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Apartment Investment & Management Co (AIV) Q2 2019 Earnings Call Transcript

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Apartment Investment & Management Co (NYSE: AIV)
Q2 2019 Earnings Call
Aug 2, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the to the Aimco Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Lisa Cohn, Executive Vice President and General Counsel. Please go ahead.

Lisa R. Cohn -- Executive Vice President, General Counsel and Secretary

Thank you. Good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2019 and 2020 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings. Actual results may differ materially from what may be discussed today.

We will also discuss certain non-GAAP financial measures, such as AFFO and FFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on Aimco's website.

Prepared remarks today come from Terry Considine, our Chairman and CEO; Keith Kimmel, Executive Vice President, in charge of Property Operations; Wes Powell, Executive Vice President, in charge of Redevelopment; and Paul Beldin, our CFO. John Bezzant, our Chief Investment Officer is present and will be available during our question-and-answer session, which will follow our prepared remarks.

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

Terry Considine -- Chairman and Chief Executive Officer

Thank you, Lisa. And good morning to all of you on this call. Thank you for your interest in Aimco. There are three headlines. First, Paul raises guidance again, the explanation is another great quarter of Property Operations. In a few minutes, Keith will have more to tell you.

Second Patti and Paul capitalize on current interest rates to lower the cost of Aimco leverage. Paul expects the work in the past few quarters to save more than $20 million annually. And third, John, Wes and Lisa continue to reallocate Aimco capital to value add -- value creating opportunities in higher growth submarkets.

Without stealing Wes' thunder, I'm enthusiastic about our increased investment in Florida in general and in Miami in particular. As most of you know, Florida is the third most populous state after California and Texas. Florida is 10% more populous than New York and about equal to Pennsylvania and Illinois added together. It's mild weather and cosmopolitan culture attract people from the northeast and from around the world. An important part of its economic appeal is effective government with good education, modern infrastructure and low taxes. And did I mention no state income tax.

Miami, the largest of Florida's metropolitan areas is the leader among Atlantic Seaboard cities, including such Sunbelt Darling's at Nashville for the rate at which real GDP per capita has increased going back to 2013. And our locations, include the best neighborhoods in all of Miami-Dade County. In other but related news, Aimco was named by Bay Area News Group, a top work place in the Bay Area, adding to our frequent recognitions, including designation by The Denver Post as a top workplace in Colorado for the past seven years.

I offer sincere thanks to the entire Aimco team, who are the bedrock foundation of Aimco's success. If any of you on this call are interested to learn more about what makes Aimco special, please ask any Aimco teammate or read our Corporate Responsibility Report available on our website.

Now for a more detailed report in the second quarter, I'd like to turn the call over to Keith Kimmel, Head of Property Operations. Keith?

Keith Kimmel -- Executive Vice President, Property Operations

Thanks, Terry. As mentioned in our first headline, we had a strong second quarter in operations. The outlook for the balance of the year is also positive. We've continued to improve occupancy, while increasing rental rates. This starts with consistently high customer satisfaction and a relentless focus on customer selection.

Our second quarter trailing 12-month turnover was 45.4% marking the sixth consecutive quarter under 46%. As a result, second quarter average daily occupancy was 96.9%, 60 basis points better than the second quarter of 2018. Our strong and occupancy translated to solid top-line growth with revenues up 3.8% for the quarter. Our top markets with growth over 4% were Washington DC, Boston, the Bay Area, Philadelphia and Seattle. We had solid performances of growth over 2.5% in Los Angeles, San Diego, Denver, Chicago and Miami.

Finally, markets with growth over 1% are New York and Atlanta, which make up less than 4% of our same-store revenue. Expenses in the second quarter grew 1.8%. We continue to drive innovation and productivity, resulting in lower personnel, marketing and administrative costs. This was offset by higher property taxes, as well as increased maintenance expense as we continue to invest in our communities. As a result, net operating income grew 4.6% and margins expanded to 73.3%, 50 basis points better than last year.

Looking at leases, which transacted in the quarter. New lease rates were up 2%, renewal rates were up 5% and same-store blended lease rates were up 3.6%. Our strongest new lease rate growth was in Philadelphia, Boston and Seattle, with the most pressure on new lease rates in Chicago and New York.

