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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the AIR Communities First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead, ma'am.
Thank you, and good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2021 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 funds from operations. These measures 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 AIR's website. Prepared remarks today come from Terry Considine, our CEO; Keith Kimmel, our President in charge of Property Operations; and Paul Beldin, our Chief Financial Officer. Other members of management are 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?
Thank you, Lisa. And good morning to all of you on this call. I thank you for your interest in AIR. We had a solid first quarter, and more importantly, we have excellent prospects for the full year and beyond. In our markets, fourth quarter results marked an inflection point. First quarter was much better. Second quarter-to-date shows further acceleration. We expect AIR to thrive in this economy. We created AIR to provide investors with the most efficient way to invest in multifamily properties for a current cash return and long-term capital appreciation. Our plan for AIR includes a number of specific objectives, which we communicated to investors. We've accomplished many already. We're working to advance others, but their completion remains in the future. Here's what we've already achieved. We chose and have a business model with minimal execution risk and without complex investments. Our business is simple and highly transparent. We own a high-quality and diversified portfolio of stabilized multifamily properties. Its quality and resilience have been tested and confirmed by overcoming the challenges of the past 12 months. We are the best in property operations. We have a long record of measured customer satisfaction, flat controllable costs and peer-leading margins. Results year-to-date confirm the excellence of Keith's team and are the reason for the recent increase in guidance for full year FFO. We want our leverage at a low cost. Our cost of borrowing, aided by low market rates is already low. Our new $1.4 billion bank credit and term loan makes it lower with an all-in cost of 1.6%. We want to be efficient with G&A as a percent of GAV, the lowest in the sector, and at 15 basis points, it is. We targeted higher FFO based on lower overhead costs and elimination of lease-up drag. It's working. We believe a high quality of earnings supports an improved dividend payout ratio. Our year-to-date results have almost no nonrecurring or noncash income. We want flexibility if income tax rules change, as many now recommend. We are glad to have refreshed our tax basis. We have other objectives where we're making progress, but still have work to do. We want our leverage to be low at a level comparable to peers. We made a good start when our recent equity raise lowered leverage by almost 1 turn. We're on track to reach our long-term target of leveraged EBITDA 5.5x by the end of this year, a full year ahead of schedule. We want to increase FFO and cash dividends by their organic growth and also the accretive acquisition of well-located stabilized properties. In a dynamic economy, where some markets struggle with stagnant demand, high taxes and an uncertain rule of law, we are interested to reallocate capital to markets with growing populations, lower taxes and less political risk. Our cost of equity capital is much improved. We sold unregistered shares earlier this week at a price that supports accretive investment [indiscernible] liquidity. Our competitive advantage gives us superior property operations. We're committed to excellence in corporate governance. We're the only publicly traded Maryland Apartment REIT to opt out of the MUTA provisions to permit a classified board. We're 1 of 3 to separate the role of Chairman and CEO. We recognize -- we've received numerous recognitions for our independent, diverse and engaged board. With 4 new Directors in the past 5 years, we're committed to Board refreshment and more is forthcoming this year. We believe our work is more than a business. It's also a mission to serve others. We're noted for our numerous programs for community service and have been voted a best place to work for the past 8 years. We were committed to further progress on the achievement, measurement and reporting of our ESG goals. So one thing might be promises made, promises kept. But I also like the best is yet to come. I'm upbeat about 2021 and see bright prospects beyond. These good results and future opportunities are due to the hard work and respectful collaboration of my AIR teammates. I thank each of you for your hard work to give birth to AIR and to deliver on its promise. I celebrate your commitment each and every day for our residents, our shareholders and to each other to be the best we can be. AIR is best-in-class because you, my AIR colleagues, are the very best. I'm proud of you and grateful to be your teammate. With that, I'll turn the call to Keith Kimmel, Head of Property Operations. Keith?
