Q1 2021 Apartment Investment and Management Co Earnings Call

April 30, 2021

Keith Kimmel: Rate follows occupancy, and now is also strengthening, with signed blended rates increasing from up 40 basis points in March to up 1.4% in April, with improvement in all 8 markets. To show how quickly rates are accelerating, even since our press release just 2 weeks ago, effective asking rents have increased by an average of $25 or over 1% across the entire portfolio, and now stand above our asking rents on 1 January 2020. This growing momentum makes me increasingly optimistic about the balance of 2021. If we were to compare a snapshot of today with one taken 1 March 2020, we'd see many similarities. Leasing pace is the same. Asking rents are the same. Renewal offers are going out at the same increases, and our offices are open and operating normally.

It follows occupancy and now is also strengthening with signed blended rates increasing from up 40 basis points and March to up one 4% and April with improvement in all eight markets.

And to show how quickly rates are accelerating even since our press release, just two weeks ago effective asking rents have increased by an average of $25 or over 1% and cross the entire portfolio and now stand above our asking rents on January one of 2020.

This growing momentum makes me increasingly optimistic about the balance of 2021.

If we were to comparison app shot of today with one taken March 1st of last year, we'd see many similarities.

Leasing pace is the same.

Asking rents are the same.

Renewal offers are going out at the scene increases and our offices are open and operating normally.

That said, we still have much to do.

Keith Kimmel: That said, we still have much to do. We need to recover the 160 basis points occupancy gap to our pre-COVID levels. Two-thirds of our leasing activity is left this year, with much of it in the next three months. We need to cycle through leases that signed last year and restore the average rate in our rent roll that is $50 lower than a year ago. We need to be free to address delinquencies and bad debt. Our collections have been consistent, but too many financially capable residents continue to take advantage of local ordinances to live rent-free. We expect this will be corrected by year-end, with special consideration for those with genuine needs. We do not control the pace at which local governments open courts and restore our access to legal remedies.

We need to recover the 160 basis point occupancy GAAP to our pre COVID-19 levels.

Two thirds of our leasing activity has left this year with much of it and the next three months.

We need to cycle through leases signed last year and restore the average rate and our rent roll that is $50 lower than a year ago.

We need to be free to address delinquencies and bad debt our collections have been consistent but too many financially capable residents continue to take advantage of local ordinances deliberate free.

We expect this will be corrected by year end with special consideration for those with genuine needs.

But we do not control the pace at which local governments open courts and restore our access to legal remedies.

Keith Kimmel: We need to continue to provide world-class customer service that minimizes turnover and maximizes renewal rates. My thanks to the entire AIR team for your continued energy, innovation, and dedication to serving our residents. With that, I'll now turn the call over to Paul Beldin, our Chief Financial Officer. Paul.

And we need to continue to provide world class customer service that minimises turnover and maximizes renewal rates.

My thanks to the entire air team for your continued energy innovation and dedication to serving our residents.

And with that I'll now turn the call over to Paul Beldin, Our Chief Financial Officer Paul.

Paul Beldin: Thank you, Keith. Today, I will discuss AIR's strong balance sheet, including the benefits of the recent equity issuance. I will then discuss our expectations for the remainder of 2021 and conclude by discussing the dividend. First, AIR's balance sheet is strong and flexible. We closed a new $1.4 billion credit facility described in our earnings release. We sold 7.8 million shares of common stock, generating over $342 million of proceeds. As a new issuer, we are not yet eligible to file a shelf registration statement. Until we have 12 months of post-separation filings, the registration process will entail a longer SEC clearance process and marketing period, introducing greater uncertainty in pricing and execution. To avoid this risk, we opted to sell the shares in a private placement.

You Keith today, I will discuss are strong balance sheet, including the benefits from the recent equity issuance.

And we will then discuss our expectations for the remainder of 2021 and conclude by discussing the dividend.

First erez balance sheet is strong and flexible we closed a new $1 4 billion dollar credit facility describe it and our earnings release, we sold seven 8 million shares of common stock generating over $342 million of proceeds and.

And the new issuer, we are not yet eligible to file a shelf registration statement.

Until we have 12 months of post separation filings the registration process will entail a longer SEC clearance process and marketing period, introducing greater uncertainty and pricing and execution.

And this risk we opted to sell the shares and a private placement.

Paul Beldin: We're using the proceeds from the offering to repay property debt with a weighted average interest cost of 4.6%. The repayment of this high-cost debt neutralizes any dilution from additional shares outstanding, and in doing so, reduces leverage to EBITDA by approximately nine-tenths of a turn. Looking ahead, leverage remains higher than our targeted leverage to EBITDA ratio. We expect $580 million in net proceeds from property sales, reducing leverage to EBITDA by an additional nine-tenths of a turn. We expect an additional half turn reduction from growth in property NOI. In sum, we expect year-end 2021 leverage to EBITDA to approximate 5.5 times, consistent with the long-term leverage target we set when we announced AIR's separation from Aimco, and more than one year ahead of our original schedule.

We are using the proceeds from the offering to repay property debt with a weighted average interest cost of four 6%.

Payment of the high cost debt neutralizes any dilution from additional shares outstanding.

And in doing so reduces leverage to EBITDA by approximately nine tenths of a term looking ahead.

Leverage remains higher than our targeted leverage to EBITDA ratio.

We expect $580 million and net proceeds from property sales, reducing leverage to EBITDA by an additional nine tenths of a turn.

And we expect an additional half turn reduction from growth and property NOI.

And some we expect year end 2021, the leverage to EBITDA to approximate five five times consistent with our long term leverage target, we set when we announced air separation from <unk>.

And more than one year ahead of our original schedule.

Paul Beldin: On looking ahead, we expect full-year FFO per share between $1.96 and $2.06, just as we said two weeks ago. At the midpoint, this is a 3-cent increase from the guidance we gave in February. The net 3-cent increase is a result of 3 to 6 cents of incremental FFO from increased same-store NOI, 2 cents of lower interest expense due to completed leverage neutral refinancing activity, a 3-cent reduction in FFO from property sales, and finally, as mentioned earlier, less than a one half cent reduction in per share FFO due to the equity issuance. The strong operating results benefit 2021. They also provide a solid foundation for 2022 as leases executed during peak leasing season are fully earned in.