Finally, as we look at our preliminary July results. We see a good start to the third quarter and an acceleration of our momentum. Blended lease rates are up 3.9%, with new lease rates up 2.6% and renewals up 4.8%. All while achieving average daily occupancy of 96.6%, some 50 basis points better than 2018.

And with great thanks to our teams in the field and here in Denver for your commitment to Aimco success, I'll turn the call over to the Wes Powell, our Executive Vice President of Redevelopment. Wes?

Wes Powell -- Executive Vice President, Redevelopment

Thank you, Keith. Today, I will provide highlights on our second headline. Aimco continues to reallocate capital to value creating opportunities in higher growth submarkets. During the second quarter, we invested a total of $52 million in redevelopment and development across our portfolio. At Parc Mosaic in Boulder, a very wet winter and spring season slowed our pace of construction and led to higher costs. We now expect our total investment in Parc Mosaic to be $123 million.

Our initial move-ins occurred yesterday and demand has been strong. 80% of our first building was pre-leased at rent above underwriting prior to its delivery. We expect higher rents to offset the higher costs, leaving our expected returns unchanged. Construction at our other ground-up projects in Elmhurst, Illinois and on the Anschutz Medical Campus in Aurora remain on time and on budget.

Turning to new business. Aimco began the next phase of redevelopment at Flamingo Point in Miami Beach, where we are completely renovating this waterfront community. As we previously announced, our first phase includes major improvements to the site and ground level retail. These enhancements will be complete later this year. In the newly announced phase, we will fully repositioned the properties in North Tower saving only its concrete structure and creating all new floor plans, which highlight the spectacular views of this gain bay.

In addition, we will renovate apartment homes within Flamingo Point's Center Tower on the turn and only as demand warrants. Upon completion of the amenities, common areas retail and apartments in the North and Center Towers, Aimco will have invested $280 million, generating a free cash flow IRR of approximately 10% on its incremental investment.

On the acquisitions front, Aimco purchased for $157 million in an off-market transaction a 95% interest in a nearly two acre waterfront property located in Brickell and directly adjacent to our Yacht Club community. The property 1001 Brickell Bay Drive contains a 30-storey office tower with approximately 350,000 square feet of rentable space, which is currently 86% occupied.

Our investment thesis is simple. Given the scarcity of waterfront land in Brickell, the substantial increase in density that has allowed by code and the efficiencies gained through assemblage with our neighboring property there exists the potential to unlock considerable value through a large scale redevelopment of the combined sites.

With no definitive plans to report today, we remain open to all possibilities to maximize value including the potential of a joint venture partner. In the meantime, we intend to operate 1001 Brickell Bay Drive based on its existing use, generating a free cash flow IRR in the mid-8% range, approximately 250 basis points higher than the returns expected from the apartment communities being sold to fund the acquisition. We expect this investment to be accretive to earnings in 2019, with an initial NOI yield in the mid to upper 5s growing, as we increased occupancy to the sub-market average.

Also during the quarter, Aimco purchased an apartment building that is currently under construction in Cambridge and located directly across the street from our Axiom community. We expect our $70 million investment in this 136-unit property to generate a free cash flow IRR north of 9% and NOI yields near 6% at stabilization. Construction is scheduled to be complete approximately one year from now. Coupled with our Axiom and Vivo communities, which are located within a two-block radius, Aimco will have $200 million invested in the heart of the thriving Kendall Square submarket.

Finally, during the quarter Aimco sold one property for $79 million in suburban Chicago, in keeping with our pair trade strategy, whereby we recycle capital to value creating opportunities in higher growth submarkets. Additional sales are expected before year-end or in the first half of next year to complete the leverage neutral pair trades plan to fund the acquisitions and redev spending, I have just described.

And with thanks to all of my teammates for their continued hard work and pursuit of value-creating opportunities both inside and outside of our portfolio, I would now like to turn the call over to Paul Beldin, our Chief Financial Officer. Paul?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Thanks, Wes. Our third headline is Aimco capitalizes on current interest rates to lower its cost of leverage. Aimco leverage is primarily save property debt that is a low-cost, long-dated, amortizing and non-recourse. We are not market-timers. Yesterday reconfirms that interest rates are unpredictable. We are focused on regular repricing of our leverage, when we can and do so at lower rates.

