Q3 2019 Earnings Call
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<unk> General Counsel. Please go ahead.
Thank you and good day during this conference call to forward looking statements, we make our based on management's judgment, including projections related to 2019 result, 2020 expectation.
These statements are subject to certain risks and uncertainties.
None of which can be found in our E filing.
Actually.
Results may differ materially from what maybe [laughter] today.
We will also discuss certain non-GAAP financial measures such as an AFFO and.
These are defined and reconciled to the most comparable GAAP measures.
All information that is part of the <unk> earnings release published on Aimcos website.
Pair remarks today come from Terry Considine, our chairman and CEO .
Keith Kimmel, our executive Vice President and chartered property operations.
No our executive Vice President in charge of redevelopment and talk over our Chief Financial Officer.
Other members of management are also present and will be available during.
<unk> session will follow our prepared remarks, I'll now turn the call inherent.
Right.
Thank you Lisa and good morning to all of you on this call. Thank you for your interest in Aimco.
Third quarter with another strong quarter framed go Oh.
Our business metrics, including adjusted funds from.
<unk>, which exceeded the midpoint of guidance by two cents per share.
And operations, Keith and his team are having an extra one 2019.
So far this year they lead all peers in same store revenue growth same store expense growth same store net operating income growth same store net operating income.
Margin.
And perhaps most important customer retention driven by consistently improving levels of customer satisfaction and improved customer selection.
One impressive measure of their productivity.
Compounded annual growth rate in controllable operating expenses, it's been negative for the past 12 years.
On the balance sheet got even call. It took advantage of low interest rates placed 670 million.
$1 of long dated property loans at 3.34%.
In the past few quarters, they reduce the cost of our leverage in the next few they will reduce its absolute amount.
But temporarily elevated as planned will be a half turn left by the end of this year and a full turn left by the.
End of next year.
With this year's leasing mostly complete our focus naturally turns to next year.
Already provided our preliminary outlook for 2020.
We see another good year with solid growth.
The same store net operating income up 3.7% to 4.1%.
But if it FFO per share up 6% to 8%.
An economic income per share up 8% to 11% to a yearend net asset value of about $63 per share.
We expect to achieve these results.
Notwithstanding our continued investment in growth.
Through redevelopment.
Its schedule 10 shows we've made substantial investment in assets, which are not earning or reduced earnings well the properties are being redeveloped.
We accept short term pain for long term gain.
Because over the next 40 years, the sex redevelopment will be completed.
Departments will be lease the properties will be stabilized.
After consideration of moving parts, including capitalized cost the cost of capital to complete construction.
Next properties are expected to increase the run rate.
The 2020 base case by adding another $27 million to Hawaii.
18 cents per share to bottom line.
So we expect joke 2020 to be another good year wrote me about the future. We're also prepared for a possible downturn in the economy.
By comparison to the general population of apartment renters and go customers on average our older more stable with higher.
Comes and better credit.
We have a limited cost to complete our redevelopment now underway.
We have only nominal maturing debt.
We have abundant liquidity in our largely unused $800 million Bank line, and then ready access to more you are $2.4 billion of Unlevered properties.
We like our balance of growth and safety.
These results and prospects are the work of a great gene for all of that they've done and for the bright prospects of Tomorrow I offer my Immco teammates many in sincere. Thanks, I'm proud of what we've accomplished together.
And now for more detail I'd like to turn the call over to keep.
At a property operations.
Thanks Terry.
I'm pleased to report that we had a strong third quarter and operations.
Delivering sector, leading margin for the nine straight quarter.
We set new highs in occupancy.
Solid rate growth indeed decrease in controllable operating expenses.
Our consistent performance has resulted in sector, leading revenue expense and then a light year to date.
We began with a relentless focus on customer selection and exceptional customer service.
This playbook leads to lower turnover higher occupancy avoided costs and better margin.
Based on more than 20000 surveys in the third quarter customer satisfaction was over fourth quarter out of five stars.
This marks the 11th consecutive quarter. It this world class level.
Third quarter turnover was 44.8%.
40 basis point improvement year over year.
As a result, our average daily occupancy was the third quarter record it 96.8%.
Accelerated throughout the quarter from 96.6% July to 97% in September .
Our strong occupancy translated into solid top line growth.
With Robin.
It was up 3.8% for the quarter.
Our top markets with grows over 400, <unk> percent or Philadelphia, Washington, DC, Boston and Atlanta.
We have strong performances of growth over 3% to 5% in Denver and Los Angeles.
Solid markets with growth.