And looking ahead.

We expect full year <unk> per share between $1 96, and $2 and <unk>.

Just as we said two weeks ago.

This is a <unk> <unk> increase from the guidance we gave in February.

The net <unk> increase as a result of three to six cents of incremental <unk> from increased same store NOI.

<unk> of lower interest expense due to completed the leverage neutral refinancing activity.

The recent reduction and <unk> from property sales and.

And finally as mentioned earlier less and on what half cent reduction and per share <unk> due to the equity issuance.

The strong operating results benefit 2021.

They also provide a solid foundation for 2020 two of leases executed during peak leasing season and are fully earned in.

Finally on April 26th.

Paul Beldin: Finally, on 26 April, the AIR Board of Directors declared a quarterly cash dividend of $0.43 per share, a 5% increase over the 2020 regular quarterly dividends paid last year by Aimco. Increased dividends reflects AIR's high quality of earnings, lower leverage, and greater predictability of cash flows. As AIR earnings continue to grow, we expect that our dividend will do the same. With that, we will now open up the call for questions. Please limit your questions to two per time in the queue. Rocco, I'll turn it over to you for the first question.

Airborne of directors declared a quarterly cash dividend of <unk> 43 per share.

A 5% increase over the 2020 regular quarterly dividends paid last year by Aimco and.

Increased dividend reflects errors high quality of earnings lower leverage and greater predictability of cash flows.

Air earnings continue to grow we expect that our dividend and we'll do the same.

With that we will now open up the call for questions. Please limit your questions to two per time and the queue Rocco I'll turn it over to you for the first question.

Operator: Thank you, sir. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star then one. If your question has been addressed, and you'd like to remove yourself, please press star then two. Today's first question comes from Haendel St. Juste with Mizuho. Please go ahead.

Thank you, Sir and as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press Star then one.

And theres been addressed and like to remove yourself what is your growth stores and two days.

Today's first question comes from Handel St.

Uh huh.

Hey, good morning out there.

Haendel St. Juste: Hey, good morning out there.

Good morning, good morning.

Paul Beldin: Good morning.

Keith Kimmel: Morning. Hey, so Terry, hope you're well. A strong quarter here with guidance raised, reinforcements of your favorable portfolio and operational attributes, but I wanted to focus on a couple other things. Again, can you talk to us about the decision?

Haendel St. Juste: Morning. Hey, so Terry, hope you're well. A strong quarter here with guidance raised, reinforcements of your favorable portfolio and operational attributes, but I wanted to focus on a couple other things. Again, can you talk to us about the decision?

Hey, Terry I Hope I hope, you're well, let's talk quarter here with the guidance range reinforcements of USA book portfolio and all.

Rachel attributes, but I wanted to book and then a couple of other things I guess can you talk about the decision to sell equity here and the price of the evolved and previously outlined and he set a goal and get them apart and that probably by end of next year.

Haendel St. Juste: To sell equity here and the pricing involved. You previously outlined, as you said, a goal of getting to 5.5x by end of next year via organic cash flow and select asset sales. I'm curious what's changed in your thinking and why? And was it just perhaps the stock price, being up, your ability to execute fairly earnings neutral or were there other considerations? Thank you.

<unk> cash flow and select assets.

So I'm curious what's changed.

And we're thinking and why and was it just perhaps a stock per.

Being up and the ability to execute.

Or were there other considerations.

Yeah.

Terry Zimmer: Haendel, I think you've described it perfectly, that the stock was at a 52-week high, that we had an opportunity to reinvest the proceeds in a way that minimized or eliminated dilution from delevering, which is hard to do. It just proceeded to increase the equitization, if you will, of the company as we move from a more levered model to one that's primarily equity.

Terry Considine: Haendel, I think you've described it perfectly, that the stock was at a 52-week high, that we had an opportunity to reinvest the proceeds in a way that minimized or eliminated dilution from delevering, which is hard to do. It just proceeded to increase the equitization, if you will, of the company as we move from a more levered model to one that's primarily equity.

And I think you've described it perfectly and that the stock was at a 52 week high that it was.

We had an opportunity to reinvest the proceeds and a way that minimized or eliminated dilution from de lever which is.

Our to do and.

And it.

Preceded day increase the <unk> and if you will.

The company as we move from a more levered model to one that is primarily equity.

Got it Okay, and then I guess the question on the air and stock price performance since the split last year. The stock is up what's trailed peers and still trade at a discount to the sector average out the simple thing you know the platform and the story of the operating results are very solid and you've been through the balance sheet corporate governance and have dealt with.

Haendel St. Juste: Got it. Okay. I guess the question on the AIRC stock price performance since the split last year, the stock is up, but trailed peers. You still trade at a discount to the sector average after simplifying, you know, the platform, the story, the operational results are very solid. You've improved the balance sheet, corporate governance, and have dealt with the exit from the S&P. I guess I'm curious, you know, what you think the market might not be fully appreciating about the story here, and what other levers you can or would consider to pull to close that valuation gap.

And so I guess I'm curious what do you think the market might not and fully appreciate about the story here and what other levers you can and would be considered or would consider the poll.

All of that valuation GAAP.

Terry Zimmer: Well, I think the market has been pretty good. We're not far behind peers year to date. I think when we look at the outperformance in the last couple of weeks of 2020, you get a more complete view. I think that when we look forward, growth is gonna come from really two major areas. The first is KEES will continue to produce results that are superior to peers. So that's not to be missed. The second is that the subtractions from that outcomes for G&A and overhead will be lower than among peers.

Terry Considine: Well, I think the market has been pretty good. We're not far behind peers year to date. I think when we look at the outperformance in the last couple of weeks of 2020, you get a more complete view. I think that when we look forward, growth is gonna come from really two major areas. The first is KEES will continue to produce results that are superior to peers. So that's not to be missed. The second is that the subtractions from that outcomes for G&A and overhead will be lower than among peers.

Well I think the.

I think I think the market is.

It's been pretty good.

Not far.

Far behind peers year to date, and I think when we look at the outperformance and the last couple of weeks of.

2020.

You get a more complete view.

I think that when we look forward.

Growth is going to come from.

Really two major areas.

The first is Keith will continue to produce results that are superior to peers.

So that's not to be missed.

Second is that the subtraction.

