Apartment Investment and Management Company
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good afternoon, and welcome to the Second Quarter 2013 Apartment Investment and Management Company Earnings Conference Call and Webcast. [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. 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 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. 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. During the recently completed second quarter, Aimco continued on plan. Second quarter FFO per share was up 7% year-over-year and AFFO was up 9%. Year-to-date FFO per share is up 13% over last year and AFFO is up 17%. This healthy earnings growth is the direct result of the hard work of the entire Aimco team, systematically executing the plan that Ernie and I have laid out to you over the past few years. Our plan focuses on 5 areas

[Keith M. Kimmel:]

Thanks, Terry. I'm pleased to report, we remain on pace to meet our objectives for 2013. We continue to execute our plan with focus and enthusiasm. As a result, we saw second quarter revenue growth accelerate by 50 basis points over the second quarter of last year. And as Terry mentioned, with the acceleration we saw in the first quarter, our year-to-date revenue growth is also 50 basis points ahead of last year. Because of our continued commitment to our goal of consistently providing excellent customer service to our residents, we achieved renewal rent increases of 5.2% in the second quarter. This marks the eighth consecutive quarter in which renewing residents were willing to pay rent 5% or more above their expiring lease rates to continue to live in an Aimco apartment home. During the quarter, new leases were signed at rates that were on average, 3.1% higher than expiring leases, an improvement of 50 basis points over the first quarter of this year. As a result of our team's hard work across the country, we achieved blended lease rate increases of 4.1% for the quarter. Of the customers who decided to move out, 29% were for career moves, 17% did not renew due to price and 15% moved out to purchase homes. We continue to be successful in replacing move-outs with better qualified residents at higher rents. The average incomes of those new customers who moved in during the second quarter was $106,000. The median income was $65,000, resulting in a rent-to-income ratio of 21%. Our operations team also continue to implement several programs designed to provide additional value to our customers, through offerings of distinctive products and services, generating other income growth of 12.7% compared to the second quarter of last year. Looking at our 10 largest markets, which make up 2/3 of our revenue. The top 3 performers had revenue increases from about 7.5% to 10% for the quarter. This was led by the Bay Area, followed by Miami and Denver. Our steady performers for the quarter with midrange growth from 4% to about 5.5% were Orange County, Chicago, Los Angeles and Philadelphia. And rounding out our 10 largest markets in the 3% to 4% range, we had Boston, Washington, D.C. and San Diego. Looking ahead, we're building upon our second quarter successes and we are on plan for a solid second half of the year. July blended lease rates were up 4.3%, with new lease rates up 3.6% and renewals up 5.1%. July's average daily occupancy was 95.2%, on plan as we progress through peak leasing season. Our August and September renewal offers went out with 6% to 8% increases. And before I turn the call over to Ernie, I'd like to acknowledge the efforts of all my teammates across Aimco. Each and every one has worked hard over the last several years to achieve the alignment of objectives and high level of communication we have today. I thank you for your persistence, your collaboration and your commitment to Aimco. And with that, I'll turn the call over to Ernie Freedman, our Chief Financial Officer. Ernie?

[Ernest M. Freedman:]