In May, Aimco redeemed its Class A perpetual preferreds retiring $125 million at a 6.875% [Phonetic] rate. In June, Aimco rate locked $587 million of new fixed rate property debt at a weighted average interest rate of 3.37%, a weighted average spread to the applicable benchmark treasury rates of 129 basis points and a weighted average term to maturity of 11.5 years. $284 million of these loans closed in July and the balance is expected to close in August. Repaying all bank borrowings, so that Aimco's $800 million line of credit is undrawn and available, and with a pool of unencumbered properties valued at more than $2.3 billion.

The new property loans extend the average duration of Aimco's debt by more than half a year and reduce our weighted average cost of leverage by 10 basis points. When combined with the refinancing activity completed in the fourth quarter of 2018, Aimco has reduced annual average leverage costs by approximately $20 million.

Now turning to our financial results for the quarter and guidance. Second quarter AFFO per share of $0.51 and pro forma FFO per share of $0.60 were both $0.01 ahead of the midpoint of our guidance ranges due to strong performance at our same-store properties. Based on these results and our expectations for the remainder of the year, we are raising guidance.

Same-store guidance is raised for a second time this year at the midpoint and compared to our beginning of year guidance, we have improved our revenue growth rate by 40 basis points to 3.7%, improved our expense growth rate by 20 basis points to 2.3%, improved our NOI growth by 60 basis points to 4.2%. And as a result, we have increased our pro forma FFO and AFFO per share expectations by $0.02 at the midpoint. I remind you it was one year ago, when Aimco sold its asset management business accepting near-term earnings dilution as the price of a longer term increased growth rate. In the first half of 2019, Aimco overcame the dilution posting pro forma FFO per share of $1.21, up $0.01 from last year.

Third quarter will be the last quarter, when current results are compared to a bottom line inflated by contribution from the now sold Asset Management business. Fourth quarter results will be the first were the increasing profitability of apartment operations will be apparent in year-over-year comparisons of the bottom line. Using the midpoint of our implied fourth quarter pro forma FFO guidance, we expect year-over-year growth to accelerate to approximately 5%.

Finally, Aimco's Board of Directors declared a quarterly cash dividend of $0.39 per share for the quarter ended June 30, 2019, up 3% over the quarterly dividend paid in 2018.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Today's first question comes from Nick Joseph of Citi. Please go ahead.

Nicholas Joseph -- Citigroup, Inc. -- Analyst

Thanks. Paul, maybe starting with guidance. I appreciate the update. But if we look at the back half of the year in terms of same-store revenue growth, it looks like it's going to decelerate by about 60 basis points assuming the midpoint. Could you walk through the assumptions there in terms of occupancy, rate growth and other revenue that get you to that midpoint?

Paul Beldin -- Executive Vice President and Chief Financial Officer

You bet, Nick. Thanks for the question. It's really being driven by occupancy, as you likely all have noticed, in the first half of the year, we were able to -- Keith and the team were able to increase occupancy by 80 basis points. And so, as we enter the second half of the year, we have a little bit of a tougher comp. We still expect that occupancy will likely be higher year-over-year in the second half, but not to the same extent.

Nicholas Joseph -- Citigroup, Inc. -- Analyst

Thanks. And then just maybe on the balance sheet. Leverage is a little higher than the target, but it sounds like there is a plan to get it back down to target by year-end. So, can you go through the path to getting leverage back to your longer term target?

Paul Beldin -- Executive Vice President and Chief Financial Officer

You bet, Nick. You're right that our thoughts on leverage are unchanged. As a reminder, we seeked leverage to EBITDA ratio to be below seven-times and really we are also seeking total leverage to be about $3.8 billion. As you point out, we are above these levels currently, and do have a plan and anticipation to get back to those levels by year-end. And what we -- what drove the increased leverage now was, we just wanted to take advantage of the ability to lock-in low interest rates. But when we completed our paired trades, that Lisa and team are working on in the remainder of the year, will be back at those leverage targets.