Thanks, Terry. Given the rapid changes in business 1 year ago, year-over-year comparisons are both too easy and too distorting to be helpful. So I'm going to break from my norm and focus my comments on sequential changes in the business. The first quarter brought clear signs that the inflection in our business is in the rearview and a rebound is well underway. First quarter average daily occupancy increased 110 basis points from the fourth quarter. Turnover was down 42.3%, and applications accelerated, up 25% quarter-over-quarter instead of the more typical flat seasonal pattern. Rental rates strengthened sequentially. Signed blended rates increased from negative 8.2% to negative 1.8% in the first quarter, with improvement in each of our 8 markets. As a result, revenue growth was up 1.5%. Through it all, we maintained our customer focused and cost discipline to deliver strong operating margins. Our first quarter margin was 71.3%, up 80 basis points from our peer-leading fourth quarter mark. Even our challenged markets are recovering. Here's 1 example. Just last week in Philadelphia, we leased more than 50 apartment homes, the biggest week we've had in 2 years at a positive rate. This past October, we had a similar number of leases for the entire month and at a negative 17% lease to lease. As I said, the rebound is well underway. Our first quarter results demonstrated the benefit of our diversified portfolio. San Diego and Miami were our strongest markets during the quarter with sequential revenue growth of 3.3%. Average daily occupancy was 98%, up from 97% in the fourth quarter, and rents accelerated rapidly with signed new lease rates up over 8% and asking rents now more than 10% ahead of pre-COVID peaks. We saw steady results in Denver, Washington, D.C. and Boston, where revenue was up 40 basis points sequentially. Occupancy in these markets was 96.5%, up from 95.8% in the fourth quarter and with signed blended rates of positive 80 basis points, an improved rate from negative 6.7% in the fourth quarter, and asking rents have now recovered to pre-COVID levels. In Philadelphia, we're now seeing the return of students and Center City office workers. Leasing pace has been strong, about 65% ahead of the fourth quarter, well ahead of the normal seasonal acceleration. Blended rates also improved, increasing from negative 14% in the fourth quarter to negative 4% in the first quarter. Occupancy has grown from 86.9% in August and 91% in March. And as we look forward, we anticipate another occupancy leap in September as the school year begins. In Los Angeles, occupancy was solid at 96.7% and rates improved from a blend of negative 11% in the fourth quarter to negative 3% in the first quarter. With SB 91, we see a path towards resolution of the long-dated delinquencies, which represent a 5% drag on Los Angeles' revenue growth. In Northern California, we see early signs of the tech companies return with first quarter lease pace 60% ahead of the fourth quarter, as opposed to the typical 10% increase. Occupancy is rebounding too, up 200 basis points from the fourth quarter. And while rates remain pressured, we expect the gradual gains we've made to accelerate as occupancy and demand improve throughout peak season. In April, momentum continued to build. Average daily occupancy is 95.4%. With lease pace increasing another 20% from March, right on our seasonal expectations. We have already pre-leased 43% of our upcoming second quarter notices, by far the best market of the past 5 years. While we expect occupancy to flatten over the next few months and as we work through our seasonal increase in frictional vacancy, our leasing velocity gives us confidence we will exit summer with high occupancies. Rate follows occupancy, and now it's 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 January 1, 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 March 1 last year, we've seen 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. That said, we still have much to do. We need to recover the 160 basis point occupancy gap to our pre-COVID levels; 2/3 of our leasing activity is left this year with much of it in the next 3 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. But we do not control the pace at which local governments open courts and restore our access to legal remedies. And 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. And with that, I'll now turn the call over to Paul Beldin, our Chief Financial Officer. Paul?
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, and so 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. 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 0.9 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 0.9 of a turn. We expect an additional 0.5 turn reduction from growth in property NOI.
In sum, we expect year-end 2021 leveraged to EBITDA to approximate 5.5x, consistent with the long-term leverage target we set when we announced AIR's separation from Aimco, and more than 1 year ahead of our original schedule. On looking ahead, we expect full year FFO per share between $1.96 and $2.06, just as we said 2 weeks ago. At the midpoint, this is a $0.03 increase from the guidance we gave in February. The net $0.03 increase is a result of $0.03 to $0.06 of incremental FFO from increased same-store NOI, $0.02 of lower interest expense due to completed leverage-neutral refinancing activity, a $0.03 reduction in FFO from property sales; and finally, as mentioned earlier, less than $0.005 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. Finally, on April 26, 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 dividend 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. [Operator Instructions] Rocco, I'll turn it over to you for the first question.
[Operator Instructions] Today's first question comes from Haendel St. Juste with Mizuho.
So Terry, hope you're well, a strong quarter here with guidance raise, reinforcements of your favorable portfolio and operational attributes, but I wanted to focus on a couple of other things. Again, can you talk to us about the decision to sell equity here and the pricing involved? You previously outlined, as you said, a goal getting to 5.5x by end of next year via organic cash flow and select asset sales. So I'm curious, what's changing your thinking and why? And was it just perhaps the stock price being up and the ability to execute clearly earnings neutral? Or were there other considerations?