Thanks, Keith. Pro forma FFO of $0.49 per share exceeded the midpoint of our guidance by $0.02, primarily due to stronger-than-expected results in our non-same-store Conventional portfolio and lower interest expense. Turning to operations. Second quarter same-store net operating income growth exceeded the midpoint of our guidance range by 30 basis points. Our average rent per apartment home was up 4.1% over last year, while other income was up 12.7%, leading to an increase in revenue per apartment home of 5%. Total revenue was up 5.1%, as we had a year-over-year increase in average daily occupancy of 10 bps. For expenses, I'll next provide some details on results for the second quarter, results year-to-date and finally, our expectations for the full year. Implied in our updated guidance for the year is a reduction in the growth rate of expenses in the second half of 2013 compared to the first half, which was and remains our expectation. For the quarter, operating expenses increased 4.8% from prior year. About 2/3 of this increase was related to real estate taxes, insurance and utilities, which were up 6% in total. On a year-to-date basis, operating expenses have increased 5%. About 80% of this increase is attributable to real estate taxes, insurance and utilities, which were up 7.8% in total. This result is consistent with our guidance from the beginning of the year where we expected in total that these items would increase between 5% and 8%. Outside of these items, the largest year-over-year variance in operating expenses is in the area of software, technology and other administrative expenses, which is up $1.2 million. About half of this cost increase is offset by lower personnel costs, as technology improvements completed have helped to reduce labor hours at our communities. These costs have also increased year-to-date as a result of a pilot program that is designed to move additional administrative work off-site, which could lead to further reductions in labor hours in the future. The remainder of our operating expenses are up 50 basis points year-over-year. Our full year guidance for expense growth is now 3% to 3.5%, which maintains our previous midpoint of guidance of 3.25%. We expect our expense growth rate to moderate to 1% to 2% for the second half of 2013, which is consistent with our expectations from the start of the year. This moderation is based on a couple of factors. First, real estate taxes were elevated in the fourth quarter of 2012, as end of the year assessment and millage rate increases came in higher than we had anticipated. This should make for an easier comp for us this year. In addition, some expenses in 2013 were incurred earlier in the year than last year, so timing also plays a part in our ability to have a lower expense growth rate in the second half of the year. On the portfolio management front, asset sales during the quarter were on plan, with the sale of 2 Affordable Properties. As a reminder, our plan was for most of our sales to occur in the second half of the year, and we are on track. Regarding our balance sheet, we increased borrowings on our line of credit by $138 million from the first quarter. Most of this increase was due to our purchase of first mortgage notes at par in the amount of $119 million associated with the group of properties in the West Harlem neighborhood of New York City. In 2006, we entered into an agreement with the local owner and operator that provided an option to acquire 84 residential buildings with 1,600 apartment homes. As part of that agreement, we've provided second mortgage financing of about $100 million. In June, we amended our current arrangements with the borrower. In conjunction with the acquisition of the first mortgage loans, the borrower agreed to repay all loans later this year. In addition, the borrower also agreed to buy back our unexercised option to purchase the properties. In total, the first and second mortgage notes and unexercised option are valued at about $229 million on our balance sheet. Due to this transaction, our debt and preferred equity to EBITDA coverage has increased from prior quarter to 8x, as noted in our supplemental schedule 4. We still expect to reach our target of 7x coverage by the first quarter of 2014. During the second quarter, Fitch initiated coverage of Aimco at BB+ with a positive outlook. We were pleased by Fitch's positive review of our business and balance sheet. We are also pleased that Fitch provided a road map of what it would take for Aimco to be rated by Fitch as investment grade. We meet or are near each of their requirements with the exception of the size of our unencumbered pool. Today, our unencumbered pool includes 4 properties with a growth asset value of $190 million. Fitch suggested an unencumbered pool of $500 million would be consistent with an investment-grade rating, using a stressed cap rate of 8%. This equates to a pool of a bit less than $700 million at today's market cap rates or roughly 7% of our gross asset value. Though our normal course of refinancing activity as property debt matures, on a leverage neutral basis, we have the opportunity to grow that pool by about $150 million to $200 million a year. Finally, regarding guidance. On Page 6 of our earnings release, you can find updates to our 2013 outlook. We are increasing full year pro forma FFO by $1 -- or excuse me, $0.01 at the midpoint and narrowing our guidance range. We are decreasing full year AFFO by $0.02 at the midpoint and narrowing our guidance range. This decrease considered the $0.01 increase in FFO, offset by an increase in capital replacement spending of $0.03, as we are ahead of schedule on one of our multi-phased projects, allowing us to move previously planned 2014 spend into 2013. For the third quarter, pro forma FFO is projected to be $0.48 to $0.52 per share, with year-over-year Conventional same-store NOI growth projected to be 5.5% to 6.5%. Third quarter Conventional same-store NOI is projected to be up 1.25% to 2.25% compared to the second quarter. Fourth quarter FFO is expected to reflect a significant improvement over the third quarter, as we anticipate further and larger gains in sequential operating 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] Operator, I'll turn it over to you for our first question, please.

[Operator:]

[Operator Instructions] Our first question comes from Nick Joseph at Citigroup.

[Nicholas Joseph:]

Ernie, a quick question on guidance. So you beat the midpoint of 2Q guidance by $0.02, but you only raised the midpoint of full year guidance by $0.01. So effectively, you lowered the back half of guidance by $0.01. So could you talk about what's changed in terms of your expectations for the back half versus initial guidance?