Nicholas Joseph -- Citigroup, Inc. -- Analyst

Thanks.

Operator

And our next question today comes from John Kim of BMO Capital Markets. Please go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thank you. On the 1001 Brickell Drive office acquisition, is your plan as you lease it up, because you mentioned you want to bring that to market. Are you going to be leasing on a short-term basis to provide optionality to eventually redevelop, or is this going to be a long-term office hold?

Wes Powell -- Executive Vice President, Redevelopment

Hey, John. It's Wes. I'll take that one. And the answer is yes, we are considering lease duration, as we lease that building up in primarily shorter term leases four-year durations, but also including provisions and causes that would allow us access to the building, if and when a redevelopment materialized. And I'd say that the existing in-place leases have an average duration of well less than five years.

John Kim -- BMO Capital Markets -- Analyst

And sorry it wasn't clear to me. Are you also -- can you also develop on this land, adjacent to the office building? Or is it really the development opportunity with the office redevelopment?

Wes Powell -- Executive Vice President, Redevelopment

No, the office building today takes up the majority of the site, if that's the question.

John Kim -- BMO Capital Markets -- Analyst

Yeah. Okay. Second question is on redevelopments. It looks like you're planning to spend 360,000 per unit, which is a bit higher than what you've done in past years. Can you just discuss why it seems unusually high? This time around and what kind of rental uplift you expect to achieve?

Wes Powell -- Executive Vice President, Redevelopment

Sure. And I assume you're referencing the Flamingo project on the 360,000?

John Kim -- BMO Capital Markets -- Analyst

Just the entire redevelopment actually.

Wes Powell -- Executive Vice President, Redevelopment

On the entire redevelopment. Yeah, I think right now in the entire pool, we are obviously weighted more toward ground-up developments and also on the redev side at both our 707 Leahy project and especially the North Tower at the Flamingo, those are very comprehensive projects that will essentially rebuild those properties back to new. So, it's a heavier investment than typical, but relative to the rent increases and the value-add opportunity, we feel very good about it.

John Kim -- BMO Capital Markets -- Analyst

Thank you.

Operator

And our next question today comes from Trent Trujillo of Scotiabank. Please go ahead.

Trent Trujillo -- Scotiabank -- Analyst

Hi, good morning. So, in recent calls you mentioned you have about $1 billion or so of assets on the market at any given time, some of which for transactions, some of which for pricing discovery. And after you announced sales that puts you at about $500 million or so based on valuation a few quarters ago. It looks like you added Hyde Park Tower and Willow Bend in Chicago to your list. Makes sense based on your comments -- prior comments about Chicago. But you also added California asset, The Bluffs at Pacifica. So, could you talk about that decision? And also overall, how much you estimate you have on the market today?

Lisa R. Cohn -- Executive Vice President, General Counsel and Secretary

This is Lisa Cohn. I'll take it, and then I can turn it over to Terry or John to add to. We have about $700 million in the market. And you're right on about Chicago and we've expressed our views on what we see is potential for lackluster growth in that market as well as the politics of Illinois. And The Bluffs is a unique property that has had some opportunities as well as some potential challenges and we're always looking to think about the balance of our assets in California as well.

Terry or John, anything?

John Bezzant -- Executive Vice President and Chief Investment Officer

No.

Trent Trujillo -- Scotiabank -- Analyst

Okay. I guess one for Wes. I appreciate the comments on Parc Mosaic. So, that development is a 5% increase in investment, but the return profile is essentially unchanged. So, I guess two part question here. I think you previously mentioned 5.5% to 6% stabilized yield. So, does the unchanged expectation mean, you're expecting the low end, the midpoint or high end of that? And second part of that, has strength in rate growth had any effect on how your underwriting other developments?

Wes Powell -- Executive Vice President, Redevelopment

Take those in turn, on the yield, I would say, your range is correct, but it's very early days. We've experienced strong demand rents are, I'd say a good amount above our original underwriting. And as we lease up the building through the remainder of the year, we'll let you know where land, but that's still the range we're targeting.

And then the second question was on other developments and the current growth or can you repeat that one for me?