Subtractions from that.

Outcomes for G&A and overhead will be lower than among peers.

Terry Zimmer: The third will be the opportunity to acquire properties where, again, KEES operating advantage creates above average returns by comparison to the properties being sold to fund it. If you think of paired trades, the typical property that we will buy will be in a market with superior growth prospects and where there's an upside due to operating advantages. It'll be funded with sales from properties in markets with lower growth prospects, and which have already had the advantages of KEES' tender loving care.

Terry Considine: The third will be the opportunity to acquire properties where, again, KEES operating advantage creates above average returns by comparison to the properties being sold to fund it. If you think of paired trades, the typical property that we will buy will be in a market with superior growth prospects and where there's an upside due to operating advantages. It'll be funded with sales from properties in markets with lower growth prospects, and which have already had the advantages of KEES' tender loving care.

And the third will be the opportunity to acquire properties, where again chief operating advantage.

Rates above average returns by comparison to the properties being sold to fund. It. So if you think of per trade.

The typical property that we will buy it would be and.

The market with superior growth prospects and.

And where there's an upside due to operating advantages.

And it will be funded with sales from.

Properties and markets with lower growth prospects, and which have already had the advantages of Gs tender loving care.

Thank you for that and can you get.

Haendel St. Juste: Thank you for that. Can you actually clarify for me, Paul Belden, if the recent guidance increase contemplated the equity issuance? In other words, would there have been more upside beyond the new guidance raise had you not done the equity?

Clarify for me Paul.

Recent guide and things, we contemplated the equity issuance and other words I've been more upside beyond the new guidance range and you're not done be equity.

Terry Zimmer: Yeah. Haendel, the impact of the equity issuance was really a non-event when it comes to FFO guidance. Because we're using the proceeds to pay off high-cost debt, the dilution is less than a half a cent for the year.

Terry Considine: Yeah. Haendel, the impact of the equity issuance was really a non-event when it comes to FFO guidance. Because we're using the proceeds to pay off high-cost debt, the dilution is less than a half a cent for the year.

And handle the impact of the the guide of the equity issuance.

It was really a non event when it comes to <unk> guidance, because we're using the proceeds to pay off high cost debt.

The dilution is less and a half are set for the year.

And again alright, thank you.

Haendel St. Juste: Got it. All right. Thank you.

Operator: Our next question today comes from Rich Anderson with SMBC. Please go ahead.

And our next question today comes from Rich Anderson from D. C. Please go ahead.

Operator: Our next question today comes from Rich Anderson with SMBC. Please go ahead.

Rich Anderson: Thanks. Good afternoon, morning. Terry, question for you on leverage or maybe Paul, whomever. You know, the story of Aimco was you could have higher leverage, you know, and I'm saying Aimco, you know, back in the day because of this, the nature of the debt, you know, the no entity level risk, you know, story. Then you got investment-grade rated, but we're not gonna use that, was the kind of the tagline. Now, you know, you're dropping that leverage down to comparable to your peers. I'm curious kind of what happened for you to change your stripes on the leverage narrative for this company. You know, did you bump your head and suddenly have an epiphany, or what happened to make this happen?

Good afternoon, and good morning.

So so Terry question for you on leverage or maybe Paul whomever.

And the the story of M. Coe was you could have higher leverage.

And I'm, saying Aimco, you know back in and the day because of this the nature of the debt. The you know the new entity risk story, and then you got investment grade rated and but we're not going to use that was the kind of a tagline that now you know your your drop and net leverage down to a comparable to your peers I'm curious kind of what happened for you to change your.

Stripes on on the leverage narrative for this company did you bump your head and some suddenly have an epiphany or what would happen to make this happen.

Terry Zimmer: Rich, I think there are two factors. The first is that for a long period of time, shareholders who appreciated the higher returns and, by the way, were supportive, but also there were other shareholders we didn't have, the opportunity cost of shareholders who were of a mind that low leverage was a better way to go. I thought in this particular case, I think we'll have a lower cost of equity capital and higher appreciation in the stock by just not fighting the tape, as they say, but by embracing what the customer or, if you will, in this case, shareholder feedback was.

Rich I think there are two factors.

Terry Considine: Rich, I think there are two factors. The first is that for a long period of time, shareholders who appreciated the higher returns and, by the way, were supportive, but also there were other shareholders we didn't have, the opportunity cost of shareholders who were of a mind that low leverage was a better way to go. I thought in this particular case, I think we'll have a lower cost of equity capital and higher appreciation in the stock by just not fighting the tape, as they say, but by embracing what the customer or, if you will, in this case, shareholder feedback was.

That first is that for.

And for them.

A long period of time.

Shareholders, who appreciated the higher returns and by the way.

We're supportive.

But also there are other share charter because we didn't have the opportunity cost.

Shareholders, who were.

And of the mine that low leverage was a better way to go and so I thought.

And this particular case I think we'll have a lower cost of equity capital and higher appreciation and the stock buy.

And just not fighting the tape as they say, but bye bye and embracing what the customer if you will and this take shareholder feedback was.

Terry Zimmer: The second one is that there's a part of me that is concerned that prices are high and that we are in a bit of a bubble economy, and that it's good to be cautious that by de-risking the company in every way that I could, it minimizes our exposure to a cyclical fluctuation. That's why we focused on both the balance sheet but also the business model.

The second one is that there is.

Terry Considine: The second one is that there's a part of me that is concerned that prices are high and that we are in a bit of a bubble economy, and that it's good to be cautious that by de-risking the company in every way that I could, it minimizes our exposure to a cyclical fluctuation. That's why we focused on both the balance sheet but also the business model.

Part of me that is concerned.

Prices are high and that we are.

And in a bit of a bubble.

Economy and.

And that is it's good to be cautious and.

And that by Derisking, the company and in every way that I could it minimizes our exposure to a cyclical fluctuation and.

And so that's why we focused on.

And both the balance sheet, but also the business model.

Rich Anderson: Okay, fair enough. Then my second question is, you know, the company now kind of has that new car smell to it, you know, with everything that you did to make it kind of simpler and everything. There might be an appetite for risk from investors, speaking of them, for risk if, you know, we're heading into this.

Okay Fair enough and then my second question is you know the company now and kind of has that new car smell to it you know with with everything that you did to make it.

