Apartment Investment and Management Company
Q3 2017 Earnings Call Transcript

Published: 27 Oct 2017

[Operator:]

Good day and welcome to the Aimco Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead.

[Lisa 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 2017 results. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today. We will also discuss certain non-GAAP financial measures, such as AFFO and FFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on Aimco's website. Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President in charge of Property Operations; John Bezzant, our Chief Investment Officer; and Paul Beldin, our Chief Financial Officer. A question-and-answer session will follow our prepared remarks. And I'll 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. Here is the headline; Aimco Reports Strong Results. This year has had its challenges, including hurricanes, Airbnb and new supply competing with some of our higher rent properties. But Aimco strategy contemplates that there will always be challenges and prepares for such by emphasizing portfolio diversification, both geographic and across price points, redevelopment, overdevelopment with the flexibility of redevelopment to adjust the pace of activity to track changing market conditions, and customer focus, providing greater retention, lower costs and enhanced pricing power. Here are a few proofs; year-to-date FFO per share is up 6%. Year-to-date AFFO per share, our preferred measure for current period profitability, is up 7%. In the third quarter, same store net operating income was up 4.5% year-over-year, adding $0.03 per share to net operating income. Our portfolio outside of same store, about 30% of our business, added $0.04 per share to net operating income from the lease-up of redevelopment and acquisition communities, before $0.02 per share subtraction from properties sold to fund these activities. And parenthetically I know, this ignores the $0.03 per share increase in net operating income from the Palazzo reacquisition, because that was roughly offset by interest expense. Our customer and portfolio quality metrics continue their steady improvement. Median income for new customers was $107,000, up 7% and average monthly revenue per apartment home was $2,075, up 6%. Looking ahead, we are busy now with plans and budgets for next year. Paul will provide detailed guidance for 2018 on our fourth quarter earnings call in early February. The general assumptions for our planning are, first, the economy will continue steady growth. Second, demographics will support continued solid demand for our apartments. Third, competition from new supply will continue, although there will be rotation as to which submarkets are exposed. And fourth, financial flexibility and safety will be rewarded, if there is unexpected distress in capital markets. We plan to stick to our strategy of customer selection and customer satisfaction, leading to high customer retention. With constant focus on fine-tuning property operations, to increase effectiveness and to reduce costs. With low risk accretive redevelopments and limited developments, where there are special circumstances. Disciplined capital allocation based on pair trades, a strong balance sheet with abundant liquidity and limited exposure to capital markets, and an intentional team culture, emphasizing collaboration and performance. For the good results of this quarter, I offer sincere thanks to my Aimco teammates, both here in Denver, as well as across the country. It's a privilege and a pleasure to work with you. And now for a more detailed report on the third quarter, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

[Keith Kimmel:]

Thanks Terry. I am pleased to report that we had a solid third quarter in operations, with strong performances in stable markets such as San Diego and Chicago. Offsetting challenges with competitive new supply in particular markets such as Philadelphia and Miami. Same store revenues were up 2.8%. Expenses were down 1.1% and net operating income was up 4.5%. Our residents continue to reward us with high marks, as they gave us better than a four star rating in customer satisfaction for the 16th consecutive quarter, with a 4.24 out of a possible five stars, matching our record for the second consecutive quarter. This contributed to our turnover for the quarter being at 44.4%, our lowest turnover result since the second quarter of 2012, with the most transactions of the year. This allowed us to keep a higher percentage of our most valued customers, at higher rates and reduced costs for preparing additional apartments for rent. Average daily occupancy finished at 96% for the quarter, matching our highest occupancy for any third quarter since 2010, 20 basis points better than the third quarter of 2016 and 10 basis points sequentially. Move out reasons for the quarter are unchanged versus recent results are on [ph] long term averages. Looking at rates which transacted in the quarter; blended lease rates were up 3%, with renewal rates having solid increases of 4.5%. We saw particular strength in Denver, Seattle, San Diego and Chicago. Renewal rents in these markets increased more than 5% compared to the expiring leases. For those leases expired and were not renewed, our new leases increased 1.4% versus the prior lease. We saw particular improvements in San Diego, Seattle and Boston, renewal leases had premiums from better than 3% to 7%. Turning to the third quarter same store revenue growth; our top performers had revenue increases from nearly 4%, better than 5% for the quarter. This was led by Atlanta, followed by Seattle, San Diego, Los Angeles, and Chicago. Our steady performance which had revenue growth from 2% to 3%, were Denver, Boston, Miami, the Bay Area and Washington D.C., and with revenue growth between positive and negative 1%, we had New York and Philadelphia. Finally, in looking at our early fourth quarter results, with one week to go to close October. Our preliminary blended lease rates are up roughly 2%, with renewals up 4.6% and new leases down about 1%, with an accelerated average daily occupancy of 96.2%, as we shift our focus to higher occupancy for the winter months. In November and December, renewal offers went out with 4% to 6% increases. And with great thanks to our teams in the field and here in Denver for your commitment to Aimco success, I will turn the call over to John Bezzant, our Chief Investment Officer. John?