Trent Trujillo -- Scotiabank -- Analyst

Since basically the strength in rate growth and rent growth at Parc Mosaic offset the increased investment has that had any effect on how your underwriting your other developments?

Wes Powell -- Executive Vice President, Redevelopment

It is not. No.

Trent Trujillo -- Scotiabank -- Analyst

Okay. And I'm sorry, one more quick ones. Sorry, if I may. Keith, so you cited turnover has been favorable. And in the first quarter, it was down 150 basis points on a trailing 12-month basis year-over-year, but this quarter, it was actually up 40 basis points year-over-year. Can you talk about why that is and where you see turnover trend in your portfolio?

Keith Kimmel -- Executive Vice President, Property Operations

Trent, thanks for the question. You're correct. There was a slight increase in -- I would tell you, we're always trying to be better. With that being said, the 45% that we had is consistent with our plan, and most importantly it was peer leading, as we look at it across the board.

Turnover is really just one of many levers that we use, as we saw to total revenue that defines its way to the expansion of course bottom line. This was our sixth consecutive quarter at sub-46 and we think that will continue to see numbers like that and we will look to be better at each quarters, we go forward.

Trent Trujillo -- Scotiabank -- Analyst

Okay, great. I appreciate the comments and thanks for the time.

Operator

Our next question today comes from Shirley Wu of Bank of America Merrill Lynch. Please go ahead.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Hey guys, thanks for taking the question. So, my first question has to do with renewals. So, it would seem as if June and July have decelerated from a high of 53 in May. So, I was just curious as to how you're pushing that lever versus occupancy? And how you see that playing out for the recipe leasing season?

Keith Kimmel -- Executive Vice President, Property Operations

Shirley, listen renewals are something that we put a lot of focus on and that's specifically around retaining our customers and we think those that stay with us longer are more profitable. At the end of the day, we look at blended lease rates, both the combination of new and renew. And of course, the third lever being occupancy. And so total revenue is how we solve it and we don't solve it to any one particular thing, except for the fact that I would tell you that retention of our residents is one of the most important things we think we can do.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for that. So, a little bit more on your acquisition in Cambridge. So, the acquisition was for $5 million. Could you give us a little bit more color on what's actually there, if that's just land for now? And who the seller was? And why decide to sell out the development?

John Bezzant -- Executive Vice President and Chief Investment Officer

Yeah, Shirley This is John. This development is very similar in fact exact same structure to our VIVO building that we bought a few years ago there. You may be -- your name is new, anyway to me, to the coverage universe. But we bought a building there from Alexandria Real Estate Equities that they completed for us. We're repeating that process again as it was indicated 136 units across the street from the existing building. The building is under construction. They got steel up to the second floor and we will pay the remaining cost through the completion of construction.

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks for the color.

Operator

And our next question today comes from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hi, good morning everyone. So, as we start to think about the start for the Flamingo Point deal and other redevelopment opportunities into 2020, projects like 88th Street and Second Avenue. How should we expect the level of development and redevelopment spend to trend really into 2020?

Wes Powell -- Executive Vice President, Redevelopment

Hey Austin it's Wes. I'll start and if anyone, Terry, or others want to supplement, they can do so. I think as we roll into next year, the expectation is that we will be at, if not above our level of investment in redevelopment. We've got healthy pipeline, of course, it's subject to timing of starts, some of which are in our control and some are not. But of course, as we get later in the year and start to put our plans together will give you more precise information there.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

I appreciate the thoughts. I guess then piggybacking on that a little bit, then how should we think about then the dispositions and funding of that potentially higher redevelopment spend next year?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Yeah, Austin, this is Paul. I appreciate the question. But it starts -- it sound like we're starting to get dangerously close to providing 2020 guidance. So, what, I'll leave at that, is that we intend to continue to execute all of our redevelopment and potential acquisition activity on a leverage neutral pair trade basis. And so to the extent that we spend $250 million, which is the midpoint of our expectations of this year, or maybe a little more next year, we'll fund that with asset sales on a leverage neutral basis.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Appreciate the thoughts. And then just last one for me. Expenses are up a modest 1.8% here to 4%. I guess what's driving the implied increase in the back half of the year to over 3%? Or, is there just a good bit of room in there for -- of conservatism or for unexpected items?