Over 2%, where the Bay area, San Diego, Miami and Chicago.
Finally markets with growth over 1% or New York in Seattle.
Now turning to expenses.
As demonstrated by our decade of cost leadership innovation in productivity are core to income.
Okay.
Controllable operating expenses were down 80 basis points in the third quarter.
Decreases in marketing in turn costs, resulting from high retention.
This was offset by increases in property taxes.
Moving to expense growth of 3.1%.
As a result net operating income grew four point.
1% in margins expanded to 73.1% an improvement of 20 basis points over last year.
Looking at least as was transacted in the quarter.
New lease rates were up 2.5%.
Renewal rates were up 4.6% in same store blended lease rates were up 3.6.
At present.
Our strongest new lease rate growth was in Boston Seattle in Denver.
Most pressure on new lease rates in Chicago and Atlanta.
Finally, if we look at our preliminary October results, we're continuing our occupancy acceleration.
Tracking towards a strong start to work 2020 plant.
Blended lease rates are up 3.1% 30 basis points better than last year.
New leases are up 1% renewals were up 5.1% all while achieving an average daily occupancy of 97.1% some 30 basis points better than 2018, [laughter] with great. Thanks to our teams in the field and hearing.
Denver into success I'll turn the call over to West power, our executive Vice President of redevelopment Wes safety.
Income of redevelopment activities remain on track and details have been provided in our release.
Today, I'll touch on our investments and portfolio management strategy and also provide some color on recent.
As ever and go looks to make investments, where we can earn outsized returns on a risk adjusted basis broadly we're looking for anomalies.
Most often our investments are covered lands place, where we expect the appreciation of land to more than offset the deep appreciation of our buildings. This provides the opportunity for value creating redevelopment.
We have come in here too strict policies favoring the portfolio diversified by price point and geography customers with strong credit.
Limited exposure to entitlement lease up in completion risks modest near term debt maturities and abundant liquidity, including cash in a pool of unencumbered properties.
We're cautious about exposure to ground up development when appropriate we employ other to take on those efforts for example, Alexandria and square Trammell Crow on the entrance medical campus and absent that outright sale. This will be the case, when we monetize the land value of our Brickell Bay drive waterfront properties in Miami.
We do not shy away from complicated deal structures, leading that some complexity can reduce risk into our lead to higher returns.
Now moving on to portfolio management and recent activity.
Well incur benefits from a geographically diversified portfolio our markets are not fixed forever year to date, we have sold four properties.
Located in Chicago's western suburbs cutting enhance our exposure there.
Invested the proceeds into previously announced acquisitions redevelopment and development projects in South, Florida, Colorado's front range in Cambridge mass, where we find markets with greater economic and population growth friendlier tax environments and superior.
Fiscal policies.
And with thanks to all of my teammates for their continued hard work in constant pursuit of value, creating opportunities I would now like to turn the call over to Paul Beldin, Our Chief Financial Officer Paul.
Thank you Wes today I'm going to start with 2019 results and guidance then discuss Incas balance sheet.
And finish with a 2020 outlook that we published one month ago.
First third quarter AFFO was two cents ahead, the midpoint of guidance as a result of our third quarter outperformance and our expectations for the fourth quarter, we're increasing our AFFO guidance for a second time this year.
We now expect.
Hey, AFFO per share of $2.20 at the midpoint, an increase of three cents from our beginning of your expectations.
The strong operating results delivered by key contributor to our increasing guidance and increased asset values.
Also increasing asset values are the value, creating redevelopment delivered by.
I was.
Taken together and with the accretive effects of our portfolio management activities. We expect 2019 year end net asset value a $59 per share.
Next and because balance sheet has abundant liquidity with $800 million credit facility, that's fully available at a pool.
Of assets unencumbered by debt valued at 2.4 billion.
And to leverage the EBITDA consistent one plan is currently above target.
We expect to reduce leverage by half a turn to seven times before our next earnings call as we execute our remaining $300 million plan property sales.
Now.
Turning to our 2020 preliminary outlook.
We published the preliminary outlook one month ago. Despite an early view into the expected growth beyond the fourth quarter.
We are preliminary expect to 2028 AFFO to increase year over year.
13 to 18 cents per share or 6% to 8%.
We expect this.
AFFO increase to be driven almost entirely by in July from our 2020 same store communities.
Diving a little further we expect same store revenue growth between 3.2 and 3.6%.
Same store expense growth between 1.8 and 2.2%.
Same store NOI growth.
Between 3.74, 0.1% and leverage the EBITDA declined to 6.6 times, driven by EBITDA growth and a 100 million dollar reduction in that.