[John Bezzant:]

Thanks Keith. You have just a good report at our same store portfolio and operations. I'd like to spend some time talking about our second important line of business, redevelopment and development. We invested $33 million during the third quarter, and leased almost 300 apartment homes, a third of those at Park Towne Place. At Park Towne, we completed the construction on the third tower, which was nearly 70% leased at completion. That tower is 77% leased today, at rates consistent with underwriting. We expect this tower to be over 90% leased by year end, joining the other two redeveloped towers that are already occupancy stabilized. In the past three years, Aimco has leased more than 1,100 redeveloped apartment homes in Center City, Philadelphia. Based on these successful results, we decided to proceed with a $40 million redevelopment of the fourth and final tower, Park Towne Place. New leasing is underway, and construction is scheduled to commence in December. We made a second investment decision this quarter with respect to East Point. In 2014, we acquired this property, a C property in Boulder, Colorado. It's located two miles from the new Google campus, and across the street from Ball Aerospace’s Technology Campus and Foothills Hospital. Building in Boulder is highly regulated, new supply is limited, notwithstanding higher enrollment at the University of Colorado and increased employment, averaging nearly 5,000 annually since 2010. Since 2015, three institutional grade apartment complexes have been constructed in the Boulder submarket. Two in the gun barrel neighborhood, an area five miles northeast of downtown, where light industrial uses are more typical than residential. And only one in downtown Boulder proper, with only 26 units. Over time, more will be built, but Boulder will remain a market with high demand and significant barriers to competitive new supply. Over the past two years, Aimco has planned and entitled a new $170 million, 226 apartment home community to be known as Parc Mosaic. The de-leasing of Eastpointe is now underway and construction of Parc Mosaic is scheduled to commence in the fourth quarter. Our investment underwriting includes all costs, including the cost of acquiring the property. Our expected return and value creation are consistent with our objective to earn free cash flow, internal rate of returns, risk premium of 150 to 250 basis points, when compared to acquisition of a stabilized property. And one of the things we like about redevelopment is the flexibility it affords us to just scope and timing if spending, to align with changing market conditions. During the quarter, we leased 83 redeveloped homes at Yorktown and Calhoun. And while we were satisfied with pricing, we were not satisfied with pace. Given the observed new supply and typically softer seasonal demand, we are pausing these projects for the winter. By contrast, we are pleased with both rate and pace at Saybrook Pointe; a B property located in San Jose, California, where we leased 66 redeveloped homes this quarter, and continue full speed ahead. Looking forward, we were planning projects at Mariners Cove in San Diego and other properties being redeveloped to a B price point. On the transactions front, the property sales needed to fund the Palazzo pair trade are on-track, with the majority of closings expected in mid to late December. And with that, I'd now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

[Paul Beldin:]