And everything, but there might be and appetite for risk from investors.

Speaking of them for for for risk. If we're heading into this you know this euphoric stage of of multifamily following a terrible past year well to what degree is are willing to take on some risk and and kind of you know potentially muddy the thesis of what Youre trying.

Rich Anderson: You know, this euphoric stage of multifamily following a terrible past year. To what degree is AIR willing to take on some risk and kind of, you know, potentially muddy the thesis of what you're trying to accomplish here, which is simple and transparent. Will you take on, you know, stuff like Brickell or something like it, or is it kind of off the radar screen no matter what?

To accomplish here, which is simple and transparent will you will you take on you know stuff like brickell or or something like it or is it kind of off the radar screen no matter what.

Hi, Richard.

Terry Zimmer: Richard, the short answer is it's off the screen no matter what. We've tried again and again to communicate that, and including in my opening remarks, just to say, "Here's what we're going to do, and here's what we're not going to do." I think that Brickell, as you mentioned, is one that made the market scratch its head a little bit, but it's already, I believe, on paper, has a significant unbooked gain. The case today is to provide a simple, transparent business that has low risk and has easy to understand, and has an opportunity for growth through superior outperformance by the gentleman sitting to my immediate left. We're counting on you, Keith.

Terry Considine: Richard, the short answer is it's off the screen no matter what. We've tried again and again to communicate that, and including in my opening remarks, just to say, "Here's what we're going to do, and here's what we're not going to do." I think that Brickell, as you mentioned, is one that made the market scratch its head a little bit, but it's already, I believe, on paper, has a significant unbooked gain. The case today is to provide a simple, transparent business that has low risk and has easy to understand, and has an opportunity for growth through superior outperformance by the gentleman sitting to my immediate left. We're counting on you, Keith.

The short answer is just off the screen no matter, what and and we've tried again and again and again to communicate that and including and in my opening remarks, just to say here's here's what we're going to do and here's what we're not going to do.

I think that brick.

Brickell is as you mentioned is one that made the market scratching your head a little bit, but it's already I believe on paper is a significant and book gain but the case today is to provide a simple transparent.

And this debt has a low risk.

And has.

Easy to understand and.

And and has an opportunity for growth through superior outperformance by the gentlemen, sitting to my immediate left.

And we're counting on you Keith.

Okay. Thanks very much.

Michael Bilerman: Okay, thanks very much.

Rich Anderson: Okay, thanks very much.

Terry Zimmer: Thank you.

Terry Considine: Thank you.

Thank you.

Operator: Our next question today comes from Alex Kalmus with Zimmerman Associates. Please go ahead.

And our next question today comes from Alex Combs with Zelman and associates.

Alright, Thank you for taking the questions.

Alex Kalmus: Hi, thank you for taking the question. Just going back to the equity sale, you know, just curious how the process came about. You said it's real estate investment firms. I'm just curious if there's any strategic benefits with the investment itself as well. Thank you.

Going back to the the equity sale.

Curious how the process came about and you.

And he said it's.

Real estate.

And that's been firms and I'm just curious if there's any strategic benefits.

And with our with the investment itself as well thank you.

Terry Zimmer: It came about because of conversations that I have regularly with investors in the stock. Many of the people on this call will have called in or will have spoken to them in the last 90 days or expect to speak to them in the next 90 days. In one of those conversations it emerged that the investor, which has been identified as Zimmer Partners, was interested in purchasing the amount of shares that they did. I thought at the price that was agreed, it would be very much to the advantage of the company. As for strategic advantages, I think I'm not aware of any. It would make them probably the fifth-largest shareholder, or maybe sixth.

And there's there's that day.

It came about because.

Terry Considine: It came about because of conversations that I have regularly with investors in the stock. Many of the people on this call will have called in or will have spoken to them in the last 90 days or expect to speak to them in the next 90 days. In one of those conversations it emerged that the investor, which has been identified as Zimmer Partners, was interested in purchasing the amount of shares that they did. I thought at the price that was agreed, it would be very much to the advantage of the company. As for strategic advantages, I think I'm not aware of any. It would make them probably the fifth-largest shareholder, or maybe sixth.

Conversations that I have regularly with investors.

Investors and the stock and.

And many of the people on this call we will have called in or it will have spoken to them and the last 90 days or expect to speak to them and the next 90 days and.

And what are those conversations it emerged that.

The Investor, which has been identified as Zimmer partners was interested in purchasing.

The amount of shares that they did and I thought at the price that was agreed it would be very much the advantage to the company.

As for strategic advantage is.

I'm not aware of any day.

It would make them probably day.

That's the largest shareholder.

And maybe six.

Terry Zimmer: Obviously, all shareholders matter to us. The sixth will matter importantly, but not out of range than any of the others. Actually, I would say there is an advantage that Mr. Zimmer's had a wonderful track record of making good investments, and I'm really grateful for his seeing the opportunity to invest inside AIR, and I think of it as a bit of an endorsement.

And so obviously all shareholders better to us.

Terry Considine: Obviously, all shareholders matter to us. The sixth will matter importantly, but not out of range than any of the others. Actually, I would say there is an advantage that Mr. Zimmer's had a wonderful track record of making good investments, and I'm really grateful for his seeing the opportunity to invest inside AIR, and I think of it as a bit of an endorsement.

And as the six will better importantly, but not out of out of.

And out of range than any of the others and but.

But actually I would say there is an advantage that that.

Mr. Zimmer has had a wonderful track record of making good investments and I'm really grateful for is seeing the opportunity to invest inside air and I think of it as a bit of and an endorsement.

Great Great. Thank you and on the marketing.

Alex Kalmus: Great. Thank you. On the marketing aspect for the properties up for sale, how is that proceeding? We're obviously hearing about, you know, low cap rates, so an advantageous time for sellers. If you have locations that you're looking at, obviously, you've said New York as a potential one in the past, but if there's any other locations that you're thinking about disposing.

For the with the.

Properties up for sale, how is that proceeding we're obviously hearing about.

Low cap rates, so and advantageous time for sellers.

And if you have locations that you're looking at obviously, you've said New York is a potential one and the pass, but if theres any other locations or you're thinking about disposing.