Keith Kimmel -- Executive Vice President, Property Operations

Austin, this is Keith. In the second half , as you mentioned we see -- we're going to make it a little bit of an investment specifically in technology, as we think about how we can enhance our customer experience, specifically around the sales process and some items like that. And so that's really where piece of it -- in specifics to the controllable expenses and operations.

Paul Beldin -- Executive Vice President and Chief Financial Officer

It just gives us to add -- hey Austin just to add a commercial for Keith here. In a year-to-date, our controllable operating expenses are down 20 basis points. And because of these investments that Keith mentioned, we think we'll probably be closer to flat or maybe slightly positive.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

That's helpful. Certainly have done a nice job on the controllable side. Can you give us a sense of how large the tech investment is?

John Bezzant -- Executive Vice President and Chief Investment Officer

I can't get into the specifics of it, Austin just that ultimately what we're focused on is, the customer experience and ultimately, if I can also find a way that our team members also are benefited from all those things that we do.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Is it a -- just one more, is it a one-time expense, or is this going to be a recurring spend that we should expect kind of on a go-forward basis?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Austin, there is a software element of it that is capitalized and amortized over its expected life. So, it's a mixture of both, but it's not a big movements within that.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Okay, appreciate it. Thanks, guys.

Terry Considine -- Chairman and Chief Executive Officer

Austin, this is Terry. With run controllable operating expenses basically flat for the last 12 years. And next year, we will seek that again.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Understood. Thanks, Terry.

Terry Considine -- Chairman and Chief Executive Officer

You're welcome.

Operator

And our next question today comes from Hardik Goel of Zelman. Please go ahead.

Hardik Goel -- Zelman & Associates -- Analyst

Hey guys, thanks for taking my question. I wanted to take the conversation maybe in a little different direction. On just bigger picture. If you look at your portfolio, where it is today, and your market exposure. And I know inside the Greater LA and it's all over Los Angeles and it's not really in one submarket. But are you comfortable with where it is today? And where would you want it to be five years from now? And just your thoughts around your exposure?

Terry Considine -- Chairman and Chief Executive Officer

Hardik, it's Terry. I like our exposure Today. We have a wonderful portfolio and five years from now, I hope it will be better.

Hardik Goel -- Zelman & Associates -- Analyst

Any markets that you think will make it better? Any markets you like right now more than others, where you'd like to densify?

Terry Considine -- Chairman and Chief Executive Officer

We've talked about our interest in Florida and we've outlined a couple of investments today that carry that forward. And going forward, we're both opportunistic looking for specific properties that have upsides as well as markets that are supportive. And so it's -- I don't want to predict what those opportunities might be.

Hardik Goel -- Zelman & Associates -- Analyst

Got it. Thank you.

Operator

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

Richard Anderson -- SMBC Nikko Securities Inc., -- Analyst

Thanks. Good morning out there. So, first question is on Philly, I heard Keith you think you said top market from a leasing perspective, this quarter. I'm curious, like if you guys think about how that market is trending? You're kind of did something a little bit unique with your Philly trade a while back. How is it trending relative to sort of those expectations going in and could you become -- the Philly Hero because of the efforts that you've made there?

Keith Kimmel -- Executive Vice President, Property Operations

Hi, Rich, it's Keith. Thanks for the question. Listen, the Philly it started off strong. We've had a strong first half of the year. It's been tracking on our plan. I would just point out that our first quarter average daily occupancy was 97% in the first half and it's 97.5% year-to-date. We continue to feel like Philly is a really special place and most importantly that our assets are very special in their locations.

I'd also just point out Park Towne Place is we've moved past our lease up continues to show great strength and being really well received in the marketplace. And of course, lent itself to why we've made the other decisions we've made to having more there.

Richard Anderson -- SMBC Nikko Securities Inc., -- Analyst

Yeah, I didn't even mean that pun about Philly Hero I just realized.

Keith Kimmel -- Executive Vice President, Property Operations

Sure.