Thanks John. Aimco's balance sheet remains healthy, with abundant liquidity, flexibility and limited exposure of the capital markets. In the third quarter, we continue to take advantage of the low interest rate environment, enclosed or rate locked five non-recourse, fixed rate property loans, totaling $297 million. On a weighted average basis, these loans have a term of 9.6 years and an interest rate of 3.43%, a spread of 125 basis points over the corresponding treasury rates at the time of pricing. The net effect of our year-to-date property debt refinancing activities has been to lower our weighted average fixed interest rates by almost 10 basis points to 4.75%, generating prospective annual interest savings of approximately $3 million per year. Aimco's leverage target remains unchanged at $3.8 billion. We are temporarily above target, due to the Palazzo reacquisition. Upon completion of the fourth quarter property sales that John outlined, we expect to return to the targeted leverage level. Wrapping up the balance sheet, our pool of unencumbered assets is valued today at $1.8 billion, an increase of 12% from the beginning of the year. Moving on to third quarter results; AFFO at $0.54 per share and pro forma FFO of $0.63 per share were up $0.08 and $0.09 respectively and notwithstanding $0.01 of hurricane costs, $0.02 and $0.01 ahead of the midpoint of our respective guidance ranges, with our performance driven by a slight fee [ph] across a number of categories. These results contributed to year-to-date FFO per share up 6% and AFFO per share up 7%. Now turning to guidance; with the majority of 2017 in the rearview mirror, we are maintaining the midpoints of our AFFO and FFO guidance, while narrowing their ranges to be between $2.10 and $2.14 for AFFO and between $2.42 and $2.46 for FFO. We expect the $0.01 of third quarter FFO outperformance will be offset by dilution, resulting from de-leasing East Pointe and the fourth tower at Park Towne, in anticipation of the redevelopment next year. We have also maintained the midpoints of our full year same store operating results. For the year, we expect to transact a little over 24,000 leases. We have already completed about 23,000; 20,000 for occupancy in January through September, and another 3,000, already executed for occupancy in the fourth quarter, leaving only about 1,200 or roughly 5% of our full year activity still to go. The blended lease rent increases achieved in all 23,000 leases completed year-to-date is 2.7%. Through September, year-to-date average daily occupancy is just below 96%. With October occupancy expected to be 96.2%, year-to-date average daily occupancy will increase to 96%. All else equal, fourth quarter average daily occupancy and expected range of 96.2 to 96.4 will result in revenue growth of approximately in the midpoint of our revenue guidance. Now inherent within the midpoint achievement, is sequential revenue growth acceleration of approximately 40 basis points. We expect the majority of acceleration will be achieved by sequential average daily occupancy improvement. Additionally, we are seeing improvement in year-over-year blended lease rate growth. During the first three quarters of 2017, our blended lease rate achievement was lower year-over-year. However, it is worth noting in the fourth quarter, we expect that trend to reverse. While over 70% of our fourth quarter leasing activity complete, we have achieved a blended rate increase of 2.7%, consistent with our blended rate increases during the first nine months of the year, and over 100 basis points ahead of last year. Finally, in yesterday's release, we said guidance for fourth quarter FFO per share of $0.54 to $0.58 per share, and FFO per share of $0.60 to $0.64. With that, we will now open up the call for questions. Please limit your questions to two per time in the queue. Operator, I will turn it over to you for the first question.

[Operator:]

[Operator Instructions]. Today's first question comes from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt:]

Hi, good morning, and thanks for taking the question. John, you mentioned that your underwriting included the initial cost of acquiring East Pointe. I was just curious if that $170 million also includes the acquisition costs? And then, can you also give us a sense in Denver in particular, where cap rates are today for higher end communities in high quality submarkets?