Terry Zimmer: Well, in general, we're moving from markets, as I said earlier, with superior growth, moving to markets with superior growth prospects, and Florida would be no secret as an example. We're selling properties in markets with lower expected growth and often with unpredictable rule of law. Blue states like California, New York, and Chicago are ones that we have to keep a weather eye on what their future prospects will be.

Terry Considine: Well, in general, we're moving from markets, as I said earlier, with superior growth, moving to markets with superior growth prospects, and Florida would be no secret as an example. We're selling properties in markets with lower expected growth and often with unpredictable rule of law. Blue states like California, New York, and Chicago are ones that we have to keep a weather eye on what their future prospects will be.

And in general.

We're moving from.

Markets as I said earlier with superior growth.

Moving to markets with superior growth prospects, and Florida would be no secret as an example.

And we're selling properties and markets with lower expected growth and often with unpredictable rule of law and and so blue States like California.

Our New York and.

Chicago are ones that we have to keep a weather eye on what their future prospects will be.

Got it thank you.

Alex Kalmus: Got it. Thank you.

Operator: Ladies and gentlemen, as a reminder to ask a question, please press star then one. Today's next question comes from Nick Joseph at Citi. Please go ahead.

And ladies and gentlemen, and as a reminder to ask a question. Please press Star then one day.

Operator: Ladies and gentlemen, as a reminder to ask a question, please press star then one. Today's next question comes from Nick Joseph at Citi. Please go ahead.

Next question comes from Nick Joseph of Citi. Please go ahead.

Michael Bilerman: Hey, it's Michael Bilerman here with Nick. Terry, I was wondering if you can provide a little bit more details around the debt repayment with the equity proceeds. I think it said you're gonna pay back debt at 4.6%. Can you share with us sort of the term of that debt, the prepayment make-wholes that may be there? Obviously there's a cost to repaying that debt or maybe some of it's fully prepayable. Maybe if we can address that, and then I had a follow-up as well.

Hey, it's Michael Bilerman here with Nick Terry I'm wondering if you can provide a little bit more detail around the debt repayment with the equity proceeds I think you said youre going to pay back debt at four 6% can you share with us sort of the term of that debt prepayment and make holes that may be there. So obviously there is a.

Cost to.

And to repaying that debt or maybe from that's fully pre payable and maybe if we can address that and then I had a follow up as well.

And Michael that's a great question and I could take a cut out of the Paul knows it better than I and I hand, it off to him yeah. Thank you for the question Michael.

Terry Zimmer: Michael, that's a great question. I could take a cut at it, but Paul knows it better than I. I may hand it off to him.

Terry Considine: Michael, that's a great question. I could take a cut at it, but Paul knows it better than I. I may hand it off to him.

Paul Beldin: Yeah. Thank you for the question, Michael. Yeah, as you mentioned, we are looking to pay off debt with a weighted average cost of about 4.6%. When the market today is in the high 2s, right around 2.9%, there is a make-whole provision and a prepayment penalty. When we looked at this, what we considered was the payback period as compared to our marginal cost. When we did that analysis, we have come to the conclusion that on an NPV basis, we're at a break-even point to slightly positive. That was a consideration, but it wasn't the only consideration. It's also very important to us, as we have talked earlier in this call, about our ability to restructure our balance sheet, to reduce the level of property debt.

As you mentioned, we are looking to pay off debt with a weighted average cost of about four 6% and when the market today is and the high twos right around two nine and that there does there is a make whole provision and a prepayment penalty.

And when we looked at this what we considered was the payback period as compared to our marginal cost and when we did that analysis, we have come to the conclusion that on an NPV basis were at a breakeven point, just slightly positive and and that was a consideration but it wasn't all the considerations also very important to us as we have talked.

Earlier in this call about our ability to restructure our balance sheet to reduce the level of property debt and that really allows us to accelerate the progress on increasing the flexibility of our balance sheet and that's important because it makes just issuing corporate debt easier and more cost effective so and some without it and made a lot of sense to use the proceeds.

Paul Beldin: That really allows us to accelerate the progress on increasing the flexibility of our balance sheet.

Paul Beldin: That really allows us to accelerate the progress on increasing the flexibility of our balance sheet. That's important because it makes just issuing corporate debt easier and more cost-effective. In sum, we thought it made a lot of sense to use the proceeds from the equity raise in that manner.

Terry Zimmer: That's important because it makes just issuing corporate debt easier and more cost-effective. In sum, we thought it made a lot of sense to use the proceeds from the equity raise in that manner.

<unk> from the equity raise in that manner.

Michael Bilerman: $340 million of debt repayment. How much additional prepayment above that? $20 million? $15 million?

So $340 million have been retained and how much additional prepayment above that $20 million for food.

Yeah, there will be and them out and and we've looked at that amount as of March 31, but as you know that number changes every day that interest rates change and so and also change.

Terry Zimmer: Yeah. There will be an amount, and we've looked at that amount as of 31 March. As you know, that number changes every day, as interest rates change. It all will change.

Paul Beldin: Yeah. There will be an amount, and we've looked at that amount as of 31 March. As you know, that number changes every day, as interest rates change. It all will change.

Michael Bilerman: Yeah, just as a spot basis today.

Hi.

Terry Zimmer: Half the time.

Paul Beldin: Half the time.

Michael Bilerman: Right. As a spot basis today, when you evaluated raising the equity and paying the debt, can you just give us a sense of the underwriting and the amount?

But as a spot basis today, when you evaluated raising any equity and paying the debt can you just give us a sense of the underwriting and the amount.

Yeah, Michael you know as we look at it at March 31st So it's not quite today, but hopefully close enough for your purposes and it was about 35 million Bucks.

Terry Zimmer: Yeah, Michael, you know, as we look at it at 31 March, so it's not quite today, but hopefully close enough for your purposes, it was about $35 million.

Paul Beldin: Yeah, Michael, you know, as we look at it at 31 March, so it's not quite today, but hopefully close enough for your purposes, it was about $35 million.

Michael Bilerman: 34 on top, or debt embedded in the 340?

<unk> on top.

Or is that embedded and the $3 40.

Terry Zimmer: Yeah, embedded in the 340.

Paul Beldin: Yeah, embedded in the 340.

And embedded in our reported okay.