Haendel, I think you've described it perfectly. That the stock was at a 52-week high, that it was -- we had an opportunity to reinvest the proceeds in a way that minimized or eliminated dilution from delevering, which is hard to do. And it 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.
Got it. Got it. Okay. And then I guess a question on the AIR stock price performance since the split last year. And the stock is up, but trails peers. You still trade at a discount to the sector average. After simplifying 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 [indiscernible]. So I guess I'm curious what you think the market might not be fully appreciating about the story here? And what other levers you can or would be considered -- would consider to pull to close that valuation gap?
Well, I think the -- I think the market is -- has been pretty good. We're not far behind peers year-to-date. And 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 going to come from really 2 major areas. The first is, Keith 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. And the third will be the opportunity to acquire properties where, again, Keith's operating advantage creates above-average returns by comparison to the properties being sold to fund it. So if you think of fair trade, the typical property that we will buy would be in a market with superior growth prospects and where there's an upside due to operating advantages and will be funded with sales from properties in markets with lower growth prospects and which have already had the advantages of Keith's tender loving care.
And can you clarify for me, Paul, that the recent guidance increase contemplated the equity issuance? In other words, would there have been more upside beyond the new guidance rates had you not done the equity?
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 $0.005 for the year.
And our next question today comes from Rich Anderson with SMBC.
So Terry, a question for you on leverage or maybe Paul, whomever. The story of Aimco was you could have higher leverage, and I'm saying Aimco back in the day, because of this -- the nature of the debt, the no entity risk story. And then you got investment-grade rated, but we're not going to use that, it was the kind of the tagline. Now you're dropping net 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. Did you bump your head and suddenly have an epiphany? Or what happened to make this happen?
Rich, I think there are 2 factors. That -- first is that for a long period of time, shareholders who appreciated the higher returns, and by the way we're 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. So 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. The second one is that there's a part of me that is concerned that the prices are high and that we are in a bit of a bubble economy and that it's good to be cautious. And that by derisking the company in every way that I could, it minimizes our exposure to a cyclical fluctuation. And so that's why we focused on both the balance sheet, but also the business model.
Okay. Fair enough. And then my second question is the company now kind of has that new car smell to it with everything that you did to make it kind of simpler and everything. But there might be an appetite for risk from investors to -- speaking of them for risk, if we're not heading into this euphoric stage of multifamily following a terrible past year. To what degree is AIR willing to take on some risk and kind of potentially muddy the thesis of what you're trying to accomplish here, which is simple and transparent. Will you take on stuff like Brickell or something like it? Or is it kind of off the radar screen, no matter what?
Richard, it's -- the short answer is it's off the screen, no matter what. And we've tried to get in 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. But 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.
And our next question today comes from Alex Kalmus with Zelman & Associates.
Just going back to the equity sale. Just curious how the process came about. And you said it's a real estate investment firm. So I'm just curious if there's any strategic benefits with the investment itself as well?
There's -- it came about because of conversations that I have regularly with investors in the stock. And 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. And 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, maybe sixth. And so obviously, all shareholders matter to us. And the sixth will matter importantly, but not out of the range than any of the others. And -- but 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 it was a bit of an endorsement.
Great. Great. And on the marketing aspect for the properties up for sale. How is that proceeding? We're obviously hearing about low cap rates, so an advantageous time for sellers. And 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?
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 in markets with lower expected growth and often with unpredictable rule of law. And so blue states like California -- New York and Chicago are ones that we have to keep a weather eye on what there our future prospects will be.
[Operator Instructions] Today's next question comes from Nick Joseph with Citi.
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 you said you're going to 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? So obviously, there's a cost to repay net debt or maybe some of that's fully prepayable. So maybe if we can address that and then I have a follow-up as well.
Michael, that's a great question. I could take a cut at it. But Paul knows it better than I, and may I hand it off to him.
Yes. Thank you for the question, Michael. 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 or 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, we're at a breakeven point to slightly positive. And that was a consideration, but it wasn't 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, 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 in sum, we thought it made a lot of sense to use the proceeds from the equity raise in that manner.
So $340 million of debt repayment, how much additional prepayment above that, $20 million, $15 million?