[John Bezzant:]

Sure. I am going to start with the second one, and then I am going to pass you to Patti Fielding, whose team did the underwriting on the Parc Mosaic project, and [indiscernible] to that with more specificity. Denver cap rates are ranging in a tight submarket, and you will see them in the fours and in the low fours, including in Boulder. There were a couple of sales that took place last year in Boulder, that were in the 3s. And so there are institutional cap rates, right around the 4 range and even below 4, and you will see that range all the way up into the B and C categories into the 6s. Patti, would you like to address the Parc Mosaic?

[Patti Fielding:]

Sure. I mean, the answer is yes. It did include the land costs in the $170 million.

[Austin Wurschmidt:]

Which was around $19 million as your basis in that today?

[John Bezzant:]

Yeah Austin. The original all-in basis was a little over $18 million, and so there is roughly $3 million or so allocated to the building that has been fully depreciated and the value of which was recouped during our operating period from 2014 through this year.

[Patti Fielding:]

Right. So $15.3 million was loaded into the model.

[Austin Wurschmidt:]

Great. Thanks for the clarification there. And then, just as far as the expense cuts and modest growth that you guys have experienced now for some time, just curious if those are part of a broader internal opportunity and what's kind of left to cut at this point, or has any of it been a little more reactive and related to performance across the portfolio?

[Keith Kimmel:]

Austin, this is Keith. I will help you through that. Really, when you talk about expense cuts, I would recategorize them. I would categorize them as our focus about being innovative and centralization and being more efficient around how we do things. In particular, when we think about payroll, there is a lot of different work that happens on-site, that is in fractional types of activities. And with our shared service center here in Denver, we have found the opportunity to take that work, centralize it, become more efficient with it, and additionally adding innovation around technologies and other things. So we continue to spend more on repairs and maintenance and asset preservation and taking care of our communities, contract services, all those types of things. But it's areas in which we find ways to be more innovative, that we believe is really the difference.

[Austin Wurschmidt:]

Anything in particular you can point to, that you have rolled out in certain submarkets, but haven't rolled across the entire portfolio that could continue to generate some savings moving forward?

[Keith Kimmel:]

Austin, appreciate the question. I don't want to get into the secret sauce, so to speak here. But what I would say is, is we believe there is still opportunities.

[Austin Wurschmidt:]

Fair enough. Thanks for the time.

[Operator:]

And the next question today comes from Nick Joseph of Citi. Please go ahead.

[Nick Joseph:]

Thanks. Going back to Austin's question, for the Boulder asset; how did you weigh a redevelopment of the property versus de-leasing and rebuilding new? And then what's the targeted underwritten stabilized yield on the newbuilds?

[Keith Kimmel:]

Well Nick, this property was built in the late 60s, if I remember correctly, the original East Pointe, and it was candidly tired, as it has been owned in a family trust for decades before we bought it. We bought it seeing an opportunity there, primarily in the land site, and the location within Boulder. We did assess a redevelopment of the site, versus a new development of the site, and determine that the best -- using the best return, was through doing a full redevelopment, there is just a lot of investors, a lot of deferred maintenance. It was an old property and it was tired.

[Nick Joseph:]

Thanks. What's the targeted yield on the development?

[Keith Kimmel:]

Targeted yield is in the mid 5s.

[Nick Joseph:]

Thanks. Then Terry you mentioned in your prepared remarks, a rotation of supply next year. So what are you expecting across your markets, in terms of 2018 supply versus 2017 supply and in terms of the expectation within markets, which markets are you expect to compete with more supply next year, and which will have favorable comps?

[Terry Considine:]

Nick, we will give you a full update of that in January. But today, we want to focus on the third quarter and the completion of 2017. But what I did say is that, as we plan for next year, we are in the camp that thinks that competitive new supply continues, but we think it will be in different places.

[Nick Joseph:]

Thanks. And then maybe just finally on the asset sales, you mentioned expecting mid to late December for many of the sales; has any of the prices changed, relative to your initial expectations, or has the timing changed at all?