[Ernest M. Freedman:]

Sure, I'd be happy to address that. Really not much has changed. As you can see from an NOI perspective, we've kept everything similar. What I would say is that I'm probably just being a little conservative, not raising it $0.02 versus $0.01. We see the year playing out very similar to the second half of the year, and $0.01 on second half guidance of about $1.06 [ph] or so is obviously a small percentage. So we see the year playing out very similar to how we saw the first part of the year and just being a little cautious by not raising the midpoint by $0.02.

[Nicholas Joseph:]

All right. And do you have an update on the Pacific Bay Vistas redevelopment project, redesign?

[Ernest M. Freedman:]

Sure. We're happy to report on Pacific Bay Vistas that we had our first move-ins actually yesterday, on August 1. I'll turn it over to Keith to just talk a little bit about what we're seeing there with regards to renting activity. It's early days, but we can give you a little bit of color on that.

[Keith M. Kimmel:]

Thanks, Ernie. Nick, yesterday, in fact, we had our first 9 residents move in to Pacific Bay Vistas. We're just thrilled to have them in. It really went very smoothly. In addition to that, we have another 16 pre-leased in our first phases that will move in over the next couple of weeks. And in totality of all of those, we actually are seeing our rentals coming in above our trended underwritten rent, so we're very pleased and looking forward to the project moving forward.

[Operator:]

The next question comes from Rob Stevenson at Macquarie.

[Robert Stevenson:]

Terry, you probably have been probably the strongest proponent in the REIT space of -- over the years of property-specific self-amortizing debt. I mean, what has sort of led you guys to seek or to slowly move down the path towards investment grade, if you guys continue to move down there? Is it just access to different options? Is there something that's driving that, et cetera?

[Terry Considine:]

Rob, no, I'd say there hasn't been a special change. What's happened is that as we've pursued our own balance sheet strategies, there's been a better understanding in the market and by rating agencies of how safe and sound they are. And so I'm glad to see that recognized. We'll have some benefits to us in pricing on our line of credit, which, as you know, we use sparingly, and in the issuance of any preferred stock. But the primary fact of it is the greater market recognition of the soundness of our balance sheet.

[Robert Stevenson:]

Okay. And then can you guys talk a little bit about what you're seeing operationally in the D.C. market, the sort of Northern Virginia versus the Maryland suburbs, especially?

[Keith M. Kimmel:]

Sure. Rob, this is Keith. I'll take that. In D.C., we're just very pleased to see that we continue to maintain high occupancies. Throughout the second quarter, we were in the high 95s, mid-95s in occupancy. We've definitely seen a little more strength in Northern Virginia versus Maryland. But it's -- we're well positioned. We really believe that sort of -- our BB+ assets that are in and around the Beltway have insulated us a little better than others, and we're looking forward to the second half of the year.

[Robert Stevenson:]

Now, when you -- as you go into the sort of weaker leasing season of the fall here, do you push more occupancy at the expense of rental rate in order to drive higher occupancy in that market and guard against move-outs? Or is there any difference and change operationally between how you're addressing that market versus markets that are further up on the strength list?

[Keith M. Kimmel:]

Well, Rob, what I would just tell you is that across the country, we're very focused on high retention, low turnover, and that's not much different in D.C. In fact, we have a very strong focus on that. We're pleased -- I'll let you know that our renewal increases in the second quarter in D.C. were nearly 5%, which represents about 55% of our business. We'll continue to be very focused on that so that we're not having to rely as much on new leases and competing with new product the way that maybe some others would. And once again, we just -- our position with our product around the Beltway, we think we're just better positioned. And we'll look forward to the second half of the year playing out strong.

[Operator:]

Our next question comes from Buck Horne at Raymond James.

[Buck Horne:]

First question, I just -- going back to the expense growth, Ernie, I was wondering, are there any property tax issues that you've seen thus far that we might -- should account for going into 2014. I understand you got some good comparisons in the second half of this year, but any expense items we should think about for the fiscal year 2014?

