael, but I would expect that in the fourth quarter -- on April last year, we were in 96.2% to 96.3% range.

Operator

The next question comes from Dave Bragg of Zelman & Associates.

David Bragg - Zelman & Associates, Research Division

Could you just talk about what you're currently marketing for sale?

Terry Considine

That's actually publicly out there on our website. It's a pretty diverse splits of both Conventional and Affordable assets. John, do you want to provide a little color?

John E. Bezzant

Yes, in broad strokes, again, as we've talked about, portfolio lower rent properties. Geographically, we got properties in Phoenix and Central Florida. There is a link on the Aimco website. You're welcome to go to and look. It's got the Affordable and the Conventional assets listed there. Geographically, on the Affordable side, a much more diverse, really all over the country. We got 60-odd properties out there right now. So it's basically all over.

David Bragg - Zelman & Associates, Research Division

Okay. And can you talk about your views so far as you've evaluated this on the opportunity, pricing wise, of selling the assets individually versus as a portfolio?

John E. Bezzant

Yes, we're in the middle of that analysis right now, frankly. And as we look at a portfolio trade, there are certain buyers that come into the market for a large portfolio of properties that perhaps price and underwrite and model their transactions somewhat differently than our typical one-off buyers. And we are looking at that right now as we speak.

David Bragg - Zelman & Associates, Research Division

And would you be willing to provide some of your initial expectations on pricing on the Conventional assets?

John E. Bezzant

No. How's that for an answer? I would tell you if you look back historically, you can look back at our Schedule 8 over this and prior quarters and kind of see where we've landed cap rate wise on assets that are very similar to what we anticipate selling, and we would -- we haven't seen huge moves in cap rates over the last 9 months. So I would tell you looking out for at least the near-term future, we don't see any big changes.

David Bragg - Zelman & Associates, Research Division

All right. Last question on operations. You mentioned earlier Chicago as a market in which you've underperformed and that creates an opportunity. What -- how many other and what other markets kind of fit into that type of description in that maybe you've lagged the market and that's contributing to your pricing power this year?

Keith M. Kimmel

Dave, this is Keith. Obviously, we talked about Chicago being up 1.5%. We believe there's room there. One of the things, in addition to Chicago that I would point out, is Los Angeles at 3.6%. Los Angeles at 3.6%, there's been a lot of anticipation for recovery in Los Angeles. Some of our peers have started to realize it sooner than we have. But what I would tell you is that we're really starting to see some indications that we are particularly seeing a comeback. We look at our trailing 4 weeks on our lease-to-lease rates for new leases and renewal rates. New are coming in up 6.4% and renewals are coming in up 4.1%. So both significantly higher than our current 3.6%, and we're starting to see some acceleration there.

David Bragg - Zelman & Associates, Research Division

So it's not in your sense that this is wide spread across the portfolio, it's isolated in a few specific markets, the opportunity to gain back underperformance?

Keith M. Kimmel

Yes, I think that's a good way to describe it.

Operator

The next question comes from Taylor Schimkat at KBW.

Taylor Schimkat - Keefe, Bruyette, & Woods, Inc., Research Division

Just one question. As you ramp up the redevelopment projects underway, how should we be thinking the offsetting factors of NOI dilution from lower occupancy from the units offline and the ramp-up in NOI from the redev projects that are not producing NOI? I guess more specifically as we look out from here on a net basis, are you expecting incremental NOI dilution? Or should we be expecting NOI from the redev pipeline to only go up from here?

Ernest M. Freedman

It's great, Taylor, and I'll refer back to Schedule 10, just kind of walk through the projects so people can get a sense of what we're seeing. 3 of the projects that we have that are listed on Schedule 10 are Lincoln Place, The Preserve at Marin and Pacific Bay Vistas that are empty projects. So for there, we'll have absolutely no NOI dilution and it will have only accretive impacts. Now of course, we'll capitalize and we'll divest interest as those things come online, but net-net that's going to be a positive contribution for us. And there is no redev drag from those projects. And the other projects that we have listed on Schedule 10, Flamingo South Beach is actually some exterior work. There's not any units being taken down, so we'll have no redev drag from Flamingo South Beach. Plantation Gardens has been undergoing a renovation for some time since 2011, and we're getting to the point where it's actually turning where we had a minimal amount of redev drag on that. And I said minimal because it's a smaller project. And the good news is that will start contributing NOI positive for us. And then finally, Palazzo will have some drag. It's a smaller project. There is a decent amount of those dollars that are being spent on amenities and exterior works that won't take units out of -- in a sense, out of place. On a project like Palazzo, there will be a little bit of redev drag. Now for the projects we have going on in the future, there will be some disruption in terms of redev being done on the terms, and terms taking a little longer because of that, and as those projects come out and we get more specific information on those, we can provide definitely some color as to the redev drag. What I think, Taylor is when we used to talk about redev drag in the program where we're spending $350 million a year, it was a pretty significant negative contribution to our earnings. But with the projects we have in place here, we're not going to be looking at those kind of numbers like we did back in 2006, 2007 and 2008.

Taylor Schimkat - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. But it's just -- so it sounds like on a net basis that other than potentially minor dilution in 2012, once we sort of the strategy is looking forward that there's not going to be much incremental drag.

Ernest M. Freedman

No, we have the benefit of Lincoln Place, Madera -- The Preserve at Marin and Pacific Bay Vistas really have offset any drag we have from the other projects because they're empty right now. So it's not going to be a meaningful contributor to our results like it was in the past.

Operator

The next question comes from Buck Horne at Raymond James.

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

A couple of quick ones. Do you guys track the number of residents per unit that you have in your apartments? And has that changed in any meaningful way? I'm just wondering, are you seeing any affect from the unbundling of households?

Keith M. Kimmel

This is Keith. We do track it, and we haven't seen any meaningful change in that number.

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

Okay. And likewise, do you guys -- I mean, do you have a feel for the median income of your incoming residents as materially different than the ones moving out? Are you replacing your move-outs with a much higher quality tenant?

Keith M. Kimmel

This is Keith. I'll answer that. Because of the transition of our operating system, we previously didn't have that number to have a direct comparison. So of course, now that we are reporting on it and we're watching it closely, we'll be able to have a more detailed information on the outs versus the ins.

Operator

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

Terry Considine

Well, thank you all for your interest in Aimco. If you have further questions, please call Elizabeth Coalson, Ernie Freedman or me with any of your questions. We look forward to seeing many of you at the NAREIT Meeting in New York City in another month or so. Thank you very much, and have a good day.

Operator

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

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