Organic growth.
And value creation by redevelopment and development.
So team are expected to produce 2020 year end net asset value.
Per share between 62, and $64, resulting in economic income growth of approximately 8% to 11% as Terry mentioned, we are mindful of possible changes the economy and are well prepared.
Please refer to page of six and seven of our 2020 outlook for Aimco specific factors and.
These which are intended to minimize the impact of an economic downturn across all aspects of our business.
Lastly, based on clean our annual plan and as we complete the budget process, we will issue formal guidance for the fourth quarter earnings release in late January .
With that we will now open up the call for questions.
Please let me ask your questions that you for timely Q Rocco I'll turn over to you for the first question. Thank you Sir and it wasn't I'm honored to ask question Press Star then one of your Touchtone phone.
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Going to.
Today's first question comes from John Kim of BMO Capital markets. Please go ahead.
Thank you.
On your 2020 outlook you you basically have same store revenue decelerating a little bit can you just talking about that then NAMIC given leasing spreads are up on a year over year basis.
You bet John This is Paul so they are the.
The primary a decline in the rate of revenue growth from where we expect the midpoint of 2019 guidance to be at 3.7% and our range that we issued for for next year is really driven by the rate of growth an occupancy Keith on the.
We've done a wonderful job picking up about 60 basis points year to date of occupancy and while we see the opportunities to do better next year, it's not going to be at that same rate of growth and so that explains the the change.
Okay, and just sticking to the outlook.
And the $59 any of you have for the fourth quarter estimated.
I guess, it's like a 5% increase over the last six months can you just walk through the components of the change I'm. It looks like maybe half of that with same store NOI growth a cap rate compression in any redevelopment.
I'm, sorry did any of either that you've created.
John I think you've nailed it those are the three components what I'd tell you is that as.
As part of our meeting at Navy and a couple of weeks will issue a third quarter and Navy and we'll have all the the detailed particulars there and we can crawl through those specifics at that time.
Maybe specifically you mentioned.
You assumed unchanged market pricing, but I was just wondering if you had actually we put in north factored in lower cap rates.
The last six month and if so how much.
Yes, so the unchanged market prices really more of a perspective look as we are forecasting out expectations for our year end 2020, and maybe the 2019 numbers based upon current cap rates.
Okay. Thank you.
[noise].
Our next question today comes from shortly with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question so.
Similarly on the 24 my outlook.
Guidance of one attitude to could you walk us through some of the major buckets and expectations.
I would like taxes insurance.
Ladies and controllable.
Yes, sure they will get into all the detailed particulars when we set formal guidance and the and on the fourth quarter call, but just to what your appetite I would tell you that embedded within that range of growth, we have an expectation that our controllable operating expenses will.
Due to.
Be a well under pure average Keith mentioned that we were negative on a year. They basis, we expect for the full year to be up about 50 basis points 19, we expect similar better results in 2020.
Got it solely for that.
One Joe one.
Acquisition could you talk to the lease up on that office assets and your optionalities for redevelopment and potential structure that Neil.
Exactly.
Surely it's west so I'll take that and things for the question.
First on the existing office building, it's early days.
But it's right on plan that in fact, maybe a little bit ahead of plan. So we feel very good about that.
The bigger picture I think it's important to note that the hour.
[noise] plan to monetize that investment is going to be based on the value of the underlying land, we feel like we increased that value day, one when we.
On the site with our neighboring Yacht club property.
And that land values going to be based likely on a mixed use development today as of right. You can build over 3 million square feet on the site and basically we're going to wait and see what happens overtime.
And we're going to make that decision.
Vision and be able to monetize that investment without taking on the risk of ground up development and so there's a question of whether we participate in that.
Perhaps there's an apartment component to it that would be a logical place, but that's a choice for the future and right now we feel like we have a great position during the current return while we see what happens over the coming years.
Great. Thanks for the color.
Our next question today comes from truck trailer or Scotiabank. Please go ahead.
Thank you.
So Paul maybe lease or others on your leverage plans you said that that'll be accomplished once you complete your pair trades, so where did that stands since you didn't sell anything.
During the third quarter versus what you previously guided as 100 million for the quarters that just a timing issue and I guess related.
I'm asking because if I look at the disposition list on your website I see that the logic Chattahoochee chimneys cradle rocking timbers <unk> a long reach are no longer on that list.
I'll.
Start and then I'll, maybe turn over to lease if theres any additional information that may be I neglected to cover.