Richard Anderson -- SMBC Nikko Securities Inc., -- Analyst

I swear to god. I swear. And the next question is on Flamingo, big effort there. I'm wondering if a part of that effort will be to rebranded Flamingo kind of has sort of 70s sort of vibe to Dean Martin, Sammy Davis Jr or something like that. I'm curious if there is a renaming, a rebranding initiative that's going to go along with the whole redevelopment effort there?

Wes Powell -- Executive Vice President, Redevelopment

Hey, Rich, it's Wes. I'd say in general, yes. As part of all of our redevelopments, we can start first with the customer, we want to attract, and different customers are going to be drawn to different marketing campaigns and the like. So, surely at Flamingo, we are looking to rebrand a bit and with the investment, create a new community that appeals to residents that are probably going to be slightly older than they were in the past and have higher propensity to pay to pay large rents.

Richard Anderson -- SMBC Nikko Securities Inc., -- Analyst

I think you should call for Terry, I'm just saying.

Wes Powell -- Executive Vice President, Redevelopment

I'd rather be called the Philadelphia Hero.

Operator

[Operator Instructions] Our next question today comes from Buck Horne of Raymond James. Please go ahead.

Buck Horne -- Raymond James -- Analyst

Hey, thanks. I just wanted to, I guess, you guys have heard a couple of different versions of this. But specific to New York, with the new rent control laws in the recent legislation there. Does that create any sort of change in your, how you operate those assets near term and how do you think about holding onto New York longer term?

Terry Considine -- Chairman and Chief Executive Officer

Buck, it's Terry. And there was some -- look glances exchanged around the table because we have so little exposure to rent control in New York City that we weren't 100% sure, who should answer. I think we have single-digit roughly 10 or 11 rent controlled units. We have maybe 100 change and 140 or so, that are rent stabilized. That total investment is, is not very large. And in fact if those buildings were torn down, which we can tear down, then the land values are greater than our carrying value for GAV. So, we have a very limited exposure because we've always been cautious about that rent control market.

That said, so going forward, there is not a lot of impact on Keith's operations beyond what those few I just said. And there is opportunity for Wes, who is in the teardown business, as for example at 88th Street to look at particular sites and redevelop them in a market, where there may be somewhat lesser competition because of the -- I thought it was regulation and legislation.

Buck Horne -- Raymond James -- Analyst

Okay, all right. Thank you. And just on the West Coast and California, I don't know if you heard any updates on the latest. I know there is more chatter about the ballot initiative Prop 2.0 or something along that line. And how do you think about the exposure in California with this ongoing measures that are out there and do you still remain comfortable with the allocation at California?

Terry Considine -- Chairman and Chief Executive Officer

I do, but I'm also anxious too. So, I mean it's comfortable may be too strong. California is a wonderful market in terms of demand, in terms of consumer incomes, in terms of the properties we own and their locations. So, we like that exposure. It is possible that they will pass some rent control legislation that would be hurtful. We don't know that yet.

It seems to me, and this is just as a outsider watching the legislative process, more likely that they passed something that will, that they can say addresses rent concerns and has perhaps, for example, one proposal that rent could not be raised more than CPI plus 700 basis points and then only that legislation lasts for only two or three years. So, from my point of view that's a fig leaf, but it could be worse. It could be not at all. We'll just have to wait and see.

Buck Horne -- Raymond James -- Analyst

Thank you.

Operator

And our next question comes from Haendel St. Juste of Mizuho. Please go ahead.

Haendel St. Juste -- Mizuho Securities -- Analyst

I thought my name was more difficult to pronounce than my company. So, a question for you, Terry. I guess first, you've had sector-leading organic growth here in the last couple of years, which has necessarily translate into earnings growth. Some of that is drag from asset sales, sale of the asset management business.

And I think I heard Paul mentioned a 5% earnings growth target post the sale of this business. I guess I'm wondering if, should we should be expecting Aimco to be closer to the upper end of the group, the peer group going forward? Or is it anything else that were maybe not appreciating that could be a drag on the earnings growth going forward?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Hi Haendel, thank you very much. I think that's a very good question. The biggest impact on FFO growth in the last 12 months is of course the sale of the asset management business. And what that sale illustrates is our focus on net asset value creation, even if it results in short-term earnings dilution.