[Ernest M. Freedman:]

Yes, Buck. I can address what's happened with the real estate. We were caught a little bit by surprise in the first half of this year, which I hope will give us an easier comp for 2014, specifically in the Chicago area. DuPage County came out with very, very high millage rate increases. And millage rate increases are always a bit of a risk. At this point at this point in the season in talking to assessors, where we haven't received assessments or assessments in hand, we have a pretty high confidence that we have a pretty good sense of where our assessments are going to be for '13. I'd say at about the 90% range in terms of expectation there. But we don't have a good sense yet for if there are going to be millage rate changes, Buck, in the second half of the year. At this point, we've got about 40% to 45% of those in. So that's always a risk item. And of course, those come in later this year. There will be some impact on our run rate, how is it compared to '14. In general though, we're seeing that assessments are starting to level off. The catch-up has happened. And so where we had a big catch-up in the second half of 2012 and early part of 2013 in terms of assessment increase, and not just us, everyone, of course, has seen that, it led me to believe that as values are more stabilizing across the board and not increasing significantly, that we'd probably see a steadier stream of assessment increases, meaning more like an inflationary increase going into next year. But of course, we'll have to wait and see as to how that plays out.

[Buck Horne:]

Okay, that's helpful. And I guess, I'm also thinking just -- thinking about the West Coast a little bit and your California properties. Do you guys have a sense of the estimated value of your California properties relative to the assessed taxable value for Prop 13 purposes and what the implied value differential might be on NAV -- from an NAV perspective? Is there any sense of what that differential is internally?

[Ernest M. Freedman:]

It is, Buck. We track that very carefully, and then just -- and happy to talk about that. For our same-store portfolio, we have roughly about a $10 million exposure, if our properties were marked up to market. Today, in our redev portfolio, it's about a $1 million exposure. So in total, about $11 million. One thing I can say about our California properties, and I've seen it come up in other transcripts, and there's not just Prop 13 in California, but there's also Prop 8. And you're seeing some of the folks of California exposure have their Prop 8 increases decrease significantly because they had the decreases in the last couple of years. We only have 4 properties at this point that have Prop 8 exposures, and so we don't have a big exposure there. But if there was a mark to market, it'd be $10 million for our same-store portfolio and roughly $1 million for our redev portfolio.

[Operator:]

The next question comes from Nick Yulico at UBS.

[Nicholas Yulico:]

Ernie, I just want to make sure I understood this. Is the purchase of that West Harlem property loans, is that adding to your FFO guidance this year?

[Ernest M. Freedman:]

No, that's actually pretty neutral because we've had to borrow money to go up against that, and so it's actually relatively neutral. And those notes are generating income at about 5.2%. We borrowed on our line of credit, and that's roughly at about a 3% cost. So that doesn't have a very big or material impact on the second half of the year for us in terms of what's happening with FFO. It's just replacing some other investment activity that might -- that could have been there.

[Nicholas Yulico:]

Okay, got you. And then just bigger picture question on cap rates. How you guys are thinking about, if cap rates have gone up yet and particularly for, let's say, parts of the market where the buyers tend to be using 70% type GSE debt, second tier type locations, have you seen cap rates move? Do you expect them to?

[Ernest M. Freedman:]

Sure, Nick. Let me turn over to John Bezzant to answer that question.

[John E. Bezzant:]

Nick, we haven't seen any major move in cap rates at this point in time. We've got several -- many properties under contract right now, as we move into this second year of sales plan -- second half of the year sales plan. And we've had some people -- some of the bolder buyers will come back and make an argument that they've had some pain inflicted on them by the rising rates. And candidly right now, our answer has been, "Tough luck. You signed the contract at the prior price, and we're going to proceed." We haven't seen fall-out of transactions. We haven't seen major retrading of pricing. And frankly, here just in the last few weeks, as we've repriced some new deals that we're taking bids on right now, we're seeing pricing very consistent with what it was 3 or 4 months ago.

[Nicholas Yulico:]

Just a quick follow-up. I mean, are the buyers then thinking about -- if they had to pay the same pricing cap rate, I mean, are they now moving into shorter-term debt or more variable debt to help make their spread investment work?

[John E. Bezzant:]

I don't know that I can speak accurately to what these guys that are -- or full yield buyers are doing in terms of debt structure at this point in time. Certainly, some of them are looking at shorter maturities, and that's been there play for a few years. But right now, again, I think they're all trying to just kind of reset their -- a lot of them have money to place still. There's still plenty of liquidity in the market and plenty of pressure on the buy side to get deals placed. And so right now, at a pricing level, we're really not seeing a big change.

[Operator:]

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

[Jana Galan:]

I wanted to ask -- the recent acquisition activity has really focused on kind of smaller apartment communities. I was curious if that's your new focus and kind of the reasons behind it, do you find less of the REITs bidding for those? Or are there better redevelopment opportunities at these smaller communities?