The yes, the expectation of $100 million a sales in the third quarter was based upon our call in the and last January as we went through in scheduled out or sales for the year. Those have subsequently been plan to move back I guess was it was not.
Something that we maybe explicitly communicated so sorry for the the misunderstanding there but from about the second quarter on our plan was to sell the remaining $300 million in the fourth quarter. Those sales are proceeding on track pricing is good interest is good and.
Lisa anything else you you'd add you hit all of that and the only thing.
The reason those are not website and comes right now they're under contract so.
You're up to date.
Fair enough. Thank you very much for that Terry maybe a bigger picture question on a call early this year I asked about how you're thinking about your exposure to California, roughly 40% of your capital or portfolio and you mentioned you.
May consider joint venture structures on your existing assets, so with with rent regulation initiatives, some market seeing softness other submarkets being higher supply in the coming year has there been any further consideration to that and maybe under what circumstances would you view that as an attractive thing to do both financially and from a market diversification.
Active.
It trends.
First thank you very much the question, it's an important issue in front of Banco and my views today are the same as they were when you asked earlier in the year, we like our allocation to California is a tremendous market. It's a very large economy very dynamic.
But we like it at about 40%, which is where we are today and I think that we would like to take some of our.
Capital, a in California, and redeploy it perhaps in California, where it can earn a higher return perhaps in west is redevelopment activity.
Ah Andy most cost effective way to do that I think will be to sell a.
Fractional interest.
Rich.
Maintains David the protection against property tax increases.
Under prop 13, so that you have the game plan and and we're looking at that every day.
Appreciate the detail. Thank you very much.
Our next question today comes from Nick Joseph with Citi. Please go ahead.
Thanks, Harry maybe following up on California, I, just want to get your thoughts on 8400, 82, and then potentially pop back on the balance that's specific to 14.
Maybe too.
In in place it became another year or what would the big impact on same store revenue growth in California. This year.
Rick I say I'm not sufficiently out of date is 14 82 of the rent control Bill that was signed by the Governor.
Correct.
Okay, then I I think that are feeling.
And that it will have a benign in effect on our.
Leasing activity during.
During the time that is in effect.
One of the other bills wrap that Bill also includes some provisions about genfare.
Fiction are fair termination of leases and so there'll be a compliance issue there's.
Nuance around mark to market rent increases for but we have a very limited amount of that so there's some some consequences, but it doesn't change our overall view of the attractiveness of California is a place invest.
And maybe a specific to the financial impact.
It had been in place at the end of year terms with the renewals that you're achieving.
Nick This is this is paul that the financial impact to be inconsequential.
Okay. Thanks, Amanda just.
Does this change you've been selling out of Illinois.
Complete market access or do you expect to keep exposure about where it is today.
It. It you drive you asking me are asking Lisa, but but in general we think that a Illinois has some very difficult headwinds and we would expect to reduce our exposure there provided we get reasonable pricing and so it's always subject to a price there there are properties there that we.
Like better and.
Some of that we like less as you would expect and we're as always selling off the bottom.
Thanks.
And our next question comes from Austin Wurschmidt of Keybanc capital markets. Please go ahead.
Hi, Thanks for taking the questions just what is the preliminary.
I didn't assume in terms of supply across your markets in 2020 versus 2019.
Yes, so thinking about supply for for next year as we sit here in October really our thoughts are very similar year over year. As we entered 2019, we expect to the majority of the impact from competitive new supply to be.
Centered into Submarkets are the first was in the center City University city areas in Philadelphia and that supply has has been delivered on time on schedule throughout the course of 2019 and 2019 I think was the fourth year in a row of elevated levels of new supply and we expect that high level supplied to continue next year.
The good news is the the pace of deliveries is slowing and so while we were in excess of four and 5% for the past four years, it's is forecasted to be closer to 3% looking forward and 2020.
The second Submarket that we had some concern about entering 2019 was mid Wilshire area of Los Angeles, and we had expected completions as.
<unk> percent of new stock to be just over 2% as everybody on the call I think knows that deliveries have been slowed a little bit mid Wilshire. This year and so well that has done just shifted some deliveries that were expected to occur late in 2019 in the 2020, and so that's going to tip us likely up above that 2% threshold that we use as a critical.
After for 2020 mid Wilshire or the two sub markets. I guess, there are two particular assets I would call everybody's attention to that we are monitoring closely in 2021 is one canal, which is in the bulfinch triangle neighborhood of Boston couple of blocks from the garden and next year, there's a forecast of about 2600 new units and.
Within that Submarkets, so no one cows gonna have a little over slog next year.