Michael Bilerman: Okay. Just as a second question, Terry, can you just step back? It sounds like this came out of a conversation with Stuart, that Stuart wanted to invest capital. At that point, you now had the information that, you know, you have an investor that wants to incrementally put capital in, and they have a choice of buying in the public markets, or, you know, doing a direct deal. Once you had that information, can you sort of share with us how you thought about doing a direct deal with one investor? I recognize you didn't have a shelf and 'cause you're a new issuer, but how you decided to issue almost 5% of the company to one shareholder.

And then just a second question Terry can you just step back and it sounds like this came out of a conversation with Stewart that Stuart wanted to invest capital. So at that point, you know had the information that you have.

And industrial that wants to incrementally put capital and they have a choice of buying and the bot and the public markets or doing a direct deal. Once you had that information can you sort of share with us and how you thought about doing a direct deal with one investor and I recognize you didn't have a shelf and.

Could you and you issuer.

But how you decided to issue almost 5% of the company to one shareholder and you saw.

Michael Bilerman: You said you look out for all shareholders, protecting those shareholders that may wanna maintain their rights and also buy the stock at a 5% discount to the 15-day VWAP to the closing price the day that you announced the deal. Maybe you can talk a little bit about how you viewed NAV. I think the last time you, and you've over the years, over the decades, you've always put out an NAV estimate. How this valuation compared to your view of value of the enterprise? Thank you.

Do you look at for all shareholders protecting those shareholders that may want to maintain their rights and and also buy the stock at a 5% discount to the 15 day.

The closing price the data you announced the deal.

And maybe you can talk a little about how you viewed and a V. I think the last time, you and you've over the years over the decades, you've always put our NAV estimate.

And this valuation compared to your view of value of the enterprise and thank you.

Terry Zimmer: Michael, thank you very much. As you and I have discussed, I can see the point of view that any material offering might in a democratic egalitarian way be made available to all shareholders. Although I know that a marketed offering isn't perfect either because, for that, we would want to have a rights offering. There's another point of view that the companies and entities separate and distinct from any one individual shareholder or shareholders and should source capital from the broadest possible menu, including private markets for debt, joint venture equity, and private placements.

Michael Thank you very much.

Terry Considine: Michael, thank you very much. As you and I have discussed, I can see the point of view that any material offering might in a democratic egalitarian way be made available to all shareholders. Although I know that a marketed offering isn't perfect either because, for that, we would want to have a rights offering. There's another point of view that the companies and entities separate and distinct from any one individual shareholder or shareholders and should source capital from the broadest possible menu, including private markets for debt, joint venture equity, and private placements.

As you and I have discussed I can see the point of view that and.

And material offering.

Might be available and.

Democratic Egalitarian way made maybe made available to all shareholders.

Although I know that a marketed offering isn't perfect either because for that we would want to have a rights offering.

But there's another point of view that the companies and entities separate and distinct from any one individual shareholders shareholders.

And should source capital from the broadest possible menu.

<unk> private markets for that joint venture equity private placement.

The view of the company its board and its advisors was that the alternative.

Terry Zimmer: The view of the company, its board, and its advisors was that the alternative available to us was a two-day marketed offering which would have resulted in a similar or greater decline in pricing and require substantial commissions and banking fees. It's important to compare apples to apples. As it transpired, what we did was good for the company and therefore its shareholders. I thought also of your question of whether some felt disadvantaged, and I just encourage you to encourage them to call me. If so, I'll work with them to give them the same opportunity.

Terry Considine: The view of the company, its board, and its advisors was that the alternative available to us was a two-day marketed offering which would have resulted in a similar or greater decline in pricing and require substantial commissions and banking fees. It's important to compare apples to apples. As it transpired, what we did was good for the company and therefore its shareholders. I thought also of your question of whether some felt disadvantaged, and I just encourage you to encourage them to call me. If so, I'll work with them to give them the same opportunity.

Alternative available to us with the two day marketed offering.

And would have resulted in a similar or greater.

Decline and pricing.

And requires substantial commissions and banking fees.

So.

It's important to compare apples to apples.

And as it transpired.

What we did was good for the company.

And and therefore its shareholders.

But I've thought also of your question of whether some felt disadvantaged and I just encourage you to encourage them to call me.

And and if so I'll work with them to get them to the same opportunity.

Yes, so you're going to issue another $340 million I don't know if thats, maybe what shareholders want but how does it compare to the NAV value from.

Michael Bilerman: Yeah. You're gonna issue another $340 million? I don't know if that's maybe what shareholders want, but how does it compare to the NAV value some of you shared over the past and how does-

And you shared.

Terry Zimmer: Well, NAVs have different, there's a wide range, as you know. It's, I think maybe a market-based way would be to look at it that we issued at more than 20% above the consensus NAV, which I think is a pretty good premium.

Terry Considine: Well, NAVs have different, there's a wide range, as you know. It's, I think maybe a market-based way would be to look at it that we issued at more than 20% above the consensus NAV, which I think is a pretty good premium.

And any of these have.

You know or have different there's a wide range as you know.

And it's it's and then maybe.

A market based way would be to look at it that we issued at more than 20% above.

The consensus and a D, which I think is pretty good premium.

Yeah.

Michael Bilerman: Right. I think it's the way you look at things that's always helpful, right? It was the desire for the spin, selling assets, and doing all those things that the market wasn't recognizing, what you believed to be the true value of your enterprise that you've cultivated over decades. That's where, I'm just trying to understand, in selling the equity at the price you did, how that internally viewed relative to the value you see of your assets, which you've talked about many times.

Right, but I think it's the way you look at things and that's always helpful right.

Desire for the spin and selling assets and doing all those things that the market was recognizing what you believed to be the true value of your enterprise that you've cultivated over decades, and so that's where I was just trying to understand and selling the equity at the price you did how that internally.

Terry Zimmer: Mm-hmm.

Michael Bilerman: I'm just trying to understand, in selling the equity at the price you did, how that internally viewed relative to the value you see of your assets, which you've talked about many times.

View relative to the value you see of your assets, which you've talked about.

Terry Zimmer: Right.

Terry Considine: Right.