[John E. Bezzant:]

Jana, I'll take that. This is John again. An astute observation that both of those that we are looking at are -- that we bought in the second quarter or second and into the third quarter smaller deals, we refer to them here internally sometimes as the little jewels but these are really satellite properties that we have an opportunity that we think from an operating standpoint to operate from an existing property that's very close by. And then the other piece of it that we look at is the quality of the dirt. And feel very comfortable with the quality of the dirt in that Midtown Atlanta asset being right there near Piedmont Park. And the La Jolla asset, we'd love to get you to Southern California sometime and let you take a look at it, but it is a phenomenal asset right out of downtown La Jolla and 1.5 blocks off of the beach. And we really are looking for opportunities to buy good dirt. To your point about the competitive space, yes, that certainly is part of it. We have seen that we have been able to, in our paired trade discipline where we're really trying to get that 100 to 150 basis point gap [ph] in our unlevered free cash flow IRR between our sale properties and our buy properties, we've been able to achieve that on these smaller assets, where there's not quite the same institutional competition.

[Jana Galan:]

And then maybe just quickly on the West Harlem property loans. I guess, maybe the intent originally was to buy these apartment communities given that option on them, just curious what has changed now.

[John E. Bezzant:]

Yes, I'll take that one again. Back in '06, we were looking and entered an option agreement to buy those properties that we were content to own at that point in time and we're content to own them today. That was almost 7 years ago now. And as life has gone on both for the borrower, as well as for us, life has changed a little bit. We looked at it going into last fall and assessed where we wanted to place some money in terms of our asset allocation. Had some conversations with the borrower, and he indicated that really for him his life situation had changed as well. And that he, where at one point in time in '06 when he entered this agreement, was looking to, if you will, exit the business and move on to other things. He subsequently had a son and had things come on his life that he said he'd kind of like to stay in it. And so we started negotiations and discussions about a way to unwind the transaction. As we got into the middle of that, he had some debt maturities. And ultimately, once we talked through those, it was an easier execution in a period of -- a cleaner execution rather than to have him go and have to do 2 refinancings as we work through it. We decided to buy those first loans. He paid us a fee for part of that accommodation, and we entered an agreement to have him recapitalize and pay those off before the end of this year.

[Operator:]

Our next question comes from Jeff Pehl at Goldman Sachs.

[Jeffrey Pehl:]

My question is on the disposition guidance in the second half of 2013. I'm just curious what is the Affordable and Conventional mix of these sales and the cap rate?

[John E. Bezzant:]

Okay. John again. The mix is roughly on a percentage basis in terms of where we think we're headed for the rest of the year would be roughly 1/3 of it would be Affordable proceeds and about 2/3 of it would be Conventional proceeds. Cap rate-wise, I think you would see it consistent. If you were to look back, obviously, we haven't had a lot of activity this year. And if you looked at the schedule for this quarter, the cap rates on the Affordable stuff were actually fairly high. That was due to rather unique situations of where those were located and mark-to-market situations on the properties that sold. But I think if you were to look back to last year's cap rates, you would see consistency. On the Conventional side, very similar to what we did over the full year last year. And Affordable side, it would be the same way.

[Jeffrey Pehl:]

Okay. And after the dispositions are completed, how much of the Affordable portfolio are still in your portfolio?

[John E. Bezzant:]

So what we term the Affordable portfolio will be by the end of this year, largely our low-income housing tax credit properties that we did redevelopments on over the last several years. There will be a handful of properties that are not light taxed [ph], but it'll be roughly 60 properties that we will still own toward the end of this year. And then as we look forward over the coming years, as tax credits burn off and compliance periods burn off, we will dispose of those at the appropriate time in that life cycle of those tax credit deals.

[Operator:]

Our next question comes from Michael Salinsky at RBC Capital.

[Michael J. Salinsky:]

Keith, did you give July leasing trends where you stood at from an occupancy standpoint and also where new lease and renewal rents were in the quarter -- I mean, I'm sorry, not the quarter but the month, rather?

[Keith M. Kimmel:]

Mike, can you just repeat just -- for July, is that what you're looking for?

[Michael J. Salinsky:]

For July yes, so just in terms of as we look out what was occupancy -- the average occupancy in July also new lease and renewal rents.