And then the other community is our Calvin Beach club community in Minneapolis, well, there's about 1600, new units that are expected to be delivered in 2020.
But large largely we're in a very similar spot year over year.
With respect to the Bay area I mean, there's been some commentary around.
Supply.
Cross several of the Submarkets.
Within that region anything in that region, that's worth flagging as well.
Yeah, I mean in that region I'd say, the one submarket that we're watching is the south San Mateo Submarket and so there are some new deliveries.
Our coming online there a timing is very dependent and that's kind of back end weighted so we'll wait and see but as we execute our plan because the timing to deliver the new supply. We don't think it's going to be particularly impactful.
I appreciate the comments there and then next question.
I was wondering if you could walk us through the different components that get you know you referenced.
The full turn lower leverage I believe by year end 20, given the prior comments that I think you plan to potentially ramp redevelopment in 2020. So can you just give us the moving pieces there.
They get you to a full turn lower.
Yeah, so half that is coming in the next couple of months as we complete or asset sales.
And then the other reduction is driven by about a $100 million a reduction in and net debt and next year as we just execute the plan that we've outlined in the preliminary outlook.
And then the remainder comes from an EBITDA growth and so embedded in that is our expectation that our redevelopment spend next year will likely be in the 250 to 300 million dollar range.
That's all contemplated.
Thank you.
And our next question today comes from Rob Stevenson of Janney. Please go ahead.
Good afternoon guys.
When you look at your a b and C plus buckets, how significant are the gaps between year to date.
Date blended lease growth between those buckets.
Rob.
We really measure it looking at new leases as the best Barometer and so when we look at it Ah Theres been about a 50 basis point spread between A's and B's.
<unk> slightly outperforming but of course.
It always comes down to some of those markets and geographies across the country. So it really isn't necessarily strictly that it's a b product or day product you can come down to an aid it's in Miami.
Outperforming wannabes or vice versa on another part of the country. So at about a 50 basis points spreads really what to look at.
Okay, and that's on new leases are you seeing any type of different in terms of renewal rates and or ability to absorb rental rate increases on renewals.
No we're not actually and we continue to see that we have upside or with the ability of our you don't focus on customers.
Election in their ability to pay a their credit worthiness and we've not seen any change in the way that they're able to absorb or take on increases.
Okay and then.
Secondly have you guys plateaued in terms of the various fees that you charge residents are there other opportunities on the fee front in front of you over the next.
12 to 18 months.
Oh, Rob I'll take that what I'd say is is that.
Theres a couple of ways to thinking about the fees.
First and foremost up when we think about fees that are associated with leasing activity. When we run at higher occupancy as we see less of those and.
A good thing as far as we're concerned.
It also with higher occupancy is we are able to get more parking fees more pad fees more storage fees and things like that really what I think it comes down to is how we're able to promote dozing Korean eight create unique living experiences within our communities in which people take advantage of them.
So I would say a well well I don't I wouldn't say, that's where we put majority of our focus in fact, it's a small portion of our revenues its an area in which we continue to focus on and we see in the future still opportunity.
Okay, and how are you seeing sort of smart home type of stuff about half your peers view it as a revenue opportunity.
And then half of them basically view it as an expense savings and not really a revenue opportunity. How are you guys viewing that.
Rob Let me.
Now let me let me walk you through how we think about that just sort of holistically.
You know, we don't implement technology, just for technology sake or.
Some sort of with Bang up at the end of the day, we really have a couple of things. The first one is is there a different customer experience in which if we apply something that people will stay with us longer and they like living at our communities more.
The next pieces is how we can impact our team members and therefore, having better jobs that are that are more rewarding are easier to.
To do and ultimately being more efficient and more effective.
And how we do this and so when we think its smart rent using that as the example over the last year, we put 30000 units and we were out in front of the market and what we've seen is is that our residents have a smoother experience ours. Our service team members are cutting less keys.
And at the end of the day it really comes down to residents staying with us longer team members wanting to have a more rewarding job and it's a holistic look at all those things combined.
Okay. Thanks, guys.
Our next question comes from drew Babin with Baird. Please go ahead.
Hey, thanks.
Taking my question.
One of the touched on Los Angeles, the delay in a new deliveries in mid Wilshire that you mentioned or should we take that too.
As evidenced that you're fundamentals are holding up pretty well in L.A. I know you know revenue growth on the books for Threeq, you look pretty consistent with two Q and just curious.
Whether anything sort of change towards the end of the corner quarter as many of your peers have reported.