[Terry Considine:]

No, no. Some of these have been under contract for nearly a year. Others are newer ones that have come in and are under contract now. But no, they are kind of right on top of where we expected them to be.

[Nick Joseph:]

Thanks.

[Operator:]

And our next question today comes from Juan Sanabria of Bank of America Merrill Lynch. Please go ahead.

[Juan Sanabria:]

Hi. Thanks for the time. Just hoping you could delve into a couple of your markets, LA and DC and kind of how you are seeing trends, as we think about 2018, with new supply obviously being an issue downtown and having previously affected some of your Mid-Wilshire properties there. In DC, a market that everybody seems to be a little bit worried about, going into 2018, if you could just give us your latest thoughts on those two?

[Keith Kimmel:]

Hey Juan, it's Keith. I will walk through both of those for you. I will start with DC; when we look at DC, our expectations in the beginning of the year was predicated on over the previous number of quarters, where kind of a steady progression of building of rates coming back and occupancy. It has gotten a little sluggish over the third quarter, and so, whether that's a reflection of government jobs or second generations of different lease-ups or a variety of things, it has been a little bit more sluggish. But what I point out in our particular cases is that, having occupancy at 96%, we have really put a lot of emphasis on retaining our best customers, and those are our existing ones. Our turnover in DC was at 38% for the quarter, and we were getting 4% in renewals. So at the end of the day, while there is some sluggishness, we still feel good about DC and where it looks going forward. In Los Angeles, Los Angeles has -- obviously it's a big place, and there is all kinds of submarkets and micromarkets within it. At the end of the day, we know that there is more supply in Staples and other places, but we believe we have some of the best located assets within Mid-Wilshire and throughout the entire Los Angeles portfolio. And so, we have seen improvements there, we have seen Los Angeles coming strong in the third quarter here for us, and we continue to feel good about our position there.

[Terry Considine:]

And Juan, if I could just add a commentary on the supply side of the question, in DC in particular, if you look at third party forecasts, they do expect a significant increase in DC supply. But that's mainly within the district itself. And so we only have a single asset in the district. It's a rather small asset at the A price point, and that property will be affected candidly. But the vast majority of our DC portfolio is located in suburban Virginia, and other suburban areas, and so we feel comfortable at the price points at which those properties operate, that they will be fairly well inflated.

[Juan Sanabria:]

And then if you could speak to separately on [indiscernible] acquisition environment, anything you are looking at for kind of bigger capital spend? I know you have talked about staff in Miami and maybe some opportunities in Manhattan with the Second Avenue Subway and just kind of how you are seeing potential new spend, whether acquisitions are larger redevelopment projects?

[John Bezzant:]

Hey Juan, this is John. I would say that, on the acquisition front, we continue to look as we have for many years. We underwrite a fair number of deals. We execute on very few of those deals, and as you are fully aware, we have not bought any deals since Indigo, and committed to that one two years ago. So we are, I would say, cautious, but we continue to exercise our pair trade discipline, which is what makes the caution, creates the caution and creates the discipline for us. In terms of Miami, the Yacht Club Deal, that is a prospective development deal that continues to work its way through our planning cycle, and we are continuing to underwrite and analyze that one. We don't have any big pending announcement there, in terms of anything in the immediate future. New York is really the same story. We have a handful of opportunities around the country, on the, what I would call, the development side of the business, that we plan on looking at. And when the numbers make sense and the project is appropriately planned, as Parc Mosaic is, we will [indiscernible].

[Juan Sanabria:]

Great. Thank you.

[Operator:]

And our next question today comes from Pete Peikidis of Zelman and Associates. Please go ahead.

[Pete Peikidis:]

Hey, thanks for the time today. So the first question I had here, goes back to your prepared remarks, where you expect the reacceleration, blended rents here through the quarter, the fourth quarter. If you could just speak to some -- what's driving that in terms of specific markets?