Over time those two metrics are to drive together, but we think net asset value is a measure that we use because it allows us to anticipate the effect of spending decisions we make today. And so for example, during this second quarter, we will have emptied 707 Leahy in Redwood City, California. And we have emptied the North Tower in Miami Beach. And so that will show up in FFO as negative events.

In fact, we see them as investments, as an opportunity to empty those buildings, so that they can be renovated, on basis, where we tend to get 10 -- double-digit free cash flow IRRs, but have short-term earnings dilution. And so, again, over time those metrics should rise together, but we would expect FFO to lag that because -- it's the outcome of those value creation activities.

Haendel St. Juste -- Mizuho Securities -- Analyst

Got it. Thanks. That's helpful. How should we think though about disposition volume and pair trades in markets going forward? Beyond the $700 million-ish you mentioned earlier, is it your sense, are we getting to the end of this long running process?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Haendel, no. I think it has been long running, but I think we may just be beginning another cycle because what we're focusing on is not just the submarkets, but the opportunities for above average gain. If you think about it a difference in buying a stabilized asset in Redwood City, would have an expected return today of probably under 6% and probably a NOI cap rate of with a three handle. And so, but if we do a redevelopment such as our 707 Leahy, we expect to have internal -- unlevered internal rates of return double-digits. So, we are looking not just at the submarket, but at the opportunity to earn above average returns in those submarkets.

Haendel St. Juste -- Mizuho Securities -- Analyst

Thank you. And one quick one, if I may. Did you or maybe can you share what the blended lease rates in July for this year compared to last year were?

Keith Kimmel -- Executive Vice President, Property Operations

Yes, last year there were 3.8 and this year they are 3.9.

Haendel St. Juste -- Mizuho Securities -- Analyst

Wonderful. Thank you. That's all from me.

Paul Beldin -- Executive Vice President and Chief Financial Officer

Thank you, Haendel.

Operator

And our next question is a follow-up from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yes. So, along similar lines from Haendel's last question, you guys mentioned you expect occupancy to be up in the back half of the year, but less than the first half. But occupancy was 96.6% in July, I think you averaged 96.8% in the second half of last year. So, should we expect occupancy to reramp, as you've pulled back a little bit on renewals? Or, is the comp materially different from changes in the same-store pool?

Paul Beldin -- Executive Vice President and Chief Financial Officer

Yeah, Austin, this is Paul. I guess I wasn't as clear as I thought, when I was talking about the occupancy comp. In the first half of last year, our average daily occupancy was 96.2%. We're at 97% in the first half of this year. In the second half of 2018, our average daily occupancy, I believe, if I'm remembering correctly, it was about 96.6%. And so we expect to do better than that 96.6%, but that rate of change is not going to be as great as it was in the first half. It's not a function of anything other than that.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yeah. That makes perfect sense. Okay, thank you.

Operator

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

Terry Considine -- Chairman and Chief Executive Officer

Rocco, thank you very much for your leadership or conduct of this call. It's gone well. And for those of you listening, we thank you for your interest. If you have particular questions, please give us a call, either Paul Beldin or Matt Foster on the IR team, or Wes Powell, who spoke to it, and Keith Kimmel or me, Terry Considine. Thanks so much.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Lisa R. Cohn -- Executive Vice President, General Counsel and Secretary

Terry Considine -- Chairman and Chief Executive Officer

Keith Kimmel -- Executive Vice President, Property Operations

Wes Powell -- Executive Vice President, Redevelopment

Paul Beldin -- Executive Vice President and Chief Financial Officer

John Bezzant -- Executive Vice President and Chief Investment Officer

Nicholas Joseph -- Citigroup, Inc. -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Trent Trujillo -- Scotiabank -- Analyst

Shirley Wu -- Bank of America Merrill Lynch -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hardik Goel -- Zelman & Associates -- Analyst

Richard Anderson -- SMBC Nikko Securities Inc., -- Analyst

Buck Horne -- Raymond James -- Analyst

Haendel St. Juste -- Mizuho Securities -- Analyst

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