Drew it's Keith I'll walk you through how we're feeling about Ali I mean, I think first foremost, we're feeling like we're having us really solid year there.
We've been a in the top one or two positions over the past several quarters this quarter similar.
When we when we look at our occupancy is we're running in the high 96 is and while we know that there are potential supplies. We haven't it has not affected us yet and so what we're focused on is how do we have residents that stay with us longer than we have a unit product offering.
Ultimately it will have an advantage even if theres.
News product becomes online, but that being said, we're very keen to what's happening around us and well keep you posted as it goes.
I appreciate the color and one more for me with the blended leasing spreads three five year to date in presuming theres not a lot of activity in the fourth quarter, but.
Quickly negatively impact that number before.
The year ends.
How should we think about the amount of occupancy growth sort of built into the 2020 revenue growth number.
Which also implies some deceleration new leasing activity towards the end of year is there anything that I'm missing in terms of other income grows we're on the occupancy front that sort of gets you more.
More solidly into that three to three six arranger.
Hi, Andrew I'll I'll start.
And then Paul wants to add to it what I think is most important to know as we sold the total revenue.
And there's multiple levers that come into that that being rate and occupancy and we don't salt to any of those what we're.
Really focused on is how we have avoided trends less vacancy loss in resident saying with as longer and so as you think about the 2020 plan what the pieces aren't exactly how we'll do it is something that I wouldn't specify right right. At this moment all anything you want to that I think that's exactly right given what will provide a little bit of.
Ill detail when we do issue formal guidance in January but it is a lever and so it's a bounce in accident and what our goal is to not to maximize right or not to maximize occupancy but to maximize.
Revenue and in turn in July .
Okay. Appreciate the color that's all for me thanks.
And then next question.
Hey comes from Heart is good observation associates. Please go ahead.
Yeah.
Hey, guys I'm, just a quick one on guidance here.
And your guidance it appears that.
You guys have set up to maybe comment a little bit above what you are once you put out there at least at the mid.
Why and then.
It looks like a little set you up to maybe increase or 2020 outlook as well.
Any reason why that would not be the case I know you addressed some similar earlier, but slide for bring you back.
You bet Arctic. This this is Paul.
As far as it relates to 2019 entering the earnings release season, and we already had a pretty narrow range around revenue for the full year and we're very comfortable within the mid point to the higher into that that range and then as we look out to 2020 I'm you know what we feel good about what we publish and we'll provide more details in January .
So maybe I think maybe I can sneak in a another one not they're different way.
If you look to the high end over a 21 and guidance on the low end for 20000 guidance, what we see the probabilities are for those.
And hard work that I guess I'd have to reactions one on cautious caution you against calling guidance as well.
It wasn't outlook and when we issue guidance, we'll have more likely than not arrange a little bit wider than what we published in the outlook. So that'll provide both upside opportunities. We see the business also allow for some time downside risk if the.
Business environment is different in 2020 than what we currently anticipate.
Alright, Thanks, Paul.
Our next question today comes from Rich Anderson of SMBC. Please go ahead.
Thanks, Good morning, everybody maybe following up on that last question. If you were to you know assuming that you know this business is all about expectations and performing relative to those expectations.
So I'm beating guidance.
Since as you know good thing for stock market perspective, I'm curious like when you look at all the different elements of the 2020 preliminary outlook, where where you see the the the best potential of outperformance is it on the revenue line. The expense line, perhaps not 'cause that's pretty pretty tight number or on the on the leverage a.
Line, just just curious you know assuming you've you know you've kind of done your homework and then perhaps stepped back a little bit to introduce some conservatism into the perspective, where that that upside potential might be.
Yeah, Rich I'll start and we'll see females has anything to add well what I would say is.
We are in the midst of our planning process, we always see a number of opportunities as we go through that those are opportunities that we as a team we'll do our best to execute upon they're also cognizant that sometimes there's an onerous and we want to build that into the the range of expectations as well. So I guess my short answer is if we saw.
Specific opportunities that we're confident being our numbers, but stay tuned.
Alright and.
And then you know at the beginning of the call.
Terry you said, a balancing growth and and safety, which I think we can all appreciate but on the safety side. Besides older.
Residence, what is what is particularly safer about aimco relative to your peers I know, you'll probably say you know a balance sheet that doesn't expose the enterprise.
To to risk but.
Ah you start bleeding assets because of of leverage.
No that's not going to be good for the stock also so.
I'm just curious what you think of that's a standout from a safety perspective, when you consider aimco relative to your peers.
I I think the first.