Yes. There wouldn't be an amount, and we've looked at that amount as of March 31. But as you know, that number changes every day. The interest rates change. And so...
Right. Just -- but 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?
Yes, Michael, as we looked at it at March 31, so it's not quite today, but hopefully, close enough for your purposes, it was about $35 million.
On top, or was that embedded in the $340 million?
Yes, embedded in the $340 million.
Okay. And then just as a second question, Terry, can you just step back and -- it sounds like this came out of a conversation with [indiscernible] wanted to invest capital. So at that point, you now had the information that you have an investor that wants to incrementally put capital in and they have a choice of buying in the public markets or 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? And I recognize you didn't have a shelf and -- because you're a new issuer. But how you decided to issue almost 5% of the company to 1 shareholder. And you said you look out for all shareholders, protecting those shareholders that may want to maintain their rights and also buy the stock at a 5% discount to the -- the closing price the day that you announced the deal. And 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?
Michael, thank you very much. As you and I have discussed, I can see the point of view that any material offering might be -- might -- in a democratic egalitarian way may be made available to all shareholders. Although I note 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 1 individual shareholder or shareholders and should source capital from the broadest possible menu, including private markets for debt, joint venture equity, private placements. The view of the company, its Board and its advisers was that the alternative available to us was the 2-day marketed offering which would have resulted in a similar or greater decline in pricing and requires substantial commissions and banking fees. So it's important to compare apples-to-apples. As it transpired, what we did was good for the company, and therefore, it's shareholders. But I thought also of your question of whether some felt disadvantage, and I just encourage you to encourage them to call me. And if so, I'll work with them to give them the same opportunity.
So you're going to issue another 340 million. I don't know if that's maybe what shareholders want. But how does it compare to the NAV value something you shared over the past?
NAVs have different -- there's a wide range, as you know. And 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.
Right. But 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. And so that's where I was 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? 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. 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 in our publication, right? But I'm just trying to get a sense of how the company sort of viewed it?
It was $7 or $10 above your NAV, Michael. But the point of it -- from the company point of view was that in terms of a going concern, in terms of providing better access to corporate debt, in terms of a better share price going forward, that this was the right thing to do.
Your next question today comes from John Pawlowski with Green Street.
Paul or Terry, could you share a bit more thoughts on the expected pricing of the upcoming dispositions?
John, it's -- it will vary by property. But it's fair to say that the market is strong, pricing is high. To the extent -- and there's probably a bell bar 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 New York City, which is very discounted current earnings, but therefore, it will have an apparently low cap rate. Or if we sell in some of our -- that's favored locations where we might have higher cap rates. 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 in this case.
Understood. The pricing on -- just in terms of total value, is it kind of consistent with your internal NAV estimate, above or below?
I think that -- I think share -- I think property prices today are more bullish even than the stock market.
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. What share of the headcount is now with Aimco versus AIRC? But more importantly, 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 broad organization, just the organizational chart being in transition. Could you spend a few minutes talking about how the CIO worlds run -- is going to be run these next few years -- or months?
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 going to leave because he will. He's been a terrific colleague, has been very influential in our thinking. And we'll miss him. So I don't want to minimize that at all. But 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. So 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, but we'll take our time and make sure we get it right.
And our next question today comes from John Kim with BMO Capital Markets.
Just a follow-up on the capital raise. I guess I want to understand why as far as timing, why you decided to sell at this time? I realize you preannounced positive first quarter results. But you sold the stake ahead of recovery in fundamentals in many of your markets. So if you could just provide some clarity on the timing and also whether or not Zimmer's stake is subject to any lockup?
Just to take that question in reverse. As unregistered shares, it can't be transferred without our approval, but it will 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 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. But 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. 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.
And by delevering, was your view that, that would help the share price?
It would both help the share price and also fulfill the promise made.
Right. And then 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 CapEx have compressed in the markets recently?
It's all based on fair market value. And so I cannot tell you what that will be because some of those are 3 and 4 years away from completion. But 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 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. And we'll try to put our capital where we'll have the highest return.
So it's the fair market value at the time of completion?
At a 5% discount to the value creation during the time of the lease.
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.
Well, Rocco, we thank you for addressing yet one more of our meetings, and we thank everyone on the call for their interest in Aimco, or AIR rather, and I look forward to when we're together next and wish you all a great weekend. Thank you.
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.