[Paul Beldin:]

Well Pete, this is Paul. I will speak to it, related to the portfolio as a whole, because that's really how we manage the business. And so, as a portfolio, we ended the third quarter with average daily occupancy of 96%. We are up to 96.2% already forecast for October. That's an acceleration of 10 basis points over the prior year, and so we are off to a good start to driving higher levels of occupancy. Additionally, we will see our occupancy lifted slightly by our lease expirations. We have about 200 fewer lease expirations in the fourth quarter of this year than last year. And then the second piece of the acceleration expectation, is really driven by what has happened with rate. If you compare our blended lease rates by quarter, for the first quarter of 2017 versus the first quarter of 2016, you would have seen there is a deceleration on the growth. However, if you look at it from the fourth quarter of 2017, our growth rate -- excuse me, I misspoke, fourth quarter of 2016, for this population was about 1.6%. We are about 70% done with our fourth quarter leasing activity this year, and we are at 2.7%. So feel pretty confident that we are going to end up ahead of last year.

[Pete Peikidis:]

Okay, great. Thanks for that color. And then lastly here on just -- if I could just touch on Boston. Seems like it has been a solid performance year-to-date, but it has softened a bit. In particular to counter the competitive supply that is expected here in the near term, especially in the urban submarkets like Cambridge and City Center there, through the remainder of the year, and into early 2018. Can you just speak to what you are seeing here in October and sort of how you position that portfolio and maybe speak to some more of the suburban versus urban kind of dynamic there?

[Keith Kimmel:]

Pete, it's Keith. I will take it for you. When we think about the urban, first and foremost really, what we have there is, we have two buildings in Cambridge and then of course, on Canal. So those buildings are not within our same store focus, and so I would categorize those slightly different. The rest of our portfolio of course is in suburban Boston and outside. So those buildings, we don't feel have the same impact or pressures from new supply that's going to be in the city, and while it was a little bit softer than where it was a year ago, it's almost nearly 96% occupied, and we feel quite good about our position there.

[Pete Peikidis:]

All right. Great. That's it for me. Thanks.

[Operator:]

[Operator Instructions]. Today's next question comes from Conor Wagner of Green Street Advisors. Please go ahead.

[Conor Wagner:]

Thank you. Could you speak to the other income boost in the quarter and if there is any particular markets that was driving that?

[Paul Beldin:]

Hey Conor, this is Paul. Thanks for the question on other income. Other income, as you know, comprises roughly about 10% of our total revenue. On a year-to-date basis, that has grown at a level that's lower than what our rental rate achievement has been, so it has been over the drag on our overall revenue number. And really, the volatility within that numbers is, in most cases, driven by utility reimbursements. As you all know, that we have about two thirds of our utility costs are reimbursed by our residents. And so as utility costs move up and down, so do our reimbursement amounts.

[Conor Wagner:]

Thank you. And then Lisa, can you give us an update on the Airbnb suit please?

[Lisa Cohn:]

Sure. Thanks for the question Conor. As you all probably saw, we filed a motion for preliminary injunction a couple of weeks ago, maybe last week, I have lost track of time. And that's proceeding through the court. Probably a hearing on that in early December or maybe early January. We continue to really focus on-site to do our most important job, which is selecting our neighbors for our residents, and ensuring that we create a community that has longevity and the retention we seek for our residents and delivers great customer service. So we have put in place a number of measures on Keith's team to eliminate this trespassing, which you know, we oppose strongly.

[Conor Wagner:]

Thank you. And then, do you guys have any sense of, has Airbnb, at least on the rate side or the rent side, has that been a boost in any of your communities? Just in terms of people willing to pay more in rent, because they plan on essentially wholesaling your unit?

[Lisa Cohn:]

Conor, I think we see it the other way. And that is we see it as a negative financial impact, because of the detriment it creates inside the communities.

[Conor Wagner:]

Okay, great. Thank you.

[Operator:]

And our next question today comes from Rich Anderson of Mizuho Securities. Please go ahead.