Place I'd start rich is with our market allocation.
And if you go back and I think this is.
In the 2020, a report and just take our portfolio today and look at the.
And then packs during the global fiscal crisis, we had we had the lowest exposure the lowest adverse effect. So just picking the right markets.
I think the second most important thing is as cheap.
This is again and again picking the right customers we have.
Very stringent.
Credit and personnel requirement and we have more stable people and they have higher income.
And they're just less likely to be adversely affected and the downturn.
<unk>.
I'd say that third category that.
We'd get a lot of attention or by.
But by Lisa West and the people that are involved in in redevelopment in capital enhancements and so forth is that the properties are well maintained we have a high rate of capital spending keeping them in.
Competitive conditions.
Okay.
I think that once you have those factors in mind and of course, the that is fantastic success that Keith and his team had been cost control.
You have a revenue stream MARD income stream that is more stable more durable and on the balance sheet side well, what we would emphasize most is the.
Long duration and limited refinancing a repricing risk.
And on the need for more capital that we rarely start something without having the money in hand, we completed.
Okay, great well, hopefully we're focused more on growth and safety next year, but I appreciate the comments. Thanks.
But but rich let me just go back to it we do talk about safety regularly at encodes rich is built into our DNA. If you think about it from an allocation to be assets.
Geographic diversification, we're highly focused on on safety, but that said.
We also are interested in growth in our forecast for 2020 is just what Paul said, we're pretty upbeat about it.
Yep.
Okay. Thanks very much appreciate it.
Our next question comes from Haendel St. Johnston Mizuho. Please go ahead.
Hey, there.
I want to go.
Back to the the planned to the lower the leverage here a bit of I guess, a nice surprise that Terry I've.
Oh, the star for long time in historically, you've been willing to carry higher leverage versus your peers. In fact, it's one of the long running differentiators and part of you did while its long term fixed rate nonrecourse self amortizing, so I guess I'm curious.
Why the change in thinking here and then perhaps would you go even lower than mid six to maybe the low five like where some of your peers are.
And I. Thank you you know you noted the our views on debt very well you resided them exactly right.
We think and both credit agencies and some analysts in effect.
Reduced they give us a a 10% benefit if you will reflecting a those those features so first of all we would say on on analysis of the actual burden of the debt. They just a nominal comparison overstates the risks to the business.
I mean, there hasn't been any change at all.
But Paul talked about is returning to our policy target we had a moment when we came out of a policy. It's a combination of redevelopment spending and also taking advantage of interest rates at a time when loans were open and so were little bit higher than we want to be today, but we'll be down by.
I have to turn at year end and we'll be right in the mid sixes.
End of next year, and that's in place, where we're comfortable being.
Okay fair enough appreciate that and then.
Just going back to the business overall have you done quite a bit here over the last few years you sold your asset management.
Tax credit business.
Sure I guess, you're going below your leverage here.
I guess what else is on your mine or any other key initiative that you are perhaps the border considering as you think about aimco.
Today versus Aimco, where you want to be say over the next three to five years.
I I think there's a lot of things on our mine.
Oh wait and we did just have a board meeting, where we talked about different strategic opportunities in issues, but but they'll come back to the saying a focus on on the multifamily business and the same focus that the road to success is through satisfying the customer.
And whether or not we.
Yeah.
Increases in one way or emphasizing a different way that's a hard what we do.
Our next question today.
Apologies if you'd like to ask questions. Please press Star then one at this time once.
Again that Star then one that's the other question. Today's next question comes from John Polaski of Green Street Advisors. Please go ahead.
Thanks, Oh, well thanks to my comments on Yacht club in Brocal Bay drive in a thoughts there I just want to make sure I understand the most likely playbook for both both properties right now I might.
<unk> correctly that right now as you see if today than most likely scenario is that you sell both the OCC club and then one O one Brickell Bay drive.
Hey, John Thanks.
I think that's exactly right I think at the right price or that is surely are the best risk adjusted.
Return for Us and that's an execution we would do.
And it's important to note that we like our Optionality there that we can run these assets over the next year or or a few years until that pricing materializes.
Sure.
Under that most likely scenario, what would aimcos financial can it be as a year.
It was an outright sale or are you a partner in that most likely scenario.
Okay at an outright sale would be zero that feed but you have cash coming in but again of the option for us to participate in some future development Ah would be based on what the plan is gonna be and that's uncertain and I think it's important.
Underscore that I don't see any circumstance, where we participate in the development process itself.