[Keith M. Kimmel:]

Sure. Average occupancy in July was 95.2% and new lease was 3.6%, renewal was 5.1%, with a blend of 4.3%.

[Michael J. Salinsky:]

Okay, very helpful there. And then where your renewal notices for August and September went on that?

[Keith M. Kimmel:]

Sure those were -- August and September went out at 6% to 8%. And we typically see about 100 to 150 basis point meld from the ask to the ultimately take rate.

[Michael J. Salinsky:]

Okay. That's helpful. Then, John, just touch back on the acquisition strategy. I mean, first quarter of '14, you're going to be down at 7x leverage. So you're hitting your leverage target. And we haven't -- most of the time, this business strategy has been focused on funding redevelopment and focused on also helping out with leverage. As we look out to '14, '15, should we expect recycling activity to pick up more so as kind of a repositioning, as you look to improve your positioning in markets like Boston and a couple of the other ones you kind of targeted?

[John E. Bezzant:]

Yes, I think. We certainly -- we'll look to opportunities to continue the repositioning and the reallocation within the portfolio. Boston, since you mentioned it is a primary market that we've identified in the past as one where we have kind of the dollars at work in that market that we want, but they're not quite where in the market we would like them to be. And so we would look for opportunities there to continue to recycle capital, if you will, out of the suburbs and into more core urban locations there. Further into the question in terms of where we go with the investment dollars and hitting the 7 0 on the debt. We would look -- there will be opportunities to continue our run rate on redevelopment, which will continue to get a lot of attention. We'll probably step up a little bit some of our capital enhancement projects internally, and we will continue to look for acquisitions. But candidly right now, those are relatively low on the totem pole in terms of the total return. The pricing is just not particularly compelling right now. And so we look for other ways and other places to put that money to work as we look for the capital recycling going into the future.

[Operator:]

[Operator Instructions] And our next question comes from Karin Ford at KeyBanc Capital.

[Karin A. Ford:]

There's been a frequent theme, I guess, we've heard this earnings season, as people sort of speculated what the change in rates is going to do to cap rates, where some people seem to think that A cap rates may be a little bit more insulated than B cap rates. You guys own and see both. What's your opinion as to whether or not there'll be a bifurcation in pricing between A versus B assets?

[Terry Considine:]

Karin, this is Terry, and I'd like to jump in here. And John can add something if he likes. But remember that the Aimco is largely hedged against change in cap rates by reason of its long-dated weighted average maturities. So for example, the change in interest rates year-to-date reduces the burden of our liabilities by about $200 million or $1.50 a share. And so there's a significant offset, if cap rates go up. As John mentioned earlier, at this point, we don't see a change in cap rates. But just remember with respect to Aimco that we're largely hedged against those interest rate changes.

[Karin A. Ford:]

And so do you think, though, that if you start to see cap rates move that these might be more impacted by -- just because of higher reliance on leveraged buyers in that marketplace?

[Terry Considine:]

I think it could be certainly, but it's also true that a similar change in -- the same amount of cap rate change would be a larger percentage impact from a lower cap rate base. So the impact on valuation is a little unpredictable, and I wouldn't actually expect great differences between the 2.

[Karin A. Ford:]

Okay, that's helpful. And just second question is on the other income per unit line. That's been -- that grew quite a bit this quarter. I think it's been for a couple of quarters that, that growth rate has been elevated. Can you just talk about what sort of fees and services are driving that up? And should we expect that type of growth to continue?

[Keith M. Kimmel:]

Karin, this is Keith. I'll take that question. I just want to put in context our other income growth represents 10% of our total revenue. And essentially what we're taking advantage of is the value propositions that we're offering to our residents. And it's around a variety of things like pets and parking and storage and a myriad of things. And while they're willing to pay for those things, we're going to continue to take advantage of it.

[Karin A. Ford:]

So do you think -- are we starting to hit harder comps on that? Or do you think we should still see double-digit increases there for the next couple of quarters?

[Keith M. Kimmel:]

Well we will get to a point where we start getting harder comps, and I wouldn't expect that for a long distance out, but we're going to continue to take advantage while it's there.

[Operator:]

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

[Terry Considine:]

Well, just to close, thank you again for your interest in Aimco. We're on track. We feel good about our plan. We feel delighted by our team. And I hope you'll join me in congratulating John and Patti on their expanded responsibilities. Have a great weekend.

[Operator:]

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