[Richard Anderson:]

Thanks very much. Paul, first question for you. You back into G&A for the full year, it's a big $3 million type jump in the fourth quarter. Can you explain why that's the case?

[Paul Beldin:]

Yeah. Always within the yearend G&A, there is a little bit of volatility between the quarters. There is not a real consistent run rate. And so on a year-to-date basis, we are running behind what a pro-rata recognition of our G&A costs would be. And so a little bit on a year-to-date basis, we have benefited from that timing of G&A, but we expect it to catch up here in the fourth quarter.

[Richard Anderson:]

Is there a potential source of upside in the fourth quarter? Somehow it doesn't happen the way you plan?

[Paul Beldin:]

Well if the things that we think will happen, don't happen; yes, it would be an upside.

[Richard Anderson:]

Thank you for that statement of the obvious. And then, a bigger picture question maybe for Terry. A lot of growth and maturity in the single family rental business, and I predict, you would probably say it's not impacting lost tenants from your portfolio, but you can confirm or deny if you like. But I am wondering if you think about, five, 10 years from now, just to add a little bit of more of a flavorful question on the Friday. Do you think that there is a chance that multifamily and single family could ultimately come together, and have a wider net of potential business, by bringing the two sort of businesses together? Just out of curiosity, what do you think about that, since Ernie is now in that business?

[Terry Considine:]

Rich, with your usual insights, you have asked a really good question. And it would be incorrect to say that Ernie is a trojan horse and that we are planning this convergence. He is doing quite well independently, and we keep in touch. He is a dear friend and doing a great job there. But I do think that they can and will overlap, when they serve the same customer. And so there is a focus on the division between these two categories, based on the physical structure. But I think the more fundamental difference is the customers they serve. Now on the multifamily side, we serve -- about half of our customers are single occupants. And so they are not necessarily attracted to a suburban home with a yard and a swing set. On some of our customers though, I might well want to have a different configuration, a single story configuration. But all of them are going to have their third party management. I think that will end up being the distinctive factor, is that whether you live in a one story structure or a multiple unit structure, if you are on the -- what we now think of as the multifamily side, you will be getting the very fine management service that Keys [ph] is so well known for. And if you are in the -- what's now known as single family rental, you are going to have to mow your own lawn or arrange for it to be done. So it's going to be that division. And I think you will see some blending, and I think you will see an instance of it in the Aimco portfolio, when we add another year or so. I think its 15 single family structures to our Preserve at Marin project.

[Richard Anderson:]

Okay. So maybe some of you in that room can mow some lawns in your retirement someday?

[Terry Considine:]

We will keep them in shape.

[Richard Anderson:]

Okay. Thanks very much. Appreciate it.

[Terry Considine:]

Yeah. Thank you.

[Operator:]

And ladies and gentlemen, our next question comes from Buck Horne of Raymond James. Please go ahead.

[Buck Horne:]

Hey, good afternoon. I just have one quick one for Paul. Just trying to understand the same store expense guidance a little bit better. So you are trending up 0.3% year-to-date, but looking for full year expenses to go up to, I guess, midpoint is 1.1%. So is that a function of the de-leasing of those properties you were talking about in the fourth quarter? Is there something that catches up on the expense side in the fourth quarter?

[Terry Considine:]

Buck, thank you for your questions. Actually, just a question of a tough comp. If you go back to our fourth quarter last year, we would have talked about some real estate tax appeals that came through, as well as much lower than typical insurance costs. And so the -- basically the comp against those two numbers, create a large increase in Q4 operating expenses. And so that gets us from the 30 basis point year-to-date expense growth to the 1.1 that we expect at the midpoint.

[Buck Horne:]

Okay. Thank you. That's all I had.

[Operator:]

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

[Terry Considine:]

Well thank you Rocco and thank you all of you for your interest in Aimco. I want to wish everyone a happy Halloween and look forward to see many of you at NAREIT in a couple of weeks. Thank you very much.

[Operator:]

And thank you sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.