Okay, and then maybe last one or maybe a bit of color on if you put yourself in the buyers shoes of that mix use development, maybe stepping endo call. It 170 million dollar office building so.
What is the next of condos hotel departments from Airlines I'm sure you've done the math because that's that's your exit what is the mix of units have to look like for a buyer's cost bases to pencil because it is an extensive rehab a little bit color there be awesome.
Sure, what I'd say well first off.
Again, we added value by putting the two pieces together. So it's not just the kind of one site, but the odd club side and then what I would say is it all depends and I have no idea what the future old other than is there going to be a mix of uses I don't know what the balance would be I have no idea, how condos will price in the future.
Versus the offices are apartments, but we think long term waterfront property in brickell is gonna be worth more than it is today.
I guess the long question is you caught 160 million dollar check you need to do some even at the back of <unk> math to make sure an exit under today's.
Pricing pencils, so I'm just trying to understand what the math is going to look like for a potential buyer the site.
Joining me I'm happy to give you some numbers, but again they they'd be guess is at this point and we have done the math and again you could assume that.
Thousand dollar condo prices you.
I would assume you know three dollar and 75 center for dollar rents you could assume $60 office leases and all of those would would have put the value of the land at a very close if not above what we bought the building for but again I think it's premature to try and pinned down a number today.
Okay. Thank you.
Our next question is from Buffalo, one of Raymond James. Please go ahead.
Thanks, Good afternoon, just going back some operational stuff can you put a little color on the 10% year over year bump in property taxes at the same store property taxes this quarter and just what's your outlook is for any.
Tax issues for.
Next quarter or 2020.
Yeah. Thanks Buck. The this is Paul as you know a real estate taxes I can be very volatile, particularly when you're looking at year over year changes in particular quarter 'cause that that year over year change is highly dependent upon timing of appeals being resolved timing of assessments.
Being received so I really encourage you to look at a whole year trend or 19, we do expect property taxes to be a little bit higher than what our long term trend has been probably in the mid sixes.
And the reason for that is a couple fold. One you have some jurisdictions such as Colorado, where they increase my annually every every other year on the odd.
Your and then in other jurisdictions, we've had they're very good fortune of having our s. our values of our properties. The jvs increase quite rapidly and in some instances the a assessors had been a little bit slowed a recognized that increases values. So we were aware that there was a potential that a catch up could could occur and so the fact that.
It has come through in third quarter is not.
Unexpected and built in within the construct of our guidance for the year as we look out into 2020, we expect a a more normalized tax rate and probably if I were tend to put a number on at this point being a four to 4.5% to 5% range.
That's very helpful.
Real quick on Flamingo point with the retail and amenity delivering later this year is there any material income or any any income that would start to flow through from from that being finished up this year.
Going into next year.
It's west I'll take that one I would say no material.
No impact on this year, but we expect a start to see a little bit of lift or next year in 2020.
Okay.
Any.
Rough idea kind of number that would be.
Immaterial.
I think in the Grand scheme of things and the overall project a immaterial, but offline happy to give you some more color.
Color on it.
Gross incremental contract Oh bucked, the sponsors and the growth incremental contributions about $600000 and it will partially earn in next year.
Awesome and just one real last quick one in California, any assets that'd be impacted operationally from the active wildfires going on there's another one just popped up as well.
So just.
Anything any any properties are being impacted at all.
[noise] buckets, Keith I'll take that one in a way we've had a couple of situations where it has been impactful. They did we could have to go in northern California, We had a three communities in which had lost power and.
This is where when we talk about our customer service. We just think is really valuable we had generators on hand immediately common area lighting back on it and really how we can impact our residents to be there for them in a time of uncertainty that has occurred with those fires that this past week, we had another.
Turning in Simi Valley, which is in Los Angeles. It lost power for a couple of days exact same game plan, we had generators onsite ready to help our residents we think.
While this is an unfortunate thing in it and the challenge that has been in California for some time with fires and different things.
Our ability to insert ourselves.
As someone that has a unique living experience, how we can help our residents and powerful.
I also want to thank our teams in the field, who were working day and night to make sure that into our resident tend to smooth just a situations under and trying time.
Awesome. Thank you that's really helpful. Thank you.
And ladies and gentlemen this.
My question answer session.
Welcome to take Johnson on for any final remarks.
Rocco. Thank you for your health one more time and thank all of you on the call for your interest in Aimco.
Paul and I look forward to seeing you in Los Angeles, Syn 10 days or so and wish you happy weekend. Thank you.
Thank you so today's conference.
So I was not concluded. Thank you all for joining today's presentation you may now disconnect.