Michael Bilerman: Right? You were one of the first ones to put out the whole presentation with all the details, which was extraordinarily helpful. You think about when you did the asset management transaction, and it was clearly an uplift in that the market wasn't ascribing value for. That's where I'm just trying to get a little bit into you and the board's head. It was above consensus, above our NAV, which we've said in our publication. Great. I'm just trying to get a sense of how the company-

And the first one is to put out the whole presentation with all the details which was extraordinarily helpful. Do you think about when you did the asset management transaction and it was clearly an uplift in the market wasn't ascribing value for so that's where I'm just trying to get a little bit into you and the board's head. It was above consensus above our NAV, which we've said and our.

Publication, great, but I'm, just trying to get a sense of public companies.

Terry Zimmer: Well, it was

Terry Considine: Well, it was

Michael Bilerman: sort of viewed it.

It was it was seven or $10 above your and Navy Michael but the.

Terry Zimmer: It was $7 or $10 above your NAV, Michael. The point of it from the company point of view was that in terms of a going concern, in terms of providing a better access to corporate debt, in terms of a better share price going forward, that this was the right thing to do.

Terry Considine: It was $7 or $10 above your NAV, Michael. The point of it from the company point of view was that in terms of a going concern, in terms of providing a better access to corporate debt, in terms of a better share price going forward, that this was the right thing to do.

Alright.

And from the company point of view was that in terms of a going concern in terms of.

Providing a better access to corporate debt in terms of a better share price going forward that this was the right thing to do.

And thank you. Our next question today comes from John Pawlowski with Green Street. Please go ahead.

Operator: Thank you. Our next question today comes from John Pawlowski with Green Street. Please go ahead.

Hey, Thank you for the time.

Terry Zimmer: Hey, thank you for the time. Paul or Terry, could you share a bit more thoughts on the expected pricing of the upcoming dispositions? You know, John, it's it'll vary by property, but it's fair to say that the market is strong and pricing is high to the extent and there's probably a bell curve way of thinking about this that we'll have the lowest cap rates where we sell either in a joint venture position as we did in California a year ago, which we might do again, or if we sell in a market such as in New York City, which is very discounted current earnings, but therefore we'll have an apparently low cap rate.

John Pawlowski: Hey, thank you for the time. Paul or Terry, could you share a bit more thoughts on the expected pricing of the upcoming dispositions?

Paul or Terry could you share a bit more thoughts on the expected pricing and they are up.

Coming dispositions.

You know.

Terry Considine: You know, John, it's it'll vary by property, but it's fair to say that the market is strong and pricing is high to the extent and there's probably a bell curve way of thinking about this that we'll have the lowest cap rates where we sell either in a joint venture position as we did in California a year ago, which we might do again, or if we sell in a market such as in New York City, which is very discounted current earnings, but therefore we'll have an apparently low cap rate.

And John John and it it it's up.

It'll it'll vary.

By property.

But it's fair to say that the market is strong and pricing is high.

And the extent and Theres, probably a bell bar way of thinking about this that that will have the lowest cap rates were.

And where where we sell either in a joint venture position as we did and California a year ago.

We might do again or if we sell in a market share.

Such as a New York City, which is very discounted current earnings, but therefore, we will have and apparently low cap rate.

Terry Zimmer: If we sell in some of our less favored locations where we might have higher cap rates. In both cases, we're looking through what the long-term expected value of those assets being sold compared to the benefits of lower leverage in this case.

Or if we sell and some of our.

Terry Considine: If we sell in some of our less favored locations where we might have higher cap rates. In both cases, we're looking through what the long-term expected value of those assets being sold compared to the benefits of lower leverage in this case.

Favorite locations, where we might have higher cap rate.

But in both cases, we're looking through what the long term expected value of those assets being sold compared to the benefits of lower leverage and.

And this case.

Understood and the pricing on a just in terms of total value and you kind of can.

John Pawlowski: Understood. The pricing on, just in terms of total value, is it kind of consistent with your internal NAV estimate above or below?

System with your internal NAV estimate above and below.

I think I think that.

Terry Zimmer: I think property prices today are more bullish even than the stock market.

I think share property prices today are more bullish even than the stock market.

Terry Considine: I think property prices today are more bullish even than the stock market.

Okay and last.

John Pawlowski: Okay. Last one for me, Terry. I don't have a good sense for what the team under John Bezzant and more recently Conor looked like. You know, what share of the headcount is now with Aimco versus the AIRC. But more importantly, you know, how are markets and properties going to be underwritten over the coming quarters? What that transaction process looks like with the CIO team and the broader organization, just the organizational chart being in transition. Could you spend a few minutes talking about how the CIO world's run is gonna be run these next few years or months?

One from me Terry.

I don't have a good sense for what 15 under John Bezzant, and more recently Conor looked like what share of the head count is now with income versus the AARC.

More importantly, how our markets and property is going to be underwritten over the coming quarters with that transaction process looks like with the CIO team and the broader organization that just the organizational chart being in transition and you spend a few minutes talking about how the CIO worlds run its going to be around these next few.

Two years.

Well.

Terry Zimmer: Well, well, well, John, I think that's worth the $20 that Conor would have paid his old colleague to ask about what a big hole he's gonna leave, because he will. He's been a terrific colleague, has been very influential in our thinking, and we'll miss him. I don't wanna minimize that at all. I would say that there is a team, there is a process, and that there are people who work on it. I would also say that in the end, it's all subject to approval by an independent board.

Terry Considine: Well, well, well, John, I think that's worth the $20 that Conor would have paid his old colleague to ask about what a big hole he's gonna leave, because he will. He's been a terrific colleague, has been very influential in our thinking, and we'll miss him. I don't wanna minimize that at all. I would say that there is a team, there is a process, and that there are people who work on it. I would also say that in the end, it's all subject to approval by an independent board.

John.

And that's worth the $20 that are non or would've paid as old colleagues to ask about what a big haul he's going to leave because he will he has been a terrific colleague and has been very influential in our thinking and and.

I'll Miss it.

And I don't want and minimize that at all.

But I would say that there is a team there is a process and.

And that.

There are people who work on it.

I would also say that in the and it's all subject to approval by an independent board.

Terry Zimmer: We have a lot of people in place, a lot of opportunities we're researching even now, and we will do the best we can, and we'll fill that void left by our dear friend leaving. We'll take our time and make sure we get it right.

Terry Considine: We have a lot of people in place, a lot of opportunities we're researching even now, and we will do the best we can, and we'll fill that void left by our dear friend leaving. We'll take our time and make sure we get it right.

And we have.

A lot of people in place a lot of opportunities, we're researching even now and.

And we will do the best we can and we will feel that.

Boyd left by.

Our dear friend.

Leaving.

But we will take our time and make sure we get it right.

Okay. Thank you for the time.

John Pawlowski: Okay. Thank you for the time.

Operator: Our next question today comes from John Kim with BMO Capital Markets. Please go ahead.

And our next question today comes from John Kim with BMO capital markets. Please go ahead.

Operator: Our next question today comes from John Kim with BMO Capital Markets. Please go ahead.

Thanks, Good morning.

John Kim: Thanks. Good morning. Just to follow up on the capital raise. I guess I wanna understand why, as far as timing, why you decided to sell at this time. I realize you pre-announced positive Q1 results, but you still sold the stake ahead of a recovery in fundamentals in many of your markets. If you could just provide some clarity on the timing and also whether or not Zimmer's stake is subject to any lockups.

Just a follow up on the capital raise.

I guess I wanted to understand why as far as timing why you decided to sell at this time.

And I realized you pre announced positive first quarter results, but.

And you still sold the stake I had a total.

Recovery and fundamentals and many of your market.

So if you could just provide some clarity on the timing and also whether or not and zebra steak and subject to any lockup.

Yeah.

Terry Zimmer: Just to take that question in reverse. As unregistered shares, it can't be transferred without our approval. But it'll be registered soon. At that point, it will be freely disposable by him and or his companies and whatever their decision-making process might be. The first question as to timing was that it just. It's not that I would be able to pick a particular time over the course of the year that would be absolutely the best. I thought it was a time that was good enough. We were at a 52-week high. We had a lot of momentum. We had a lot of interest in the stock.

Hum.

You have to take that question and in reverse.

Terry Considine: Just to take that question in reverse. As unregistered shares, it can't be transferred without our approval. But it'll be registered soon. At that point, it will be freely disposable by him and or his companies and whatever their decision-making process might be. The first question as to timing was that it just. It's not that I would be able to pick a particular time over the course of the year that would be absolutely the best. I thought it was a time that was good enough. We were at a 52-week high. We had a lot of momentum. We had a lot of interest in the stock.

Unregistered shares it can't be transferred and without our approval.

And then it'll be registered soon at that point, it will be truly disposable by him and his company's and whatever their decision making process might be.

The.

Next question is the timing.

Was that.

It just it it's not that I would be able to pick a particular time over the course of the year that would be absolutely the best.

But I thought it was a time that was good enough. We were at a 52 week high we had a lot of momentum and yet.

A lot of interest and the stock and I thought, let's just take a couple of chips off the table and make a step forward in our announced plan to Delever.

Terry Zimmer: I thought, "Let's just take a couple of chips off the table and make a step forward in our announced plan to delever.

Terry Considine: I thought, "Let's just take a couple of chips off the table and make a step forward in our announced plan to delever.

And by Delevering with your view that that would help the share price.

John Kim: By delevering, is your view that that would help the share price?

Terry Zimmer: It would both help the share price and also fulfill a promise made.

It would it would both help the share price and.

Terry Considine: It would both help the share price and also fulfill a promise made.

And also fulfill a promise made.

Right.

John Kim: Right. Also on the external growth opportunities, can you just remind us what the value that's been predetermined when you acquired the development and redevelopment projects back from Aimco? Like, what that predetermined value is or when you make that, just given how much cap rates have compressed in the markets recently.

And then also on the external growth opportunities.

Can you just remind us what the value that's.

And that's been pre determined when you acquired the development and redevelopment projects back from <unk> like what that pre determined value is or when you make that.

And just given how much capex are compressed.

And recently.

Terry Zimmer: It's all based on fair market value. I cannot tell you what that will be because some of those are three and four years away from completion. At that time, we have an option, not an obligation, and we have an option to buy at a discount to fair market value. As those things emerge, we'll look at it and we'll make what we hope will be good decisions comparing our opportunity to invest in these properties, which we know well, to the sale of other properties we know well. We'll try to put our capital where it'll have the highest return.

It's all based on fair market value.

Terry Considine: It's all based on fair market value. I cannot tell you what that will be because some of those are three and four years away from completion. At that time, we have an option, not an obligation, and we have an option to buy at a discount to fair market value. As those things emerge, we'll look at it and we'll make what we hope will be good decisions comparing our opportunity to invest in these properties, which we know well, to the sale of other properties we know well. We'll try to put our capital where it'll have the highest return.

And so I.

I cannot tell you what that will be because some of those are three and four years away from from completion.

At that time, we have an option not an obligation and we have an option to buy at a discount to fair market value and <unk>.

As those things.

Emerge and we'll look at it and we'll make.

What we hope will be good decisions, comparing our our opportunity to invest in these properties, which we know well to the.

Sales of other properties, we know well and and we'll try and put our capital and it'll have the highest return.

So it's the fair market value at the time of completion.

John Kim: It's the fair market value at time of completion.

And at a a five per cent discount due to.

Terry Zimmer: At a 5% discount to the value creation during the time of the lease.

Terry Considine: At a 5% discount to the value creation during the time of the lease.

The value creation during the time and at least.

Okay.

John Kim: Okay. Thank you.

Thank you.

Terry Zimmer: You bet. Thanks.

Terry Considine: You bet. Thanks.

You bet. Thanks.

Operator: Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

Ladies and gentlemen, this concludes the question and answer session and I'd like to turn the conference back over to the management team and for any final remarks.

Terry Zimmer: Well, Rocco, we thank you for choreographing yet one more of our meetings, and we thank everyone on the call for their interest in Aimco, or AIR rather. I look forward to when we're together next, and wish you all a great weekend. Thank you.

Terry Considine: Well, Rocco, we thank you for choreographing yet one more of our meetings, and we thank everyone on the call for their interest in Aimco, or AIR rather. I look forward to when we're together next, and wish you all a great weekend. Thank you.

Well Rocco we thank you for for.

Jorge Graphing, yet one more of our meetings and we thank everyone on the call for their interest and income are are rather and I look forward to when we're together next and wish you all a great weekend. Thank you.

Operator: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

And thank you Sir This concludes today's conference call and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Q1 2021 Apartment Investment and Management Co Earnings Call

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